Re-elected Indonesian President Joko “Jokowi” Widodo is known for his “hard” and “soft” approaches, whereby the hard approach focuses on building infrastructure while the soft approach is to streamline policies, regulations, and improve the skills of potential talents. This type of system will be developed to encourage entrepreneurs and investors to form an offshore company in Indonesia. It is also expected that tax incentive policies will be improved to attract more foreign direct investments (FDI) in the country.
One of President Widodo’s infrastructure vision for 2019-2024 is to continue his infrastructure programs and focus on connecting the existing infrastructure to maximise its uses. Better policies and new developments are underway to boost the country’s growth. However, Indonesians will still be able to continue the social welfare benefits and improvements in education.
In terms of business operations, President Widodo is welcoming and supportive of companies that are able to contribute to the development of job skills, infrastructure, and manufacturing. Thus, businesses can now expect better incentives and easier business operational policies from the government.
DesFran summarises the schemes and initiatives made by the Indonesian government to attract FDI.
Tax Incentives in Indonesia for Foreign Businesses
To attract capital inflows, the Indonesian government continues to push for better tax incentives for foreign investors. The tax holiday scheme was expanded and revised to include the digital industry and the manufacturing industry in the list of eligible businesses. At the same time, the government has also lowered the minimum investment amount required to be eligible for a tax holiday.
Four incentives were established in the form of tax allowances, holidays, and deductions for small and medium enterprises (SMEs), and also for the research and development (R&D) sector. Moreover, in the new tax relief scheme, there is a proposed 200% tax relief for industries that will contribute to vocational education and a 300% tax relief for those in the R&D sector.
These incentives have helped to boost the total FDI in Indonesia. Recent statistics show that FDI in the country jumped to 9.6% year-on-year to IDR104.9 trillion in June 2019 (as shown below):
An Overview of the Indonesian Government’s Tax Initiatives
I. Incentives for Public Companies
Companies that are on the stock exchange with more than 40% of distributed shares enjoy reduced corporate income tax by 5%. Shareholders who have listed their company shares will only have a transaction tax of 0.1% plus 0.5% of the IPO value for the founding shareholders.
II. Mini Incentives
The Indonesian government is finalising a regulation for new investments worth IDR100 billion and IDR500 billion. These investors will be eligible for a 50% cut in corporate tax over five years for pioneering industries [TheInsiderStories.com].
III. Super Deductible Tax Policy
The implementation of the super deductible tax policy will be used to support the Making Indonesia 4.0 initiative. Industry players will benefit from fiscal incentive tax allowances and tax holidays. This will also assist in accelerating the country’s manufacturing industry to make way for the Fourth Industrial Revolution.
DesFran’s Expertise in Company Formation in Indonesia
President Widodo’s second five-year term means that the previous policies and benefits will continue to drive economic growth within the country, which is why the government is more assertive in attracting FDI to the country.
If you have plans in setting up a company in Indonesia, consider talking to a company formation expert. At DesFran, we have local contacts to help you efficiently start your business in Indonesia. Contact us today for your one-stop solution.
References
What Does Jokowi’s Win Mean for Indonesia’s Economy?, TheDiplomat.com
Jokowi pledges ‘interconnectivity’ as his infrastructure vision for 2019-2024, TheJakartaPost.com
Indonesia Prepares More Incentives for Investors, TheInsiderStories.com
Indonesia Foreign Direct Investment, TradingEconomics.com
Indonesia incentivises industry with Super Deductible Tax, OpenGovAsia.com
About the Authors
Jenna Foong is a Business Development Manager at DesFran. With keen interests in the finance industry and business development, Jenna was previously a commodities trader, and held positions related to business management and development. Jenna holds a Bachelor’s Degree in Commerce, specializing in Accounting and Finance from the University of Melbourne.
Joyce Sun is Strategic Communications and Research Intern at DesFran. Joyce enjoys learning as she writes financial news blurbs and editorials involving financial regulatory developments due to her keen interests in equities and finance-related topics. She is a final year honours student at the National University of Singapore hoping to pursue a career in the finance industry, and to continue developing her knowledge in investments.
