Indonesia Special Economic Zone

The basic concept of Indonesia SEZ is the preparation of areas that have accessibility to the global market (access to the seaport and or airport).

The areas are designed to maximize industrial activities, export, import, and other related activities which have high economic value.

Furthermore, the areas are given certain facilities and incentives to increase competitiveness among the countries nearby.

Indonesia Special Economic Zones are directed to fulfill the achievement of The National Priority Development Agenda:

The Indonesian government has pledged to make the special economic zones (SEZs) a policy priority to attract foreign investment, boost industrial activity, and promote job creation. This strategy has been further facilitated through various tax incentive programs by Indonesia’s Ministry of Finance.

These tax incentives include exemptions from income tax, value-added tax (VAT), import duties, sales tax on luxury goods, and excise duties.

Corporate income tax allowance

Taxpayers that invest 100 billion rupiahs (US$7 million) are also eligible to receive several CIT allowances. These are:

• A 30 percent reduction in net income on the total investment on fixed assets reduced over six years over six years, at five percent per year;
• Accelerated depreciation allowances of up to 100 percent of tangible and intangible assets.
• A WHT rate of 10 percent, or the treaty rate (whichever is lower) on dividend payments made to non-resident recipients; and
• Tax loss is carried forward for up to 10 years.

Import and excise duties

Import duties, tax on the importation, and excise duties are all exempted on the following dutiable/taxable goods:

• Capital goods used for the construction or development of SEZs for a period of five years; and
• For the entry of consumable raw materials for service industries (for tourism SEZs); and
• Entry of goods to be sold in shops and shopping centers (for tourism SEZs).

VAT and sales tax on luxury goods

VAT will not be collected for the following activities:

• The import of taxable tangible goods into an SEZ by a business entity;
• The delivery of taxable tangible goods from another Indonesian free trade zone, customs area, or bonded storage facilities to a business entity;
• The delivery of taxable services or goods, including land or buildings by a business entity in an SEZ to another business entity in the same or another SEZ; and
• The import of consumer goods into a tourism SEZ.

The non-collection of VAT also applies to raw materials needed to produce taxable services or goods related to ship and aircraft maintenance, repair, and overhaul (MRO) activities.

To be eligible for all the mentioned incentives, businesses will need to meet the following conditions:

• Business license;
• Evidence of being a domestic corporate taxpayer;
• Have approval from the Indonesian Investment Coordinating Board, based on the company’s standard industrial classification (KBLI);
• Location of the project; and
• Determination of the type of production/services to be conducted.