The Indonesian Government issued Government Regulation (GR) No. 45/2019 (GR-45) on 25 June 2019. GR-45 provides new tax incentives to Indonesian corporations to: (i) encourage investment in labor intensive industries; (ii) support job creation and employment in Indonesia; (iii) encourage involvement of business and industry sectors to develop high quality human resources; (iv) increase competitiveness; and (v) encourage businesses to conduct research and development (R&D) activities.

These incentives have been under consideration for some time and therefore will be a welcome development for many taxpayers. The fundamental aspects of the concessions will be governed by implementing regulations.

Under GR-45, the following income tax incentives are available to Indonesian corporations:

1. 60% additional cost recovery for new asset acquisitions or business expansion in a business sector which is both:

a) A labor-intensive industry sector

b) Not eligible for another tax allowance or tax holiday incentive

The income tax incentive is a deduction from gross income of 60% of the investment made in tangible fixed assets, including land, used for primary business activities, resulting in additional cost recovery deduction that is over a period.¹

2. 200% deduction for apprenticeship, internship and/or teaching activities to develop human resources based on "certain competencies"²: a maximum reduction³ of 200% of the total expenses incurred for the apprenticeship, internship and /or teaching activities.

3. 300% R&D deduction for certain R&D activities carried out in Indonesia:⁴ a maximum reduction⁵ of 300% of the total expenses incurred for certain R&D activities performed in Indonesia over a period.⁶

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ENDNOTES

¹ "A period" is not defined.

² "Certain competencies" required for participants are defined as competencies to increase human resources quality through work practice, internship and/or strategic teaching to achieve human resources effectiveness and efficiency as part of human resources investment, and to meet the structure of labor requirements that are needed by the business and/or industry sectors.

³ The implementing regulations are expected to provide further clarification on whether the incentive is a reduction from gross revenue or deduction from income.

⁴ To produce invention, innovation, mastery of new technology, and/or transfer of technology for industrial development to increase the competitiveness of national industry.

⁵ See Endnote 3 above.

⁶ See Endnote 1 above.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

EY Indonesia, Jakarta

• Santoso Goentoro
  santoso.goentoro@id.ey.com
• Peter Ng
  peter.ng@id.ey.com
• Peter Mitchell
  peter.mitchell@id.ey.com

Ernst & Young LLP (United States), Indonesia Tax Desk, New York

• Puspitasari Sahal
  puspitasari.sahal@ey.com

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

• Chris Finnerty
  chris.finnerty1@ey.com
• Kaz Parsch
  kazuyo.parsch@ey.com
• Bee-Khun Yap
  bee-khun.yap@ey.com

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ATTACHMENT

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