December 7, 2020
Indonesia updates tax holiday incentive and provides guidance for 300% R&D super deduction
Indonesia issued new regulations for the tax holiday incentive on 18 September 2020 and on 9 October 2020 released implementing regulations for the 300% super deduction incentive for research and development (R&D) activities. The regulations are effective from 8 October and 9 October 2020, respectively.
This Tax Alert highlights the key aspects of these regulations.
Tax holiday incentive
1. Benefits and investment value thresholds
The benefits and investment value thresholds are unchanged in the new regulation.
*Approximate translations of Indonesian Rupiah thresholds
**Corporate Income Tax
2. Eligible pioneer sectors
The new regulation reconfirms 18 predetermined pioneer sectors.1 In addition, it provides significant clarifications for the discretionary tax holiday procedures for other pioneer sectors outside the 18 predetermined pioneer sectors. Any new company or investment in pioneer sectors may apply for the tax holiday incentive if it meets the minimum requirements across the following quantitative criteria: (1) high integration; (2) high value added; (3) use of new technology; and (4) a national priority.
3. Application procedures
The incentive application is required to be submitted by the company online through the Online Single Submission (OSS) website. To provide more certainty to the investors, the application process is now streamlined and centralized within Indonesia's Investment Coordination Board (whereas previously several authorities were involved in the approval process).
300% super deduction incentive for R&D activities
Certain R&D activities2 carried out by a taxpayer on or after 26 June 20193 focusing on promoted sectors4 may qualify for a super deduction of up to 300% of the R&D costs incurred, based on the following qualifying conditions (separately or in aggregate):
The application for the incentive is required to be submitted by the company online through the OSS website and an attachment of the R&D proposal and other supporting documents. The proposal will be reviewed and approved by the Ministry of Research and Technology together with the relevant ministry before the companies are granted super deduction benefits.
1 A pioneer sector is defined as a sector that is vastly interconnected, provides a high value add, introduces new technology or has strategic value for the national economy. The 18 predetermined pioneer sectors are:
2. The R&D activities must meet the following criteria: (1) intended for a new invention; (2) based on a concept or an original hypothesis; (3) has uncertainty of the final result; (4) planned and has a specific budget; and (5) intended to create something that can be freely transferred or traded in the market.
3. The enactment date of Government Regulation No. 45 Year 2019 which introduces the super deduction program. See Global Tax Alert, Indonesia announces 300% super deduction for R&D and other incentives, dated 29 July 2019.
4. Promoted sectors include food, pharmaceuticals, cosmetics, medical equipment, military equipment, textile, leather, energy and agroindustry.
For additional information with respect to this Alert, please contact the following:
EY Indonesia, Jakarta
Ernst & Young LLP (United States), Indonesia Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
PDF version of this Tax Alert