ISSN: 2442-3173 | pro.hukumonline.

com Issue 3343 | 10 APRIL 2018

Enforcement Date
CLICK HERE
4 April 2018 For Indonesian Version

Taxation

• Related ILB

New Regulation on
• Govt. Updates Provisions
on Corporate Income-Tax Corporate Income-
Deductions
• BKPM Issues New
Tax Deductions
Regulation on Investment
Licensing and Facilities
• Further Income-Tax
Corporate taxpayers engaging in new
Regulations Introduced in investments in pioneering industries
Relation to Tax Amnesty may secure tax deductions for income
• Provisions on PBB which is generated through the
Deductions Simplified
business activities of the relevant
• New Methods for
Exchanges of Tax-Related pioneering industries which are being
Information invested in. This tax deduction has
now been set at a flat rate of 100%.

The Minister of Finance (“Minister”) recently issued Regulation No. 35/PMK.010/2018 on Corporate
Income-Tax Deductions (“Regulation 35/2018”) with the ultimate objective of further boosting economic
growth by encouraging more direct investment in pioneering industries throughout Indonesia.1

Regulation 35/2018 sets out various technical provisions on tax deductions for income (also known as
a tax holiday) which is generated by corporate taxpayers who are investing in various pioneering
industries2 and specifically addresses the following matters:

1. Tax-deduction rate;
2. Eligible taxpayers;
3. Securing deductions; and
4. Obligations and prohibitions.

1 Recitals, Regulation 35/2018.

2 Pioneering industries are industries which have broad interconnectedness, provide high added value and high levels of externality, introduce
new technologies and have strategic value in terms of the national economy. See Art. 1 (1),
Previously, these matters were regulated under Regulation of the Minister of Finance No.
159/PMK.010/2015 as amended by Regulation No. 103/PMK.010/2016 (collectively referred to as
“Previous Regulations”).3

Tax-Deduction Rate
Corporate taxpayers engaging in new investments in pioneering industries (“Taxpayers”) may secure tax
deductions for income which is generated through the business activities of the relevant pioneering
industries which are being invested in.4 This tax deduction has now been set at a flat rate of 100%.5

The tax-deduction period varies, based on the relevant investment amount, as detailed below:6

1. Five fiscal years: for investment plans with values of between IDR 500 billion and IDR 1 trillion;
2. Seven fiscal years: for investment plans with values of between IDR 1 trillion and IDR 5 trillion;
3. Ten fiscal years: for investment plans with values of between IDR 5 trillion and IDR 15 trillion;
4. 15 fiscal years: for investment plans with values of between IDR 15 trillion and IDR 30 trillion; and
5. 20 fiscal years: for investment plans with values > IDR 30 trillion

Furthermore, after the abovementioned income-tax deduction period has elapsed, Taxpayers will also
be granted a 50% income-tax deduction for the following two years.7

Under the Previous Regulations, the tax-deduction rate varied between 10% and 100% for investment
periods of between 5 and 20 fiscal years.8

Eligible Taxpayers
In order to be entitled to a tax deduction, a Taxpayer must satisfy certain criteria, as set under Regulation
35/2018 (“Criteria”). A comparison between the applicable Criteria under Regulation 35/2018 and the
Previous Regulations are set out in the table below:

Regulation 35/20189 Previous Regulations10

Must be engaging in business activities in a Must be engaging in business activities in a
pioneering industry pioneering industry
Must be engaging in new investments Must be a newly registered taxpayer
Must have an investment-plan value > IDR 500 Must have an investment-plan value > IDR 1
billion trillion
Must meet the required debt-equity ratio Must meet the required debt-equity ratio

3 For more information on the Previous Regulations, see ILB. 2711

4 Art. 2 (1), Regulation 35/2018.
5 Art. 2 (2), Regulation 35/2018.
6 Art. 2 (3), Regulation 35/2018.
7 Art. 2 (4), Regulation 35/2018.
8 Compare Art. 2 (3), Regulation 35/2018 with Art. 3, Previous Regulations.
9 Art. 3 (1), Regulation 35/2018.
10 Art. 4 (1), Previous Regulations.

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 Must not have had any previous tax-deduction Must submit a statement of capability regarding
applications rejected the deposit of a minimum of 10% of the total
investment-plan value
Must be an Indonesian legal entity Must have been designated as a legal entity after
15 August 2015

Furthermore, it is important to note that the number of pioneering industries has now been increased
from only nine business sectors under the Previous Regulations to the current total of 17 business
sectors under Regulation 35/2018. These new pioneering industries include the following:11
1. Pharmaceutical raw materials industries;
2. Various component-manufacturing industries (including components for computers, engines, aircraft,
trains, communication devices, health equipment and robotics);
3. Economic infrastructure; and so forth.

Securing Deductions
Regulation 35/2018 sets out a new application procedure for the securing of tax deductions, as detailed
in the following flowchart:12

• Taxpayers apply for the income-tax deduction alongside

their investment-registration application or at the latest one
Submission of Tax- year after the issuance of their investment registration to
Deduction the Head of the Investment Coordinating Board (Badan
Application Koordinasi Penanaman Modal - “BKPM”);
• The BKPM will assess the compliance of Taxpayers with
the Criteria.

• Should the relevant Taxpayers satisfy the Criteria, then the

Head of the BKPM will deliver an income-tax deduction
recommendation to the Minister along with the following
BKPM documents: 1) Copy of the Taxpayer’s application letter;
Recommendation 2) Copy of the investment registration and details of any
and Stipulation by fixed capital which relates to the new investment value
the Minister plan; and 3) Shareholder’s fiscal certificate.
• The Minister will then issue a stipulation for the income-
tax deduction (“Stipulation”) within five business days of
receiving a recommendation from the Head of the BKPM.

11 For a complete list of pioneering industries, see Art. 3 (2), Regulation 35/2018.
12 Arts. 4-6, Regulation 35/2018.

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The income-tax deduction will then come into effect during the fiscal year in which the Taxpayers
commence commercial production activity.13 Please note that the Director General of Tax (“Director
General”) will undertake a field assessment after receiving written notification from the Head of the
BKPM and this assessment will evaluate following matters:14

1. Realization and amount of investment value; and

2. Conformity between the investment realization and the main business action plan.

Note that based on the results of this field assessment, the income-tax deduction period may be adjusted
or even completely revoked.15

By way of comparison, the Previous Regulations set out lengthier and more complex procedures for the
securing of tax deductions. These procedures required Taxpayers to undertake an application clarification
process, as well as to secure a letter from the Head of the BKPM and to pass in a verification committee
meeting. This entire process could take up to 45 days.16

Obligations and Prohibitions

Pursuant to Regulation 35/2018, Taxpayers who have secured an income-tax deduction will be subject
to various obligations and prohibitions as follows:

Obligations Prohibition
Taxpayers must submit annual reports which Taxpayers are prohibited from receiving any other
address the relevant investment and production income-tax facilities relating to investment in
realization to the Director General by no later than certain business sectors and/or areas18 until the
30 days after the end of the relevant fiscal year.17 validity period of current income-tax deduction
facility has elapsed.19
Taxpayers must keep separate any bookkeeping
activities (pembukuan) which relate to income
which involves tax deductions from bookkeeping
activities which relate to other income which does
not involve any tax deductions.20

13 Art. 7 (1), Regulation 35/2018.

14 Arts. 17 (3) and 8, Regulation 35/2018.
15 Arts. 8-9, Regulation 35/2018.
16 Arts. 5-6, Previous Regulations.
17 Art. 10, Regulation 35/2018.
18 Income-tax facilities for investments in certain business sectors and/or areas are regulated under Regulation of the Government No. 18 of

2015 on Income-Tax Concessions for Investments in Certain Fields and/or Areas, as amended by Regulation No. 9 of 2016. For more
information on this regulation, see ILBs No. 2639 and No. 2888.
19 Art. 13, Regulation 35/2018.
20 Art. 11, Regulation 35/2018.

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The Previous Regulations set stricter prohibitions on Taxpayers who had secured income-tax deductions,
including prohibitions on:21

1. Imports or purchases of any used capital goods which related to any investment realization which
was subject to the income-tax deduction facility;
2. Relocating investments within five years of the commencement of the tax-facility period;
3. Changing the bookkeeping methods being used within five years of the commencement of the tax-
facility period; and so forth.

Regulation 35/2018 has been in force since 4 April 2018 and repeals and replaces the Previous
Regulations. ss

21 For a complete list of prohibitions, see Art. 9 (1), Previous Regulations.

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