New Tax Holiday Provision

New Tax Holiday Provision

Introduction

The Minister of Finance recently issued Regulation No. 130/PMK.03/2011 providing tax holiday and corporate income tax reduction for major direct investors making new capital investments in pioneering industries. 

Corporate Tax Facilities

The tax holiday or corporate income tax reduction facilities, which are effective starting August 25, 2011, under the new Minister of Finance Regulation are as follows:
a.    Exemption from corporate income tax for between five to 10 years after start of operation;
b.    A 50% corporate tax reduction for as long as two years after the end of the tax holiday facility;
c.    Based on the national competitiveness of the industry and the strategic value of a certain business activity, the expiry of the tax facilities could be extended.
d.    The tax facilities will apply after the company has realized its entire investment and has begun its commercial productions.

The details of the tax holiday facilities are as follows:

a.    It should be granted to new legal entities (corporations) that has been established within 12 months prior to the release of the Minister of Finance regulation or after the date of issuance;
b.    The corporations must operate in one of the following pioneering industries:
a.    basic metal industry
b.    oil refinery and basic organic chemical produced from oil and natural gas
c.    machinery industry
d.    renewable energy resources industry
e.    telecommunications equipment industry
c.    A minimum of one trillion rupiah capital investment should be made, which has already been approved by the authorized institutions (National Capital Investment Coordination Board or the Ministry of Industries).
d.    A deposit in a bank in Indonesia of at least 10% of the total investment plan should be made, which cannot be withdrawn before the capital investment is realized.
e.    A report should be submitted on a regular basis to the Directorate General of Taxes and the Verification Committee (a specific team established by the Minister of Finance to verify the granting of tax facilities) concerning the usage of the fund deposit in the bank, and the audited capital investment realization for those corporations that have already received the tax holiday facilities under the said Ministry of Finance decree.
 
Conclusion

Hopefully, this new tax holiday provision will meet the investors’ needs and will ultimately attract foreign and domestic investors to invest in the selected sectors.

The benefits 
a.    The tax holiday period is long enough, and can be extended.
b.     A 50% income tax reduction facility for two more years can be availed of by the investors after the end of the tax holiday.
c.    A low tax rate on dividends.
d.    A tax sparring facility in the home country’s tax law would be an advantage.

The limitations
a.    The investment opportunity is limited on predetermined industries.
b.    The tax holiday is not available to corporations that have already been granted the tax allowance facility under Article 31A of the Indonesian Income Tax Law (ITL).
c.    The tax allowance facilities as stipulated in Article 31A of the ITL is not available for corporations that have been granted tax facilities based on this Minister of Finance regulation.

Jakarta, 12 September, 2011

Departemen Litbang dan Standar Profesi

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