Corporate Income Tax Reduction for Certain Pioneering Industries

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Corporate Income tax reduction

Corporate Income tax reductionRecently, the Ministry of Finance issued Regulation number 35/PMK.010/2018 (Regulation 35/2018) on Provision of Corporate Income Tax Reduction Facility. This new regulation supersedes and revokes the Ministry of Finance Regulation number 103/ PMK.010/2016. In this column we will discuss the tax incentives provided to certain pioneering industries and the criteria to obtain such incentives.

Pioneering Industries

The companies eligible for the reduction of corporate income must meet the following criteria:

  1. The company must be active in a business field which is considered a pioneering Industr Pioneering industries generally provide high added value, introduce new technology, and have strategic value for the national Indonesian economy. Under the Regulation 35/2018 the amount of pioneering industry sectors is increased to 17 business sectors;
  2. It must be a new investment, with an investment plan value of at least 500 Billion Rupiah;
  3. Complying with the stipulation of the ratio of debt and capital; and
  4. Having a legal entity in Indonesia

Companies will need to apply for the corporate income tax facility no later than 1 year after the issuance of the business registration to the Investment Authority (BKPM) for assessment of above criteria. BKPM will issue a recommendation to the Minister of Finance if all criteria are met by the applicant. The Minster will issue a decree for income tax reduction within 5 working days as of the date of receipt of the recommendation from BKPM.

Income tax facility

The corporate income tax facility is a corporate income tax deduction of 100% of the total corporate income tax payable. Under the old regulation, the deduction varied from 10% – 100%. The duration of the reduction of corporate income tax depends on the investment value of the company:

Duration Investment Value
5 years Between 500 Billion Rupiah and  1 Trillion Rupiah
7 years Between  1 – 5 Trillion Rupiah
10 years Between  5 – 15 Trillion Rupiah
15 years Between 15 – 30 Trillion Rupiah
20 years More than 30 Trillion Rupiah

Obligations for Corporate Income Tax Receivers

A company which successfully has obtained the decree for income tax reduction is subject to the following obligations:

  1. submit a report every 1 year to the Director General of Tax, no later than 30 days after the end of the tax year, in the form of:
  2. report on the realization of investment since the decree has been received up to the start of production;
  3. report on the realization of production since the commencement of commercial production up to the expiry date corporate income tax reduction
  4. must maintain a separate bookkeeping of income which received the reduction of corporate income tax and which income which did not receive of corporate income tax reduction.

 

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