New Developments in Tax Holiday Regulation

On 4 April 2018, the Ministry of Finance issued a new Regulation regarding Tax Holiday, i.e. Regulation No. 35/PMK.010/2018 (“PMK-35”) which replaces the previously released regulations No. 159/PMK.010/2015 as amended by No.103/PMK.010/2016 on Facility of Reduction of Corporate Income Tax.

PMK-35 offers a flat tax-holiday rate of 100% (previously, this rate varied between 10% and 100%) for corporate taxpayers operating within pioneering industries over the following investment periods:

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

This regulation sets out several criteria which have to be met in order to apply for a tax holiday, including:

Must have operations relating to one of 17 pioneering industries within certain sectors (e.g., metal industry, basic chemical industry, medical equipment, railway machinery and components, etc.);

  1. Must be engaging in new investments (previously, only newly established corporate taxpayers were eligible);
  2. Must have an investment plan with value > IDR 500 billion (the previous threshold was set at > IDR 1 trillion);
    Must meet the required debt-to-equity ratio;
  3. Must not have had any previous tax-holiday applications rejected; and
  4. Must be an Indonesian legal entity. The financial capability statement requirement has now been annulled.



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