Issuance of Government Regulation No. 78 of 2019 regarding Tax Allowances

On November 12, 2019, the Government issued Government Regulation Number 78 of 2019 (PP-78) to amend the regulations on the tax allowances available for companies that invest in certain business sectors and/or certain regions. This regulation replaces the previous regulation, i.e. Government Regulation Number 18 of 2015 (PP-18) as amended by Government Regulation Number 9 of 2016 (PP-9).

PP-78 introduces the use of the Online Single Submission System (OSS System) to process the applications.

PP-78 covers 183 types of investments that meet the requirements, 166 certain sectors, and 17 investment categories in certain sectors and certain regions, including 20 new business sectors.

The Income Tax facilities are as follows:

  • Reduction in net income by 30% (thirty percent) of the amount of the Investment in the form of tangible fixed assets including land used for the main business activities (5% per year for 6 years starting from commercial production);
  • Accelerated depreciation and amortization;
  • Withholding tax at 10% on dividends paid to foreign taxpayers other than a permanent establishment in Indonesia, or lower rate in accordance with an applicable double taxation avoidance agreement (DTA); and
  • Tax loss carried forward for more than 5 (five) years up to a maximum of 10 (ten) years. PP-78 updates the annual qualification to extend the tax loss carry forward period as follows:
    • Eligible investment -> One additional year
    • Investment in new and renewable energy -> One additional year
    • Using raw materials and/or components at least 70% made in Indonesia from the second year -> One additional year
    • Using Indonesian workers -> One additional year (300 persons for at least 4 consecutive years); or two additional years (600 persons for a minimum for four consecutive years)

The further detailed criteria and conditions for each type of business
field are listed in the appendices of the regulation.

Please note that Taxpayers that have enjoyed a tax allowance facility under PP-78 cannot obtain the following tax facilities:

  • The tax facility in Integrated Economic Development Zones.
  • The tax holiday as provided under Government Regulation Number 94 of 2010 (PP-94) as amended by Government Regulation Number 45 of 2019 (PP-45).
  • The super deduction facility on labour-intensive industries as provided under PP-94 as amended by PP-45.

PP-78 became effective on 12 December 2019. The implementing regulations based on the old Government Regulation remain in force as long as not contradictory to the provisions of PP-78.

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