President Joko Widodo (Jokowi) has announced an incentive program to provide tax exemption for foreign companies willing to relocate their offices to the new capital city, Ibu Kota Negara (IKN), Indonesia.
The government’s policy is stated in the Government Regulation Number 12 of 2023 on Business Licenses, Ease of Doing Business, and Investment Facilities for Business Actors in Ibu Kota Nusantara.
Article 35 paragraph (1) of the government regulation states that “foreign taxpayers who establish and/or relocate their head office and/or regional office to Ibu Kota Nusantara are given a corporate income tax reduction facility.”
Meanwhile, according to article 36 paragraph (1), the reduction of corporate income tax will be 100% of the total tax payable for ten years.
After ten years, the tax reduction incentive will be decreased to 50% for another ten years.
This tax exemption will be provided to businesses that meet three criteria. Firstly, the company must have at least two affiliated units and/or related business entities outside of Indonesia.
Secondly, the company must have an economic substance in Ibu Kota Nusantara, and thirdly, it must establish a legal entity in the form of a corporation.
with this rule, foreign companies can be free from corporate tax if they move their offices to IKN.
meanwhile, as previously reported, Jokowi, has granted permission for investors to conduct business in the new capital city, Nusantara, for up to 95 years.
This policy is stated in Government Regulation Number 12 of 2023 concerning Business Licenses, Business Facilitation, and Investment Facilities for Business Actors in the Nusantara Capital City, which took effect on March 6, 2023.
According to the regulation, Jokowi has granted permission for investors to conduct business for decades through the granting of a Business Use Right (HGU).
“The HGU period above the Nusantara Capital City Authority’s HPL is given for a maximum of 95 years through one cycle,” wrote Article 18 of PP 12/2023.
The lengthy business cycle for investors is divided into several stages. First, the granting of rights for up to 35 years. Second, the right to extend the period for up to 25 years. Third, the right to renew the period for up to 35 years.
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