New Capital City: Tax Facilities

The relocation of the National Capital (IKN) is a strategy to achieve Indonesia’s 2045 economic target of more inclusive and equitable economic growth through accelerated development of Eastern Indonesia. This aims to reduce the disparity between Eastern Indonesia (KTI) and Western Indonesia (KBI), particularly between Java and areas outside Java.

Development Policy Directions for Nusantara Capital (IKN):

• The development of IKN is not merely the relocation of the government complex from one place to another but aims to create a smart city that can be a model city for the future.
• State budget (APBN) support is provided proportionally and is not used as the backbone but encourages participation and contributions from all components of the nation. The APBN will focus on developing essential basic infrastructure.
• Opening investment and business opportunities in IKN that are accessible to all groups, either through private investment or through Public-Private Partnership (PPP) schemes, known as Kerjasama Pemerintah dan Badan Usaha (KPBU).
• Providing both fiscal and non-fiscal incentives to encourage business actors to participate in the development and growth of IKN. Fiscal incentives include tax incentives, while non-fiscal incentives include ease of licensing.
• Tax incentives are provided according to the needs of IKN development and are given in a measurable, targeted manner, considering good governance.

The Indonesian government issued Government Regulation Number 12 of 2023 on Licensing, Ease of Doing Business, and Investment Facilities for Business Actors in the Nusantara Capital (“PP 12/2023”) on March 6, 2023. This regulation governs specific policies for licensing, ease of doing business, and investment facilities for business actors investing and conducting economic activities and/or financing the development and growth of the Nusantara Capital and/or partner regions.

As a follow-up to PP 12/2023, the Indonesian government issued Minister of Finance Regulation Number 28 of 2024 on Tax and Customs Facilities in the Nusantara Capital on April 29, 2024 (PMK 28/2024), aiming to provide fiscal incentives to encourage business actors to participate in the development and growth of IKN.

Tax and Customs Facilities Provided for Investment or Business in Nusantara Capital (IKN) Include:

• Companies investing in IKN are granted a tax holiday for up to 30 years.
• Exemption from import duties and other taxes for importing goods needed for capital investment.
• MSMEs operating in IKN are given a tax rate of 0% for turnover up to Rp 50,000,000,000 (fifty billion) per year.
• Financial service institutions located in IKN’s financial center are granted a tax holiday for up to 25 years.
• Companies providing vocational training (internships, apprenticeships, learning) for students in IKN are given a super deduction up to 250% of the expenses incurred.
• R&D activities in IKN are given a super deduction up to 350% of the R&D expenses incurred.
• Business actors who contribute to building social or public facilities in IKN are given a super deduction up to 200% of the expenses incurred.
• Employees working in IKN have their taxes borne by the government (DTP).
• Transactions not subject to VAT include:
  1. Purchase of Electric Vehicles (EVs) to be used in IKN
  2. Rental of buildings in IKN
  3. Waste management services
  4. Construction services for building development in IKN.

The tax holiday or corporate income tax reduction is granted at 100% of the payable corporate income tax and can be utilized from the Tax Year of Commercial Operation Start. To obtain the corporate income tax reduction facility, business actors must meet the following criteria:

1. Be a domestic corporate taxpayer,
2. Conduct business activities through the headquarters and/or business units located in the Nusantara Capital and/or partner regions,
3. Have the status of an Indonesian legal entity,
4. Make capital investments of at least Rp 10,000,000,000 (ten billion rupiahs). If the capital investment is in the form of tangible fixed assets, it must meet the criteria:
   1. Acquired in a new condition, except for essential machinery parts needed for investment in the health, research and innovation, and construction sectors in the Nusantara Capital and/or partner regions,
   2. Acquired since the business license was issued by the OSS institution,
   3. Acquired before the Commercial Operation Start
   4. Has not received other income tax facilities.
5. Make capital investments:
   1. In strategic business sectors, including infrastructure and public services, economic generation, and other business sectors to accelerate the development and growth of the Nusantara Capital,
   2. In infrastructure and public services sectors in partner regions.

By demonstrating the highest level of tax compliance, both domestic and foreign investors can take advantage of the tax facilities provided by the Indonesian government in IKN. This ensures optimal IKN development and economic growth towards the Indonesia Gold 2045 vision, providing investors with a fair and satisfying return on investment.