SWILU Ed. 6 EXPANSION OF THE SCOPE OF INVESTMENT FACILITIES FOR IKN BUSINESS ACTORS ON GR 29 of 2024

EXPANSION OF THE SCOPE OF INVESTMENT FACILITIES FOR IKN BUSINESS ACTORS ON GR 29/2024

As a step towards realizing the Capital City of Nusantara (Ibu Kota Nusantara – “IKN”) as a sustainable global city, the government issued Regulation Number 12/2023 on the Issuance of Business Licenses, Ease of Doing Business and Investment Facilities for Business Actors Within the Capital City of Nusantara (“GR 12/2023”), which has been in force since 6 March 2023. GR 12/2023 basically regulates the issuance of business licenses, ease of doing business, and various investment facilities and incentives offered to business operating in the IKN area.  

However, the government recently amended GR 12/2023 with the issuance of Government Regulation Number 29 of 2024 (“GR 29/2024“), which has been in effect since 12 August 2024. In addition to maintaining the main provisions regarding ease of doing business and various investment facilities and incentives available to businesses in IKN, GR 29/2024 also provides further clarity, particularly regarding land rights and the cycle period that can be granted.

Details of Business Licensing Requirements and Land Rights Adjustment

GR 29/2024 details the criteria for reviewing the detailed spatial plan of the capital city as a strategic national policy change, as well as the condition of IKN and applicable laws and regulations. In addition, environmental approval, which is a fundamental requirement for business licensing, will now be issued based on the following considerations:

1. Environmental feasibility decision, which is required for businesses and/or activities that must be required to be equipped with environmental impact assessment documents or environmental management and monitoring efforts; and/or
2. A statement of ability to carry out environmental management and monitoring.

The above approvals are given by the IKN Authority and are further regulated in the upcoming Head of IKN Authority Regulation. In addition, GR 29/2024 also expands the various funding sources available to the IKN Authority to appoint certified or accredited expert institutions or professions to verify the approval process, as well as various business licensing requirements and/or sector business licenses according to certain risks.

GR 29/2024 also expands the authority of the IKN Authority in terms of land management. The authority now includes planning; security and maintenance; administration; and supervision and control.

The IKN Authority now guarantees the certainty of the term of land rights for the first cycle, which can be extended to the second cycle as stipulated in the relevant agreement. The cycles are outlined as follows:

1. Right to Cultivate (HGU) à maximum of 95 years through the first cycle, which can be extended for a second cycle for a maximum of 95 years based on criteria and evaluation stages;
2. Right to Build (HGB) à maximum of 80 years through the first cycle, which can be extended for a second cycle for a maximum of 80 years based on criteria and evaluation stages; and
3. Right to Use (Hak Pakai) à maximum of 80 years through the first cycle, which can be extended for a second cycle for a maximum of 80 years based on criteria and evaluation stages.  

Last but not least, GR 29/2024 also introduces several additional benchmarks to be assessed by the IKN Authority every five years during the evaluation of rights in the first cycle, including ensuring that the land is not abandoned. In addition, businesses may apply for an extension of HGU, HGB, or Hak Pakai for the second cycle up to ten years before the expiration of the first cycle rights.

Adjusted Provisions on Housing and Settlement Areas

The issuance of GR 29/2024 clarifies that business actors in the housing and residential area sector who have not been able to fulfill balanced residential obligations in other areas can do so in the IKN area, in accordance with the IKN detailed spatial plan. These obligations can be fulfilled by submitting an application to the Head of the IKN Authority and either building balanced housing in the IKN area or paying a conversion fee. The Head of the IKN Authority will then determine how these obligations are implemented based on the housing and residential area development priorities in the IKN area and will report this to the Minister of Home Affairs and the Minister of Public Works and Public Housing (collectively referred to as the “Minister”). The results of this implementation will be reported by the Head of the IKN Authority to the Ministers at least annually.

Through GR 29/2024, the business actors outlined above will be able to enjoy the following incentives:

1. Housing development program assistance;
2. Tax relief for simple houses in accordance with applicable laws;
3. Assistance with infrastructure, facilities, and public utilities;
4. Ease of land acquisition for housing construction and development;
5. Support for accessibility to balanced residential locations within the IKN area;
6. Exemption of acquisition duties for land and building rights;
7. Land and building tax relief for a certain period; and/or
8. Awards for balanced residential development.

Adjustment of Investment Facilities and Incentives

This GR 29/2024 has adjusted the authority of the IKN Authority in providing investment facilities, which now includes IKN-specific local tax facilities, IKN-specific revenue and IKN-specific retribution, as well as facilitation and provision of land and infrastructure facilities for all investment activities carried out at IKN. However, it should be noted that further provisions regarding the provision of facilities under the jurisdiction of the IKN Authority will be regulated in the upcoming Head of IKN Authority Regulation.

In addition, GR 29/2024 also changes the term “special tax facilities” to “special local tax facilities”, which includes incentives in the form of tax reduction, relief or exemption and IKN-specific revenues. In this case, the provision of investment facilities that are part of special regional tax facilities can be provided in accordance with the priorities set by the Head of the IKN Authority.

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