Sustainable Development Impacts of Investment Incentives: A Case ...

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Annex 1: List of regulations on investment incentives
No. Regulation Concerning Contents
1. Act No. 1/1967 Foreign Investment Incentives
Exemption and tax reduction on corporate profits for a period not longer than five years
Tax on dividends out of company profits paid to shareholders for profits accrued within a
period not exceeding five years
Lower corporate tax on profits that are re-invested in Indonesia
Import duty at the time of importing fixed equipment such as machinery, tools, and work
utensils required in facilitating company operations
Excise tax on FDI
FDI negative list
Areas that are of strategic importance to the state/nation, and affect the well being of the
public :
• Harbours
• Generation, transmission, and distribution of electricity for the public
• Telecommunication
• Water transportation
• Air transportation
• Drinking water services
• Public railway transportation
• Nuclear energy generation
• Mass media
• Areas that are of strategic importance to national defence:
• Production of arms and ammunition
• Dynamite
• Explosives
• War weaponry
2. Act No. 11/1970 Amendment and addition (1) Tax Incentives given to FDI companies:
made to Act No. 1/1967 • Excise tax on capital /investment
on FDI • Excise tax and tax on sales
• Excise on changing ownership
• Corporate tax
• Tax on dividends
(2). For new legal entities undertaking investment in government priority areas/sectors or
production in areas declared by government to be of priority, the Ministry of Finance is
authorized to exempt the company from tax commitments for a period of two years of
the commencement of company operations (can be extended).
(3). Besides tax incentives, the government can issue regulations for additional incentives to
FDI companies that are deemed pivotal for the country’s economic development.
3. Ministry of Exemption/reduction of Exempted or reduced import duty and sales tax on imports made by an FDI or domestic
Finance Decree import duty and tax on investment company with an operational permit for:
No. Kep-289/MK/ imports • Company machinery and equipment
IV/4/1971 • Spare parts
• Raw materials and supporting materials
• Transportation equipment, tools and construction materials
Exemption is applicable if:
• The goods/materials are not produced in the country
• The goods/materials have been included in capital expenditure plan
• The cost of importing the goods is not drawn from country’s foreign currency.
4. Presidential Restricting/limiting the Restricts the use of foreign manpower in FDI and domestic direct investment.
Decree use of foreign manpower The company employing foreign manpower is obliged to conduct training and education
No. 23/1974
programs for Indonesian employees who are supposed to replace the expatriates.
5. Act No. 7/1983 Income tax Retracts exemption of excise tax on company fixed goods such as machinery, worker
equipment, and tools /aircraft to facilitate company operations.
Restores imposition of excise tax on FDI.
Retracts tax incentives and other levies that are applicable.
6. Government Requirements for owning A company that is established within the framework of a FDI is, in principle, a joint venture
Regulation shares in FDI companies in which the Indonesian partners must hold not less than 20 per cent of the total value of
No. 17/1992
the company at the time of establishment, and can be raised to become 51 per cent in a
period of 20 years from when the company commenced its production on a commercial
basis (as noted in its operational permit/license).
Sustainable Development Impacts of Investment Incentives: A Case Study of the Chemical Industry in Indonesia
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