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July 29, 2019
2019-5945

Indonesia announces 300% super deduction for R&D and other incentives

The Indonesian Government issued Government Regulation (GR) No. 45/2019 (GR-45) on 25 June 2019. GR-45 provides new tax incentives to Indonesian corporations to: (i) encourage investment in labor intensive industries; (ii) support job creation and employment in Indonesia; (iii) encourage involvement of business and industry sectors to develop high quality human resources; (iv) increase competitiveness; and (v) encourage businesses to conduct research and development (R&D) activities.

These incentives have been under consideration for some time and therefore will be a welcome development for many taxpayers. The fundamental aspects of the concessions will be governed by implementing regulations.

Under GR-45, the following income tax incentives are available to Indonesian corporations:

1. 60% additional cost recovery for new asset acquisitions or business expansion in a business sector which is both:

a) A labor-intensive industry sector

b) Not eligible for another tax allowance or tax holiday incentive

The income tax incentive is a deduction from gross income of 60% of the investment made in tangible fixed assets, including land, used for primary business activities, resulting in additional cost recovery deduction that is over a period.1

2. 200% deduction for apprenticeship, internship and/or teaching activities to develop human resources based on ”certain competencies”2: a maximum reduction3 of 200% of the total expenses incurred for the apprenticeship, internship and /or teaching activities.

3. 300% R&D deduction for certain R&D activities carried out in Indonesia:4 a maximum reduction5 of 300% of the total expenses incurred for certain R&D activities performed in Indonesia over a period.6

Endnotes

1. “A period” is not defined.

2. ”Certain competencies” required for participants are defined as competencies to increase human resources quality through work practice, internship and/or strategic teaching to achieve human resources effectiveness and efficiency as part of human resources investment, and to meet the structure of labor requirements that are needed by the business and/or industry sectors.

3. The implementing regulations are expected to provide further clarification on whether the incentive is a reduction from gross revenue or deduction from income.

4. To produce invention, innovation, mastery of new technology, and/or transfer of technology for industrial development to increase the competitiveness of national industry.

5. See Endnote 3 above.

6. See Endnote 1 above.

For additional information with respect to this Alert, please contact the following:

EY Indonesia, Jakarta
  • Santoso Goentoro | santoso.goentoro@id.ey.com
  • Peter Ng | peter.ng@id.ey.com
  • Peter Mitchell | peter.mitchell@id.ey.com
Ernst & Young LLP (United States), Indonesia Tax Desk, New York
  • Puspitasari Sahal | puspitasari.sahal@ey.com
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
  • Chris Finnerty | chris.finnerty1@ey.com
  • Kaz Parsch | kazuyo.parsch@ey.com
  • Bee-Khun Yap | bee-khun.yap@ey.com

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