Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

January 14, 2020

Indonesia issues Tax Allowance Incentive regulation

The Government of Indonesia has issued1 Government Regulation No. 78 Year 2019 (GR-78)2 which offers tax incentives for capital investment in certain business sectors (Tax Allowance Incentive) to encourage increased foreign direct investment in Indonesia. GR-78 is effective from 12 December 2019.

This Alert summarizes the key aspects of GR-78.

Key changes under GR-78

GR-78 increases the eligible geographic areas for a significant number of subsectors. GR-78 provides that incentives for 166 subsectors (previously 66) are available in any geographic area. Incentives for 17 subsectors (previously 76) are restricted to specific geographic areas.

In addition, GR-78 improves the Tax Allowance Incentive application process through the Online Single Submission (OSS)3 system.

Eligibility criteria

Tax Allowance Incentives may be granted to taxpayers who meet both of the following criteria:

  • Local corporate taxpayers initiating new investment or expanding existing businesses4 in eligible subsectors.5
  • The investment by the taxpayer meets any of the following criteria:
    • Has a high investment value or is export oriented.
    • Employs a large workforce.
    • Has high local content in its production.

Tax Allowance Incentive benefits

Benefits for a Tax Allowance Incentive includes:

  • Additional cost recovery of 30% for tangible fixed asset investmen6 used for primary business activities. The income tax incentive is a deduction from gross income of 30% of the investment resulting in an additional cost recovery deduction over six years (at a rate of 5% per year).
  • Accelerated depreciation of 200% for tangible fixed assets and amortization for intangible fixed assets.
  • Dividend distributions to nonresident shareholders are subject to a reduced withholding rate of 10% or the applicable treaty rate, whichever is lower.
  • Tax losses can be carried forward for up to 10 years.7


Other considerations

Other considerations for taxpayers include:

  • Incentivized tangible and intangible fixed assets are not permitted to be used for other purposes or transferred within a certain period.8
  • Any taxpayers who have been granted Tax Allowance Incentives but who no longer meet the criteria and conditions may be subject to the revocation of the incentive, required to pay additional taxes and/or penalties and included in a black list for future incentive applications.
  • Any taxpayers who are granted Tax Allowance Incentives are not entitled to other tax incentive programs.9


1. GR-78 was issued on 13 November 2019.

2. GR-78 replaces GR No. 18/2015 (GR-18), which amended by GR No. 9/2016 (GR-9).

3. OSS is an integrated system which is designed to issue business licenses for and on behalf of ministers, head of institutions, governors, or mayors to businessmen through an integrated electronic system.

4. The expansion of an existing business does not include machinery and/or equipment replacement and/or additions within a production line that was already in commercial production.

5. There are 166 business sectors that are eligible for the Tax Allowance Incentive, including 109 industrial sectors. 17 business sectors in specific geographical areas qualify for the Tax Allowance Incentive, including 10 industrial sectors.

6. Including purchases of land.

7. Ordinarily, tax losses can only be carried forward for five years. GR-78 outlines a number of conditions for the carry forward of tax losses over longer periods.

8. Tangible fixed assets are not permitted to be transferred within six years from the date of commencement of commercial operations or before the end of the useful period if subject to accelerated depreciation, whichever is longer. Intangible assets are not permitted to be transferred before the end of the useful period if subject to accelerated amortization. An exception applies if the intangible asset is replaced with a new intangible asset.

9. Integrated Economic Development, Tax Holiday and Super Deduction program for the labor-intensive sector.

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

EY Indonesia, Jakarta
Ernst & Young LLP (United States), Indonesia Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York



The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more