As the largest economy in ASEAN, Indonesia has attracted a large amount of foreign direct investment in recent years, and achieved an investment inflow of over 43 billion US dollars in 2022.
In order to further understand this investment environment, this article will focus on introducing Indonesia’s recent foreign direct investment policies. These policies provide important references for companies interested in entering or expanding into the Indonesian market, while also providing a foundation for them to develop reasonable investment strategies and seize market opportunities.
New Investment Act
Investment Act 2023
Release and Implementation Time:
Released on June 1, 2023, and scheduled to officially take effect on December 1, 2023.
Main content:
1. Simplification of registration process: Investors can register their companies and apply for licenses through a “one-stop” online platform, which is expected to reduce registration time by 50%.
2. Expansion of industry openness: New industries with high growth potential, such as e-commerce, renewable energy, and healthcare, will relax or cancel certain restrictions on foreign ownership ratios.
3. Tax preferential policies: Provide 5 to 10 years of corporate income tax reduction and exemption for high-tech enterprises and foreign-funded enterprises within regional economic zones.
Impact: This bill significantly improves Indonesia’s investment environment, lowers the threshold for foreign investment entry, and accelerates the landing speed of investment projects.
Tax incentive policies
Corporate Income Tax (CIT) Reduction and Exemption Policy
Publisher: Indonesian Ministry of Finance
Implementation time: Starting from July 1, 2023
Policy content:
1. Reduction period: Foreign funded enterprises that meet the conditions can enjoy a corporate income tax reduction of 5 to 20 years, depending on the investment amount and industry type.
2. Reduction ratio: High tech industries can enjoy a 20-year tax reduction, while traditional manufacturing industries have a reduction period of 5 to 10 years.
3. Reinvestment rewards: Reinvestment projects in specific regions or emerging industries can receive additional tax reductions.
Impact: These tax incentives will directly reduce the tax burden on foreign-funded enterprises, enhance market competitiveness, and encourage more capital to enter the Indonesian market.
Value added tax (VAT) refund policy
Publisher: Indonesian Taxation Authority
Implementation time: Starting from August 1, 2023
Policy content:
1. Tax rebate ratio: Provide up to 10% value-added tax rebate for export-oriented enterprises.
2. Application requirements: The enterprise must establish a legal operating entity in Indonesia and possess export qualifications.
3. Tax refund process: Submit the application through the online platform, and the review period shall not exceed 30 working days.
Impact: Effectively reducing the operating costs of export enterprises, enhancing Indonesia’s competitiveness in the global market, and encouraging more companies to conduct business in Indonesia.
Land and Infrastructure Support Policies
Preferential policies for land use rights
Publisher: Indonesian National Land Agency
Implementation time: Starting from September 1, 2023
Policy content:
1. Land use rights: Provide free or low-cost land use rights in key economic zones and industrial parks, with a maximum lease term of 50 years.
2. Simplify the approval process: the approval time has been reduced from 6 months to 2 months.
3. Infrastructure guarantee: Ensure the improvement of infrastructure such as transportation, electricity, and water conservancy.
influence:
By providing land and infrastructure support, the government has provided a solid foundation for the establishment and operation of foreign-funded enterprises, which helps promote regional economic development.
Infrastructure Construction Support Plan
Publisher: Indonesian Ministry of Infrastructure
Implementation time: Starting from October 1, 2023
Policy content:
1. Investment subsidy: Provide up to 15% investment subsidy to foreign-funded enterprises participating in infrastructure construction.
2. PPP model: Encourage participation in large-scale infrastructure projects such as highways, ports, and airports through cooperation between the public and private sectors.
3. Green infrastructure rewards: Provide additional support to enterprises investing in renewable energy and environmental protection facilities.
Impact: It will accelerate the process of infrastructure construction, improve the overall infrastructure level of Indonesia, and promote sustainable economic growth.
Talent cultivation and technology introduction policies
Talent Training Subsidy Program
Publisher: Indonesian Ministry of Human Resources
Implementation time: From November 1, 2023
Policy content:
1. Subsidy amount: Training programs established by foreign-funded enterprises can enjoy up to $1 million in government subsidies per year.
2. Training content: covering technical, management, and language training, aimed at enhancing the skill level of local employees.
3. Cooperation mechanism: Enterprises can collaborate with local universities and vocational training institutions to carry out training programs.
influence:
This policy will enhance the skill level of local labor force, meet the demand for professional talents in high-tech industries, and help promote industrial upgrading.
Convenient measures for introducing high-end talents
Publisher: Indonesian Immigration Department
Implementation time: Starting from October 15th, 2023
Policy content:
1. Visa application acceleration: The review time for high-end talent work visas has been shortened to within 15 days.
2. Visa Validity Extension: The initial visa validity period has been extended to 5 years.
3. Tax incentives: High end talents can enjoy personal income tax reduction and exemption.
Impact: These measures will attract more high-end talents to Indonesia, enhancing the country’s innovation capability and competitiveness in the global market.
Legal protection and investment protection
Investment Protection Agreement (BIT)
Publisher: Indonesian Ministry of Foreign Affairs
Implementation time: Starting from July 1, 2023
Policy content:
1. Bilateral investment protection: Signed investment protection agreements with over 20 countries (including the United States, China, Germany, and Japan) to safeguard the rights and interests of foreign-funded enterprises.
2. Dispute resolution mechanism: Introduce international arbitration institutions to ensure efficient and fair dispute resolution.
3. Intellectual property protection: Strengthen the legal protection of intellectual property and crack down on infringement.
Impact: These policies provide legal protection for foreign-funded enterprises, enhance their confidence in investing in the Indonesian market, and help create a favorable investment environment.
Construction of a transparent regulatory environment
Publisher: Indonesian Anti Corruption Commission (KPK)
Implementation time: From December 1, 2023
Policy content:
1. Anti corruption measures: Establish a transparent review mechanism for foreign-funded enterprises to ensure a fair investment environment.
2. Policy stability commitment: The government promises not to change policies arbitrarily within five years and provides long-term legal and policy guarantees.
3. Promotion of e-government: Fully promote e-government to improve administrative efficiency and reduce human intervention.
Impact: By creating a transparent and fair regulatory environment, Indonesia will attract more foreign-funded enterprises and promote long-term stable economic development.
For investors planning to build factories in Indonesia, a deep understanding and adherence to local legal procedures, environmental standards, and business practices are key to success.
If you need further information about investment in Indonesia, please feel free to contact us at any time.
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