Republic of Indonesia

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Republic of Indonesia
INDONESIA
Investment Policies, Procedure and Opportunities
Presented by Darmawan Djajusman Deputy
Chairman for Investment Promotion, Investment
Coordinating Board, Republic of Indonesia
Jakarta, 6 February 2007
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Investment needed within the period of 2005-2009
Source Govt. National Development Plan
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FDI Performance Projects Approval
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Several Leading FDI in Indonesia 1 January 1967
31 December 2006 (Approved Projects)
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(No Transcript)
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French Direct Investment in Indonesia (Period of
1967-2006, by Project Number Approved)
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French Direct Investment in Indonesia (Period of
1967-2006, Value of the Project Approved)
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French Direct Investment Rank by Leading
Business Sectors (Approved Project, Period of
1967-2006)
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Current Investment Policies

• FDI is allowed to have 100 equity, but maximum
  95 of equity for infrastructure projects
• No more mandatory for divestment
• No minimum amount of total investment
• Foreign Investor can be either companies or
  individuals.
• Foreign investment approval is now only 5 (five)
  working days.
• Import duties reduction for machinery equipment
• Import duties reduction for raw materials and
  supporting materials for the first two years

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New Income Tax Facilities for Investment Project
in Certain Business Sectors and Locations

• Under the Government Regulation No. 1 Year 2007

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Features of Investment Projects

• Direct Investment investment project in terms of
  fixed asset (s) management including land which
  is used for main business activities (new or
  expansion project)
• The fixed asset must have a benefit of more than
  one year, in terms of readyto-use or previously
  built of which is used in the companys business
  operation, shall not be sold or handed-over.
• Expansion projects address the product
  quality/quantity improvement, diversifications or
  operational area expansion during the companys
  production activity and development

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Scope of Facilities

• Certain business sectors
• Certain business sectors and locations

Tax Payers
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Terms of Tax Facilities

• 30 net income reduced from capital investment
  amount for 6 (six) years period (equal to 5 per
  annum)
• Accelerated amortization depreciation
• 10 Income tax charged for overseas tax-payer on
  dividend bill or lower tariff according to the
  Double Taxation Agreement
• Loss compensation with the period between 5 to 10
  years with some specific stipulations.

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(No Transcript)
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Loss Compensation Facility for 5-10 years
) as stipulated on the List of certain business
sectors and business sectors locations that are
eligible for income tax facility see on the back
pages
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Additional Features

• Tax payers (business companies) located in
  Integrated Economic Development Area (KAPET),
  shall not be granted by this new regulation
• Before 1 year, the implementation of new income
  tax facilities grant, will be done by A Team for
  Monitoring Evaluation

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Business Sectors that are Eligible for Income
Tax Facilities..1)

• Food Industry Seasoning Products which use
  agricultural raw materials
• Textile and Garment fiber processing, spinning
  mills, woven processing, integrated textile
  industry ? min 1,000 workers
• Pulp and paper board industry pulp, culture
  paper industrial paper ? integrated with
  Industrial Forests
• Industrial chemical materials processing
  (industrial sodium, natrium carbonate, white
  carbon, oleo-chemical, bio-energy, bio-lube,
  ethylene, propylene, butadiene, benzene, xylene,
  toluene, ammonium ? integrated its derivatives,
  caprolactam, modified diethanol amine (MDEA),
  technical-made rubber
• Pharmaceuticals industry Vitamin C, Vitamin B1,
  bio-tech-pharmaceuticals materials, statin
  derivatives, para amino phenol, etc.
• Rubber rubber goods industry rubber good for
  industrial purposes
• Ceramics industry ? laboratorys, electrical and
  technical equipments made of ceramics
• Basic iron and steel processing industry iron
  ore processing, iron steel formation, steel
  mills (? Integrated Continuous Steel Processing)

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Business Sectors that are Eligible for Income
Tax Facilities..2)

• Non-ferrous basic metal industry Alluminum ingot
  smelting, copper sheet, copper-wire processing (?
  min.capacity 5,000 tons/year), copper extraction
  rod, copper copper mix tube (? min.capacity
  10,000 tons)
• Machinery industry steam machinery, turbine,
  windmills, combustion motor engine,
  metal-processing machine, textile machine,
  injection-mould machine
• Electric motor, generator transformator ( 375
  KW/KVA
• Electronic telematics industry radio, TV,
  audio/video recording equipment manufacturing,
  lamp, electronics components, office automation,
  transmission communication apparatus
• Land transportation industry mould, dies, jigs,
  fixtures, 4-wheel vehicles or more and its
  component manufacturing, motorcycle industry
• Shipyard industry 50,000 DWT
• Non-ferrous metal processing chemical grade
  alumina, nickel extraction (by hydro-metalurgical
  process), black tin and zinc extraction
  processing

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Certain Business Sectors and Locationsthat are
Eligible for Income Tax Facilities..1)
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Certain Business Sectors and Locationsthat are
Eligible for Income Tax Facilities..2)
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Certain Business Sectors and Locationsthat are
Eligible for Income Tax Facilities..3)
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Incentive Features Under Current Regulations

• Investment allowance of max 30 of invested fund
  divided in 6 years, accelerated depreciation and
  accelerated amortization, loss carryover of max
  10 years (previously 5 years), 10 tax on
  dividend under article 26 of the Income Tax Law,
  or the tax treaty rate whichever is lower
  (previously 20)
• Income threshold is increased from Rp 240.000 to
  Rp 1.000.000 a month
• No VAT on importation of Production Sharing
  Contract (PSC) capital assets since June 2005
• Tax free (VAT, Luxury Tax, Income Tax article 22)
  for development projects in Bintan Island and its
  surrounding areas

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INCOME TAX LAW 1

• Tax on dividend received by individual is subject
  to final tax of 15 , previously can be taxed up
  to 35.
• Surplus of income earned by non-profit
  organizations working in educational service and
  R D fields is not subject to income tax.
• Excluded from taxable are scholarship income and
  charities received by Social Welfare Body
• New tax deductibles are contributions for
  scholarship, national disasters, social
  infrastructures, R D, and educational
  facilities.

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INCOME TAX LAW.. 2

• Income tax rate for Individual who earn net
  income between Rp 25 million to Rp 50 million, is
  5 (previously was 10).
• The maximum tax rate for individual will be
  decreased to 33 in 2007 and 30 in 2010 (current
  rate 35).
• Corporate income tax rate is 30. This rate will
  be decreased to 28 in 2007 up to 25 in 2010.
• Special tax incentives may be granted by the law
  for small enterprises.

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VAT AND SALES TAX ON LUXURY GOODS

• Transfer of Inventory of taxable goods in a
  corporate merger is not subject to VAT.
• Export of taxable service and intangible goods is
  subject to 0 VAT (zero rated).
• Agricultural products are not subject to VAT.
• Mining products are defined taxable goods.
• Tax exemption for electricity and water is
  granted in the VAT law.

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Setting Up Company for Foreign Investment

• FDI companies can be established in the form of
  100 foreign ownership or a join venture between
  foreign and Indonesian parties and should be
  incorporated as an Indonesian Limited Liability
  company (Perseroan Terbatas/PT) and domiciled in
  Indonesia.
• Investor must look at a so called Negative List
  of Investment (DNI). The List contains those
  business sectors that are absolutely closed to
  all domestic as well as foreign investment and
  those fields of business closed to only foreign
  investment.
• Foreign investment approval can be issued by the
  Investment Coordinating Board (BKPM) in Jakarta.
  The entire process would take a maximum of 10
  working days, except for project that still needs
  a letter of recommendation from related technical
  department.
• Upon the issuance of the investment approval, a
  foreign investment company can be legally
  established through the execution of the Articles
  of Incorporation in Notary Deed form.

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FLOW OF NEW FOREIGN DIRECT INVESTMENT
APPLICATION APPROVAL
Fill-out Model I/PMA Application form and
attachments (see requirements detail)

• Attention
• Is the business field opened?
• Is there any recommendation requirement?
• Is there any national share requirement?

Investor
Uncompleted application form list of required
data and attachments
Self Assessment (Check List)
Administration Section Letter
Approval Numbering
Front Office Application Verification
Application receipt issued by Administration
officer
Not OK
OK
Back Office Application Process And Approval
Completed Model I/PMA Application form and
attachments
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Several Investment Opportunities for French
Investors

• Fishery marine product processing
• Food Industry (agro-based industry)
• Textile and Garment
• Pulp, paper printing industry
• Furniture (wood rattan)
• Rubber plastic goods industry
• Ceramics industry
• Electric motor, generator transformer
• ICT industry
• Land transportation (railways, vehicles) industry
  its supporting industry
• Power plant
• Hotel restaurant

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THANK YOU
Visit our Website www.bkpm.go.id
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