Background
On 30 May 2018, the Capital Investment Coordinating Board issued Regulation of Capital Investment Coordinating Board No. 5 of 2018 on Details of Business and Production Types for Pioneering Industries That Can Be Granted the Corporate Income-Tax Deduction Facility as Well as Guidelines and Procedures for the Granting of Corporate Income-Tax Deductions regulated (“Perka BKPM No. 5/2018”). Perka BKPM No. 5/2018 was issued to implement Minister Finance Regulation No. 35/PMK.010/2018, regarding Facility to Reduce Corporate Income Tax.
Scale and Term of Corporate Income-Tax Deduction
Corporate Income-Tax Deduction shall be given 100% of the total payable Corporate Income Tax. Entity Taxpayer implementing new capital investment on pioneering industry gains corporate income tax deduction for the income that accepted or obtained from taxpayer’s main business.
The period of Corporate Income deduction is granted under the following terms:
- Within 5 tax year with new capital investment value plan from the least of Rp.500.000.000.000 to the most of Rp.1.000.000.000.000;
- Within 7 tax year with new capital investment value plan Rp.1.000.000.000.000– Rp.5.000.000.000.000;
- Within 10 tax year with new capital investment value plan from the least of Rp.5.000.000.000.000 to the most of Rp.15.000.000.000.000;
- Within 15 tax year with new capital investment value plan from the least of Rp.15.000.000.000.000 to the most of Rp.30.000.000.000.000; or
- Within 20 tax year for new capital investment with the value plan at least Rp.30.000.000.000.000,00
After the term mentioned above expire, tax payer get Corporate Income Tax Deduction 50% from the Corporate Income Tax for the next 2 taxable years.
Criteria and the Requirement of Corporate Income Tax Deduction
To get Corporate Income Tax Deduction, taxpayer must fulfill the following criteria, which is:
- it is a pioneer Industry, namely an industry which have a big impact, providing added value and high externalities, introducing new technology, and has a strategic value for national economy);
- it is a new capital investment, namely all capital investment act, related to the establishment of new entity and the expansion of business activities, minimum Rp.500.000.000.000,-. The value of the investment plan is value of productions facility and/or fixed capital, and not included as work capital;
- fulfill the provisions on the ratio of debt and capital as referred to the Ministerial Regulation of Finance No. 169/PMK.010/2015 regarding the determination of the ratio of debt and capital of the Company for the purposes of calculating the Income Tax;
- has not yet been issued a decision on the granting or notification about the rejection of the Corporate Income-Tax Deduction by the Minister of Finance; and
- Having status as Indonesia legal entity.
New capital investment includes new business establishment which is new factory development or economy infrastructure to produce goods and/or services. New business establishment includes itsdevelopment as follows:
- Business development for five digits Standard Indonesian Business Field Classifications (“KBLI”) and in the different location contained in business license/expansion license; or
- Business development for the same five digits KBLI but in the different location listed in business license/expansion license; or
- Business development for the different five digits KBLI but in the same location listed in business license/expansion license; or
- Business expansion which is an activity to increase the production capacity for the same 5 digits KBLI with the same product coverage and in the same location listed in business license/ expansion license.
In addition, the taxpayer is also required to show fiscal certificates issued by the Directorate General of Taxation to prove that all shareholders have fulfilled their tax obligations.
Business and Production Types for Pioneering Industries that can be Granted the Corporate Income-Tax Deduction Facility
Pioneer Industry includes 17 industry types, in general terms covers industry of:
- base metal upstream;
- refinery and/or oil refinery and natural gas;
- petrochemicals based of petroleum;
- basic inorganic chemistry;
- basic organic chemicals sourced from agricultural, plantation, or forestry products;
- pharmaceutical raw materials;
- manufacture of semi-conductor and other major components of computer;
- manufacture of communication equipment main components;
- manufacture of health main component;
- manufacture of industry main component;
- manufacture of machine main component;
- manufacture of robotic component which is integrated with the manufacturing industry of machine manufacture;
- manufacture of ship main component which is integrated with manufacturing industry of ship manufacture;
- manufacture of plane main component;
- manufacture of train main component;
- power plant machine;
- economy infrastructure.
The type of production of 17 (seventeen) business fields above is listed in Appendix 1 of Perka BKPM No. 5/2018 regarding List of Business Detail and Production Type From Every Pioneer Industry Coverage.
Procedure for Application and Recommendation Issuance of Corporate Income Tax Deduction
Taxpayer may apply for Corporate Income Tax Deduction before commencing commercial production on conditions that:
| a. conduceted in conjunction with capital investment registration; or |
| b. At the latest within 1 (one) year after the issuance capital investment registration of which registration is requested. |
Taxpayer application for the Corporate Income Tax Deduction shall be submitted to the Head of BKPM accompanied with the documents as follows:
- Copy of taxpayer application;
- Copy of capital investment registration and details of the specification of fixed investment on the value of new capital investment plan; and
- Fiscal statement letter of domestic shareholders.
Kenny Purba
