Indonesia does not provide one general tax exemption for companies that reinvest their profits. Instead, companies can reduce corporate tax through specific incentives for qualifying investment, research and development, vocational training, and certain large new investments.
How Does Indonesia’s Tax Allowance Reduce Corporate Tax?
Companies investing in certain business sectors or regions can qualify for Indonesia’s tax allowance.
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The main benefit is a reduction in net income equal to 30% of the qualifying investment in tangible fixed assets, including land used for the main business activity. The deduction is spread over six years at 5% of the qualifying investment each year.
The tax allowance can also provide accelerated depreciation and amortization for qualifying assets. This allows eligible companies to recognize deductions from their investment more quickly.
Eligibility depends on the business activity, location, investment, and other requirements under the incentive framework.
Can R&D Spending Qualify for a Super Deduction?
Companies carrying out qualifying research and development in Indonesia can receive a gross income deduction of up to 300% of qualifying R&D expenditure.
This consists of the ordinary 100% deduction for qualifying expenditure plus an additional deduction of up to 200%. The additional amount depends on conditions such as whether the R&D produces intellectual property and whether that intellectual property is registered or commercialized in Indonesia.
The 300% figure should not be treated as an automatic deduction for every R&D expense. The activity and expenditure must satisfy the applicable requirements.
What Tax Relief Is Available for Vocational Training?
A separate incentive applies to qualifying vocational education and training activities.
Eligible companies can receive a gross income deduction of up to 200% of qualifying expenditure on activities such as work practice, apprenticeships, and competency-based training. The program must meet the required conditions, including cooperation with qualifying vocational institutions.
The incentive can cover qualifying costs connected with training facilities, instructors, materials, payments to participants, and competency certification.
Does Reinvesting Dividends Reduce the Company’s Corporate Tax?
Dividend reinvestment is different from the corporate tax incentives above.
A dividend exemption can apply in certain circumstances when qualifying income is invested in Indonesia and the applicable conditions are satisfied. However, reinvesting a dividend does not reduce the corporate income tax already payable by the Indonesian company that earned and distributed the profit.
Considering whether to retain, distribute, or reinvest profits? Email info@mapresourcesindonesia.com for Indonesian tax support
The corporate tax position of the operating company and the tax treatment of the shareholder’s dividends should be assessed separately when deciding whether to retain, distribute, or reinvest profits.
How Does the Global Minimum Tax Affect Large Multinationals?
Indonesia has implemented the 15% global minimum tax under PMK 136/2024. The rules generally apply to multinational groups with consolidated annual revenue of at least EUR 750 million if the group falls within the GloBE rules. Indonesia’s framework includes a domestic minimum top-up tax where the effective tax rate of Indonesian companies within the group falls below 15%.
An Indonesian tax incentive may reduce the company’s ordinary corporate income tax while the group may still have additional tax to pay under the GloBE rules. Groups within the scope of Pillar Two should calculate both effects rather than looking only at the Indonesian tax saving.
What Should CFOs Check Before Applying?
Companies should first determine whether their business activity, investment, R&D project, or training program qualifies for the relevant incentive. They should not assume that different incentives can automatically be applied to the same investment or expenditure.
MAP Resources Indonesia can assess your tax incentive eligibility. Contact info@mapresourcesindonesia.com
Companies should separate costs that qualify for the incentive from those that do not and check the application, timing, and documentation requirements for each facility.
Accounting records should support the expenditure used to claim the incentive. For groups subject to the global minimum tax, the expected Indonesian tax saving should also be included in the group’s GloBE calculation.
Reduce Corporate Tax With MAP Resources Indonesia
MAP Resources Indonesia assists foreign-owned companies with tax incentive eligibility, investment structuring, corporate tax calculations, supporting documentation, and ongoing Indonesian tax compliance. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
