Non-Residents Relocating Offices to IKN Are Eligible for a Tax Holiday

JAKARTA, DDTCNews – The government is preparing the reduction in corporate income tax incentives or a tax holiday for non-resident tax subjects (SPLN) that establish or relocate their head offices or regional offices to Nusantara Capital (IKN).

Referring to Article 35 paragraph (2) of Gov. Reg. 12/2023, the tax holiday is granted with the following provisions if non-resident tax subjects relocating their offices have a minimum of 2affiliated units and/or related business entities outside Indonesia, have economic substance in IKN and establish a legal entity in the form of a limited liability company in Indonesia.

“Affiliates and/or related business entities outside Indonesia … are subsidiaries, business branches, joint ventures or other similar entities,” reads Article 35 paragraph (3) of Gov. Reg. 12/2023, quoted on (8/3/2023).

Five conditions are to be fulfiled to be deemed to have economic substance in IKN. First, the taxpayer's business is managed by the management and the management has sufficient authority to conduct the business.

Second, the taxpayer has sufficient and adequate fixed assets and/or non-fixed assets to conduct business in IKN.

Third, the taxpayer has a sufficient and adequate number of employees with certain expertise and skills according to the conducted business sector;

Fourth, the taxpayer has an active business in addition to only receiving income in the form of dividends, interest, royalties and/or profits from the transfer of assets.

Fifth, the taxpayer conducts strategic activities for companies and/or business groups, such as implementing corporate strategic decisions, consolidating the implementation of new investments, spin-offs, mergers, acquisitions, dissolution of affiliations, consolidation of financial management and/or human resources.

Not only for non-resident tax subjects but the tax holiday is also given to resident taxpayers that establish their head or regional offices in IKN. For resident taxpayers, the tax holiday is given for income received from entrepreneurs or the community in IKN.

The tax holiday incentive is given to resident taxpayers that establish a head office or regional offices in IKN provided that they have economic substance in IKN and establish a limited liability company in Indonesia.

The tax holiday incentive is granted at 10% of the amount of corporate income tax payable for 10 tax years. In the next 10 tax years, the taxpayers remain entitled to enjoy a tax holiday of 50% of corporate income tax payable.

On another note, the plan to grant incentives for entrepreneurs that relocate their offices to IKN has previously been recommended by the Ministry of Investment or the Indonesian Investment Coordinating Board (BKPM).

“We encourage the head office or regional hub offices to be located in IKN as a centre of economic activities,” said the Deputy for Investment Climate Development of the Ministry of Investment/BKPM Yuliot some time ago. (rig)