Indonesia Introduces GR 45/2019: What’s New for Foreign Investors?
The Indonesian government issued GR 45/2019 last year, which introduced a series of tax incentives for businesses. The policy changes are urgently needed, considering that the country ranked only 134 out of 190 in the World Bank’s Starting a Business indicator in 2019.
GR 45/2019 aims at increasing foreign direct investment and improve the skilled labor base in Indonesia. It focuses on two areas: Supporting the growth of labor-intensive industries and enhancing the skills of the Indonesian workforce.
Tax incentives for investments in labor-intensive industries
Part of the new program is tax incentives to encourage investments in labor-intensive industries. Businesses that invest in “labor-intensive industries” or “pioneer industries” can receive a net income reduction of 60 percent of their total investment.
The Ministry of Industry defines a “labor-intensive” business as a company that employs at least 200 workers with labor costs, not exceeding 15 percent of production costs. The Ministry of Finance defines a “pioneer industry” as one that provides economic benefits to the area surrounding the business.
Foreign investors can benefit from this tax incentive – combined with Indonesia’s strong manufacturing base, low labor costs, and extensive consumer market – by launching manufacturing facilities, for instance, in commodities, textiles, and service industries.
Tax incentives for training and R&D initiatives
Secondly, GR 94/2010 provides tax incentives for investments in training and research and development (R&D), irrespective of the industry.
For instance, investors who start apprenticeship programs or training activities can receive a reduction in their gross income of up to 200 percent of the total costs incurred. Taxpayers investing in R&D initiatives can receive a tax benefit equal to 300 percent in gross income reduction of overall costs incurred.
By improving its economic policies in a business-friendly way, Indonesia wants to benefit from the changing trade and investment environment in Asia. As Indonesia is moving up the value-added chain, it needs more investment and a better-educated workforce. GR45/2019 aims at improving the country on both fronts.
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