Regulation Update

Building Financial Centers in IKN, Government to Offer 100% Tax Incentives Building

One of the facilities that the government will build in the Nusantara Capital City (IKN) is the Financial Center, an area that will become a financial services center as well as a center for the development of technology and services in the financial services sector. 

Soon, the area will host a variety of financial services from both domestic and international sources. To achieve this, the government offers tax reduction incentives ranging from 85% to 100% of the income tax payable for financial companies operating in the IKN Financial Center.

These incentives will be available to various service providers in the financial sector, including banking, insurance, financing, derivative transactions, and cryptocurrency transactions."

Read: Sri Mulyani Releases Regulation on Tax Facilities at IKN, Here are the Details

The provisions regarding these facilities are contained in the Minister of Finance Regulation (PMK) Number 28 of 2024 concerning Tax and Customs Facilities in the Nusantara Capital City, which has been effective since it was promulgated on 16 May 2024.

In the regulation, the government offers a reduction in Corporate Income Tax in the financial sector for 20 years and 25 years from the date the license is issued through the OSS system. The stipulation of the incentive period depends on when the taxpayer realizes its investment in the area.

Taxpayers must fulfill several requirements to qualify for this corporate income tax reduction, including the following:"

• It is a domestic taxpayer or foreign taxpayer who runs a business or permanent establishment.
• It is a financial service company that invests and conducts the activities in the Financial Centre.
• Conducting investment activities for which a decision on the granting of corporate income tax reduction facility in the Financial Centre has never been issued.
• If the taxpayer's shares are directly owned by another domestic taxpayer, the owner of the shares must have an automated Fiscal Certificate.

Read: Tax Holiday at IKN: Longer Duration, Lower Investment Value

In detail, 18 business activities in the financial sector are entitled to receive corporate income tax reduction facilities at the IKN Financial Centre, namely:

Meanwhile, the other types of financial services include:

1. Pawnbroker
2. Secondary housing finance companies
3. Information technology-based joint funding service providers
4. Microfinance institutions
5. Non-bank foreign exchange business activities
6. Rupiah money processing service providers
7. Digital financial assets, including crypto assets
8. Cooperatives with activities in the financial services sector
9. Social security organisations in the health sector
10. Social security organizations in the labor sector
11. Corporate companies in the field of national private business development
12. Indonesian Export Financing agency
13. Corporate companies in the field of development of cooperatives, small and medium enterprises
14. Secondary housing finance company
15. Infrastructure financing company, and
16. Public Housing Savings Management Agency (BP Tapera)

Application Procedure

To be able to enjoy the facility, several procedures must be carried out by taxpayers. First, the taxpayer must already have a business license and be declared to meet the criteria for incentive recipients by the OSS system.

Second, after receiving notification that the taxpayer has fulfilled the criteria, the application to obtain the tax reduction facility can only be made. The application can also be submitted through the OSS system.

Keep in mind that the application can be submitted before the company starts commercial operations and no later than one year after the business license is issued through the OSS system. 

Third, when submitting an application, do not forget to include a digital copy of the investment plan and business activity plan in the financial sector at the IKN Financial Centre. Later, the OSS system will send a notification that the application is being processed.

Fourth, the OSS system will conduct research on the correctness of the data submitted by the taxpayer, a maximum of five working days since the proposal to provide facilities is received. If the business activity data is declared complete, the OSS system will state that the data is complete and correct. However, if not, the Taxpayer will be required to make corrections.

Fifth, taxpayers only need to wait for the Minister of Finance to issue an approval of the application for income tax reduction facilities at the IKN Financial Centre based on the results of the audit conducted by the Directorate General of Taxes (DGT).

Obligations of Incentive Recipients

• Every corporation that obtains a corporate income tax reduction facility at the IKN Financial Centre is required to meet several conditions, including:
• Must realize its investment plan within a maximum of two years after being granted the facility
• Must submit annual reports on investment realization and business activity to the DGT, Fiscal Policy Agency, and the Head of the Authority, no later than 30 days after the end of the tax year.
• Maintaining separate bookkeeping for investment activities that receive corporate income tax reduction facilities at the IKN Financial Center and those that do not receive incentives.
• Must withhold and collect taxes from other parties under applicable regulations.

In addition, companies that obtain corporate income tax reduction facilities at the IKN Financial Center are also prohibited from moving their business entity or permanent establishment to another place. This means that during the period of facility utilization, the company is prohibited from leaving the IKN Financial Center area. (ASP/ALF/KEN)