Vietnamese investors investing in Indonesia

1. The Corporate Income Tax (CIT) rate in Indonesia is 22% for corporate resident taxpayers. Generally, the Value Added Tax (VAT) rate in Indonesia is 12% for all taxable goods and taxable services from 1 January 2025 onwards, subject to further requirements.
2. Income tax facilities in Indonesia:
   1. Minister of Finance Regulation No. 69/2024 – Tax Holiday.
      Applications to obtain the Tax Holiday facility must be submitted by 31 December 2025. Taxpayers that obtain a Tax Holiday facility will be subject to the domestic top-up tax under OECD Pillar Two. The Tax Holiday facility consists of:
      1. A reduction of 100% of the CIT for investment of IDR 500 billion (approx. USD 32 million) or more for 5 to 20 years from the start of the commercial production. After the end of the tax holiday, companies will receive a 50% CIT reduction for the next two years.
      2. A reduction of 50% of the CIT for investment of IDR 100 billion (approx. USD 6.4 million) or more for five years from the start of the commercial production. After the end of the tax holiday, companies will receive a 25% CIT reduction for the next two years.
   2. Minister of Finance Regulation No. 81/2024 – Tax Allowance.
      The Tax Allowance facility may be granted in the following forms:
      1. A reduction of net income to be 30% of the invested amount in the form of fixed assets (including land) that are used for business activities for six fiscal years (5% per fiscal year).
      2. Accelerated depreciation for tangible fixed assets and amortization for intangible assets.
      3. Lower withholding tax rate on dividend distribution to foreign taxpayers – The income tax imposed on dividends paid to foreign taxpayers other than permanent establishments in Indonesia is 10%, or a lower rate according to the applicable tax treaty.
      4. Extended loss compensation period to a maximum of ten years if certain requirements are fulfilled.

The application for Tax Holiday and Tax Allowance facilities must be made through the Online Single Submission (OSS) system. The Tax Holiday and Tax Allowance facilities will be issued by the Minister of Finance after taking consideration from the Investment Coordinating Board ("BKPM").

3. Under the Indonesian Income Tax Law, certain payments made by an Indonesian tax resident to a non-resident taxpayer, including interest, royalties and dividends, as well as branch profit tax of a permanent establishment, are subject to a 20% withholding tax. If the recipient of income is a tax resident in Vietnam and entitled to protections under the Agreement Between the Government of the Republic of Indonesia and the Government of the Socialist Republic of Vietnam for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income dated 22 December 1997 ("Indonesia-Vietnam Tax Treaty"), the following reduced withholding tax rates may apply:

4. Minister of Investment/Head of BKPM Regulation No. 6 of 2023 as last amended by Minister of Investment/Head of BKPM Regulation No. 1 of 2024 on Guidelines and Governance for Providing Import and/or Delivery Incentives of Four-Wheeled Battery Electric Vehicles (BEV) to Accelerate Investment provides the following incentives for BEV manufacturing companies in Indonesia for Completely Built Up and Completely Knock Down BEV with a Local Content Value (Tingkat Komponen Dalam Negeri, TKDN) of 20-40%:
   1. An import duty tariff of 0% will apply.
   2. The tax on sales of luxury goods will be borne by the government.

Please refer to our previous client alert here for more details on the incentives for BEV.

5. Government Regulation No. 40 of 2021 on Enforcement of Special Economic Zones (SEZ) in Indonesia provides that certain facilities and relaxations may be granted to business actors that engage in any SEZ business activities (collectively referred to as "Facility Recipients"). They include:
   1. Income tax reduction for income that is generated through primary business activities conducted in SEZ.
   2. Non-collection of VAT and tax on sales of luxury goods for several goods and services, including import of certain tangible taxable goods into SEZ and import of consumable goods into tourism SEZ.
   3. Import-duty exemptions or suspensions, non-collection of import taxes, excise exemptions and non-collection of VAT and tax on sales of luxury goods – granted facilities differ due to various factors, including the origins/destinations of goods that enter/exit the relevant SEZ.
   4. No import limitations and no requirement to comply with the Indonesian National Standards (Standar Nasional Indonesia, SNI) for the imports of goods.
   5. Easing of business licensing requirements, including no required assessment for any space utilization proposal documents to obtain the approval for conformity of space utilization activities.
6. Minister of Finance Regulation No. 131/2018 as amended by Minister of Finance Regulation No. 65/2021 on Bonded Zones provides that the bonded zones (kawasan berikat) facility is provided to manufacturing companies with export orientation. The goods imported into a bonded zone are granted facility of import duty postponement and non-collection of import taxes. A key requirement is that the value of export sales must be at least two-thirds of total sales per year.
7. Minister of Finance Regulation No. 272/2015 as amended by Minister of Finance Regulation No. 28/2018 on Bonded Logistics Center provides that the bonded logistics center (pusat logistik berikat) serves as a storage or warehouse for imported goods from outside the Indonesia area and/or goods from other places within the Indonesia area. The goods imported into a bonded logistics center are granted facility of import duty postponement and non-collection of import taxes, and goods can be stored for up to three years. Additionally, the ownership of imported goods stored in the bonded logistics center can be held by companies outside of Indonesia.

Indonesian investors investing in Vietnam

1. The Vietnam-Indonesia Tax Treaty provides the same reduced withholding tax rates for Indonesian investors in Vietnam as those provided for Vietnamese investors in Indonesia (in point 3 above).
2. Law No. 61/2020/QH14 on Investment provides the following incentives to investment projects based on preferential sectors, preferential locations (including disadvantaged areas and extremely disadvantaged areas, or in industrial parks, export-processing zones, hi-tech zones and economic zones), and the size of the projects:²
   1. Corporate income tax incentives, including application of a lower rate of corporate income tax for a certain period of time or throughout the investment project execution; exemption from and reduction of tax and other incentives prescribed by the laws on corporate income tax.
   2. Exemption from import duties on goods imported to form fixed assets; time limited-exemption for raw materials, supplies and components for manufacturing purposes that have not been produced in Vietnam in accordance with the law on import and export duties.
   3. Exemption from and reduction of land use fee, land rents and land use tax.
   4. Accelerated depreciation, increasing the deductible expenses upon calculation of taxable income.
3. Law No. 27/2008/QH12 on Special Consumption Tax (as amended and supplemented by Law No. 70/2014/QH13 and Law No. 03/2022/QH15) provides a special consumption tax rate of 1% to 15% applicable to electrically-operated cars in the 2022 – 2027 period.³
4. Decree No. 126/2022/ND-CP on Vietnam's special preferential import tariff schedule for implementation of the ASEAN Trade in Goods Agreement (ATIGA) in 2022 – 2027 provides import duty tariffs of 0% to 5% for numerous imported products mentioned in the schedule that satisfy ASEAN origin criteria. This incentive is applicable to members of ATIGA. As Indonesia is a member of ATIGA, Indonesian investors are eligible to enjoy those import duty tariffs.

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Ria Muhariastuti, Senior Tax Specialist, and Trung Kien Nguyen, Trainee, have contributed to this legal update.

1 Several exemptions may apply under the Indonesia-Vietnam Tax Treaty. For example, the business profits of a Vietnam tax resident should not be subject to withholding tax in Indonesia if the Vietnam tax resident does not have a permanent establishment in Indonesia.

2 Articles 15.1, 15.2, and 16 of Law No. 61/2020/QH14 on Investment.

3 Article 7 of Law No. 27/2008/QH12 on Special Consumption Tax (as amended and supplemented by Law No. 70/2014/QH13 and Law No. 03/2022/QH15).

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