Indonesia: More incentives for BEV unveiled

EV manufacturers investing in Indonesia may stand to benefit.
19 Mar 2024    3 minute read
Sustainability

In brief

The BKPM and the Minister of Finance (MOF) have recently issued more incentives for four-wheeled battery electric vehicles (BEV). The incentives are: 0% import duty tariff, a release from the tax on sales of luxury goods and only 1% value-added tax (VAT) – these incentives apply with certain requirements.

Incentives in the EV sector are not new; there have been other incentives provided by the government to accelerate EV investment in Indonesia. These regulations, for instance, complement existing fiscal incentives of exemption or reduction of local tax, reduction of electricity charging fees, financial support for battery charging infrastructure development, and other incentives stipulated in a Presidential Regulation issued in 2019 (as amended). There is also another possible customs incentive of a 0% import duty tariff for the importation of goods, materials or machinery for manufacturing companies within the framework of investment.

Contents

Incentives under BKPM Regulation No. 6 of 2023

Head of BKPM Regulation No. 6 of 2023 on Guidelines and Governance for Providing Import and/or Delivery Incentives of Four-Wheeled BEV to Accelerate Investment ("BKPM Regulation 6/2023") is expected to boost EV investment in Indonesia. This regulation became effective on 19 January 2024.

BKPM Regulation 6/2023 provides the following incentives for BEV manufacturing companies in Indonesia:

  • An import duty tariff of 0% will apply for Completely Built Up (CBU) and Completely Knock Down (CKD) BEV with a Local Content Value (Tingkat Komponen Dalam Negeri, TKDN) of 20-40%.
  • The tax on sales of luxury goods of CBU and CKD BEV with TKDN of 20-40% will be borne by the government.

As the incentives apply to CBU and CKD BEV, manufacturing companies that have not started to manufacture EV in Indonesia can also use these incentives.

The above incentives can be used until 31 December 2025 by industrial companies that (i) will build manufacturing facilities in Indonesia, (ii) will partially or wholly shift production of EVs to Indonesia, or (iii) have invested in EV manufacturing facilities in Indonesia with the purpose of introducing new products through increasing their production plan or capacity.

Issuance of Minister of Finance (MOF) regulations

Following the issuance of BKPM Regulation 6/2023, the MOF has also issued regulations to implement the incentives, i.e., MOF Regulations No. 8, 9 and 10 of 2024.

  • MOF Regulation No. 8 of 2024 introduces an additional incentive of 10% of value added tax (VAT) to be borne by the government for the delivery of BEV in 2024 –provided that the BEV has a TKDN value of at least 40%. This incentive is given for the tax period of January to December 2024.
  • MOF Regulation No. 9 of 2024 further introduces an exemption to the tax on sales of luxury goods, for fiscal period of January to December 2024.
  • MOF Regulation No. 10 of 2024 amends the previous MOF regulation relating to goods classification and import duty rates for imported goods. The new regulation adds BEV for road transportation that are under (i) tariff posts 8703.80.17, 8703.80.18, and 8703.80.19, as well as (ii) tariff posts 8703.80.97, 8703.80.98, and 8703.80.99, are subject to 0% customs duty rate.

There are certain tax obligations that must be undertaken by the seller including preparing a realization of VAT report and issuing tax invoices with certain requirements, in order to benefit from the incentives.

Process and timeframe

Please note the following process and requirements to obtain the incentives based on BKPM Regulation 6/2023:

  • The manufacturing company should submit a proposal letter for the incentives with supporting documents no later than 1 March 2025 through the OSS system. Supporting documents include a commitment letter stating that the company will be ready for commercial production by 1 January 2026 and will produce EV no later than 31 December 2027.
  • The submitted proposal will be assessed by the ministries of Maritime and Investment, Industry, Finance and Trade and potentially other authorities.
  • If a proposal is deemed complete and correct, the OSS will issue a proposal letter. This proposal letter should be used by the manufacturing company to obtain a bank guarantee of their commitments.
  • Once the bank guarantee has been verified by the Ministry of Investment, the OSS will issue an approval letter to obtain the incentives. The approval letter is the basis for manufacturing companies to obtain the incentives from the Ministry of Finance and an import certificate from the Ministry of Trade.

* * * * *

LOGO_Indonesia HHP Law Firm_Jakarta

© 2024 HHP Law Firm. All rights reserved. HHP Law Firm is a member firm of Baker & McKenzie International. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

Contact Information
Mita Djajadiredja
Partner at BakerMcKenzie
Jakarta
Read my Bio
mita.djajadiredja@hhplawfirm.com
Ponti Partogi
Partner at BakerMcKenzie
Jakarta
Read my Bio
ponti.partogi@hhplawfirm.com
Dyah Ayu Paramita
Associate Partner at BakerMcKenzie
Jakarta
dyahayu.paramita@hhplawfirm.com
Irvan Ardiansyah
Associate Partner at BakerMcKenzie
Jakarta
irvan.ardiansyah@hhplawfirm.com

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.