Measures to Encourage Investments in IKN: Utilization of Foreign Workers and Income Tax Incentives
The Government of Indonesia enacted Government Regulation No. 12 of 2023 on the Granting of Business Licenses, Ease of Business, and Investment Incentives for Business Actors in the Capital City of Nusantara (“GR 12/2023”). GR 12/2023 aims at providing the certainty, opportunity, and more participation for the business actors and accelerates the development of the new capital of Indonesia or known as the Capital City of Nusantara (Ibu Kota Nusantara or in short, the “IKN”).
GR 12/2023 sets out further provisions on the granting of business licenses, ease of doing business, and provide various investment incentives and benefits available to business actors that conduct business activities within IKN and certain regions of Kalimantan as parts of the IKN economic superhub. A couple of measures in GR 12/2023 to attract investments in IKN are the provision on utilization of foreign workers and the granting of income tax incentives for employees working for certain companies within the IKN.
♦ Utilization of Foreign Workers in IKN
According to GR 12/2023, a business actor that conducts its business activities within the IKN may employ a foreign worker to work for a certain position as regulated under the prevailing laws and regulations on the utilization of foreign workers. As generally regulated under the prevailing laws and regulations, the utilization of foreign workers shall be based on an approved Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or an “RPTKA”).
In this regard, GR 12/2023 provides that an RPTKA for foreign workers who work in the IKN may be approved for 10 (ten) years and may be extended. As a comparison, an RPTKA is generally granted for a maximum of 2 (two) years, or 5 (five) years (for foreign workers who work in a special economic zone) and may be extended.
Further, GR 12/2023 provides an exemption from the obligation to pay the mandatory compensation funds for the utilization of foreign workers (Dana Kompensasi Penggunaan Tenaga Kerja Asing or the “DKP-TKA”) for companies that employ foreign workers within the IKN, including the foreign workers who work for national strategic projects in the IKN. This exemption will be for a certain period of time which will be further determined in a regulation to be issued by the Head of the IKN Authority.
With regard to the Temporary Stay Permit (Izin Tinggal Terbatas or an “ITAS”) for the foreign workers working in the IKN, the foreign workers may be granted an ITAS for a period of up to 10 (ten) years and may be extended for the period based on the period of the employment agreement between the company and the foreign worker. Normally, the prevailing laws and regulations on the immigration may only grant an ITAS for a maximum period of 5 (five) years and may be extended for as long as the total period of the foreign worker’s stay under the ITAS does not exceed 10 (ten) years in total.
♦ Income Tax Incentives
Pursuant to Article 50(1) of GR 12/2023, the income tax Article 21 (or known in Indonesian in short as PPh 21) will be borne by the Government for any income received by certain employees from certain employers in the IKN. The employees must have their tax registration numbers (each in Indonesian in short an “NPWP”) issued by the tax office in the IKN region.
Article 52(1) of GR 12/2023 provides that a ‘certain employer’ means an employer that fulfills the following:
a. the employer is domiciled, resides, or conducts its activities within the IKN;
b. the employer has an NPWP issued by the tax office in the IKN;
c. the employer has submitted a notification letter for the utilization of the “Income Tax Article 21 borne by Government incentive to the Directorate General of Taxes (the “DGT”) for validation; and
d. the employer must submit a realization report for the utilization of the “Income Tax Article 21 borne by Government incentive” to the DGT.
Pursuant to Article 53 of GR 12/2023, this income tax Article 21 incentive is valid until year 2035.
July 17, 2023
AKSET
Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com), Thomas P. Wijaya (twijaya@aksetlaw.com), or Rizky Rakhmadita (rrakhmadita@aksetlaw.com) for further information.
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