THE GOVERNMENT REGULATION
No. 1/2007

CONCERNING
FACILITY OF INCOME TAX ON CAPITAL INVESTMENTS IN CERTAIN BUSINESS LINES AND/OR CERTAIN REGIONS

THE PRESIDENT OF THE REPUBLIC OF INDONESIA,

Considering:

• a. that direct investment through both foreign investment and domestic investment constitutes and important factor in boosting economic growth, equitable distribution of development and acceleration of development of certain lines and/or certain regions;
• b. that pursuant to Article 31A of Law No. 7/1983 on Income Tax as already amended several times and the latest by Law No. 17/2000, facility of income tax can be granted to taxpayers investing in certain business lines and/or certain regions;
• c. that Government Regulation No. 148/2000 on Facility of Income Tax on Investments in Certain Business Lines and/or Certain Regions is no longer suitable to situational demand and developments so as to need to be replaced;
• d. that based on the considerations as described in a, b and c above, it is necessary to stipulate a government regulation on facility of income tax on investments in certain business lines and/or certain regions;

In view of:

• 1. Article 5 paragraph (2) of the Constitution of 1945;
• 2. Law No. 6/1983 on Taxation General Provisions and Procedures (Statute Book of 1983 No. 49, Supplement to Statute Book No. 3262) as already amended the latest by Law No. 16/2000 (Statute Book of 2000 No. 126, Supplement to Statute Book No. 3984);
• 3. Law No. 7/1983 on Income Tax (Statute Book of 1983 No. 50, Supplement to Statute Book No. 3263) as already amended several times and the latest by Law No. 17/2000 (Statute Book of 2000 No. 127, Supplement to Statute Book No. 3985);

HAS DECIDED :

To stipulate:

THE GOVERNMENT REGULATION ON FACILITY OF INCOME TAX ON CAPITAL INVESTMENTS IN CERTAIN BUSINESS LINES AND/OR CERTAIN REGIONS

Article 1

Referred to in this regulation as:

• 1. Investment is investment in the form of tangible fixed assets, including land used for the main business activities, for both new investment and expansion of the existing businesses.
• 2. Tangible Fixed Assets are tangible assets having a benefit period of over one year, which are obtained in a ready-for-use or building form first, used in corporate operation, not destined to trade or transfer.
• 3. Expansion of the Existing Businesses in an activity in the framework of increasing products quantitatively/qualitatively, diversification of products, or expansion of operational are in the framework of developing corporate activities and production.
• 4. Certain Business Lines are business lines in sectors of economic activities securing high priority in the national scale.
• 5. Certain Regions are regions economically having feasible potential to develop.

Article 2

(1) Resident corporate taxpayers in the form of limited liability company and cooperative, which invest in:

• a. the certain business lines as described in Attachment I to this government regulation; or
• b. the certain business lines and certain regions as stipulated in Attachment II to this government regulation can be given facility of income tax.

(2) The facility of income tax as described in paragraph (1) is:

• a. reduction of net income as high as 30% (thirty percent) of the total investment, charged for 6 (six) years, respectively accounting for 5% (five percent) per annum;
• b. accelerated depreciation and amortization as follows:
  Groups of Tangible Fixes Assets : Benefit Period to become : Tariffs of Depreciation and Amortization Based on Method : Straight Line : Decreasing Balance :
• I. Non-Building: :
• Group I : 2 Years : 50% : 100% (charged in lump sum) :
• Group II : 4 Years : 25% : 50% :
• Group III : 8 Years : 12.5% : 25% :
• Group IV : 10 Years : 10% : 20% :
• II. Building: :
• Permanent : 10 Years : 10% : - :
• Non Permanent : 5 Years : 20% : - :
• c. Imposition of Income Tax on dividends paid to non-resident tax subjects, as high as 10% (ten percent), or the lower tariff according to Double Taxation Avoidance Agreement in force; and
• d. Compensation for loss more than 5 (five) years but not exceeding 10 (ten) years with the provision as follows:
• 1) additional one year : in the case of new investments in the business lines regulated in Article 2 paragraph (1) letter a being realized in industrial estate and bonded zone;
• 2) additional two years : in the case of the investment employing minimally 500 (five hundred) Indonesian workers for 5 (five) years consecutively;
• 3) additional one year : in the case of new investment needing investment/expenditure minimally amounting to Rp. 10,000,000,000.00 (ten billion rupiahs) for economic and social infrastructure in business locations;
• 4) additional one year : in the case of research and development cost being spent in the country in the framework of developing products or production efficiency minimally accounting for 5% (five percent) of the investment in a period of five years; and/or
• 5) Additional one year : in the case of the investment using domestic raw materials or components minimally accounting for 70% (seventy percent) as from the fourth year.

(3) The Minister of Finance issues decision on the granting of facility of income tax after considering recommendation from the Head of the Investment Coordinating Board.

Article 3

Taxpayers obtaining the facility as described in Article 2 paragraph (2), before elapsing a period of 6 (six) years as from the date of granting of the facility cannot:

• a. use the fixed assets securing the facility for purposes other than the granted facility; or
• b. transfers the fixed assets securing the facility party or wholly unless otherwise the transferred fixed-assets are replaced by the new fixed-assets.

Article 4

In the event that taxpayers securing the facility fail to meet the provision in Article 3;

• a. the granted facility is revoked on the basis of a government regulation;
• b. the taxpayers are subjected to sanction in accordance with the provisions of taxation legislation in force; and
• c. the taxpayer can no longer be given the facility on the basis of this government regulation.

Article 5

(1) The implementation of this government regulation will be evaluated in a period not later than one year as from the date of stipulation of this government regulation.

(2) The evaluation as described in paragraph (1) is done by an evaluation and monitoring team established by a decree of the Coordinating Minister for Economic Affairs.

Article 6

In the case of taxpayers already securing taxation facilities related to business activities in Integrated Economic Development Areas (KAPET) on the basis of Government Regulation No. 20/2000 on Taxation Treatment in the Integrated Economic Development Areas as already amended by Government Regulation No. 147/2000, the business activities are no longer given the taxation facility as described in this government regulation.

Article 7

Further provisions needed for implementing this government regulation are regulated further by or on the basis of a regulation of the Minister of Finance.

Article 8

With the enforcement of this government regulation, Government Regulation No. 148/2000 on Facility of Income Tax on Investments in Certain Business Lines and/or Certain Regions (Statute Book of 2000 No. 265, Supplement to Statute Book No. 4066) is declared null and void.

Article 9

The government regulation comes into force as from January 1, 2007.

For public notice, the government regulation shall be promulgated in Statute Book of the Republic of Indonesia.

Stipulated in Jakarta
On January 2, 2007
THE PRESIDENT OF THE REPUBLIC OF INDONESIA
Signed
DR. H. SUSILO BAMBANG YUDHOYONO

Promulgated in Jakarta
On January 2,2007
AD INTERIM THE MINISTER OF LAW AND HUMAN RIGHTS
Signed
YUSRIL IHZA MAHENDRA

STATUTE BOOK OF THE REPUBLIC OF INDONESIA OF 2007 NUMBER 1

Elucidation of THE GOVERNMENT REGULATION
No. 1/2007