ELUCIDATION ON GOVERNMENT REGULATION OF THE REPUBLIC OF INDONESIA No. 1/2007

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

I. GENERAL

In the framework of boosting economic growth, equitable distribution of development and acceleration of development in certain regions, deepening industrial structure, driving foreign and domestic investments in certain business lines and/or certain regions, taxpayers making investments or expanding capital in certain business lines and/or certain regions can be given facility of income tax.

II. ARTICLE BY ARTICLE

Article 1

Suffciently clear

Article 2

Paragraph (1)

The facility of income tax as regulated in this government regulation only can be granted to taxpayers in the form of Limited Liability Company (PT) and Cooperative, which invest in the business lines as stipulated in Attachment I and II to this government regulation.

The investments in the business lines as stipulated in Attachment I can be done throughout Indonesia, while investments in the business lines as stipulated in Attachment II must be done in the regions stipulated in Attachment II.

Paragraph (2)

Letter a:

The facility of reduction of net income is given for 6 (six) years, starting from the year when commercial production starts, namely every year as high as 5% (five percent) of the total investment in the form of acquisition of tangible fixed-assets, including land for the main business activities.

Characteristically, the facility reduces net income (in the case of operating profit being earned) or supplement fiscal loss (in the case of operating loss existing).

Example : PT ABC invests capital amounting to Rp. 10,000,000,000 in the form of the purchase of fixed assets such as land, building and machine. PT ABC can be given facility of net income reduction (investment allowance) as high as 5% x Rp. 100,000,000,000 = Rp. 5,000,000,000 every year , for six years, starting from the year when the facility starts to be granted.

Letter b:

The facility of accelerated depreciation and amortization is granted to fixed assets obtained and used in the framework of investment.

Letter c:

For example, an investor from Country C obtains dividend from a resident corporate taxpayer already stipulated to obtain the facility on the basis of this government regulation. In the case of Investor X being domiciled in country not yet having double taxation avoidance agreement (P3B) with the government of the Republic of Indonesia or domiciled in country already having P3B with the government of the Republic of Indonesia with tariff of tax on dividend for non-resident taxpayer as high as 10% or over, the dividend is only subjected to Income Tax in Indonesia as high as 10% (ten percent). However, in the case of Investor X being domiciled in a country already having P3B with the government of the Republic of Indonesia at the tariff of tax on dividend, the relevant is subjected to income tax in Indonesia in accordance with the tariff regulated in the said P3B.

Letter d:

Fiscal loss, which can be compensated for the profit in the next 5 (five) years is accordance with the provision in Article 6 paragraph (2) of the Income Tax Law in the framework of investment given a longer facility of compensation for fiscal loss, in the case of the following requirements/criteria being fulfilled:

1. additional one year: In the case of Investments in the business lines regulated in Article 2 paragraph (1) letter a being done in industrial estates and bonded zones.

2. additional one year: In the case of investments employing minimally 500 (five hundred) Indonesian workers for five years consecutively. Indonesian workers are manpower in all levies.

3. additional one year: In the case of investment/expenditures for economic and social infrastructure in business locations amounting to Rp. 10,000,000,000.00 (one hundred billion rupiahs) at the minimum;

4. additional one year: In the case of in a period of five tax years, at least 5% (five percent) of the total investment being spent for the cost of research and development in the country in the framework of product development or production efficiency.

5. additional one year: In the case of investments using minimally domestic raw materials or components as high as 70% (seventy percent) as from the fourth year.

Paragraph (3)

Sufficiently clear

Article 3 up to article 9

Sufficiently clear

STATUTE BOOK OF THE REPUBLIC OF INDONESIA NUMBER 4675