IKN Offers Foreign Investors the Chance to Own 100 Percent of a Company!
After President Soekarno initially proposed and initiated the process on July 17, 1957, President Joko Widodo has now officially brought this idea to fruition with the commencement of the Archipelago Capital City project, situated on a 56,180-hectare site in East Kalimantan.
As per the plan outlined in Law (UU No. 3 of 2022), the State Capital (IKNLaw), which serves as the legal foundation for relocating the capital city, was ratified following approval by Members of the People's Representative Council (DPR) on January 18, 2022.
The decision to relocate the capital city stems from various factors, including President Jokowi's aim to shift the focus of economic development from Java-centric to Indonesian-wide and to alleviate the population strain of Java, which is home to 60 percent of the country's population. The noticeable rise in water levels, submerging almost 40 percent of Jakarta's land area at a rate of 20 centimeters per year, indicates the city's vulnerability to sinking.
The move of the capital from Jakarta to Nusantara has sparked concerns from several environmental monitoring organizations regarding potential harm to the Kalimantan rainforests. President Joko Widodo, however, has clarified that the vision for growth and administration will embody the concept of a "New Smart City," promoting environmentally friendly and sustainable practices.
Why Investing in the New Capital Nusantara is a Golden Opportunity
The government is extending investment opportunities to foreign investors, with an estimated total financing requirement of IDR 489 trillion (S$46.31 billion). Foreign investors are encouraged to invest in a wide spectrum of projects, ranging from basic infrastructure to industrial complexes, under this financial framework. Notably, investors from the United Arab Emirates (UAE), China, South Korea, Taiwan, and numerous European countries have already pledged investments.
Foreign ownership of businesses in the transportation sector, as well as their supporting facilities (ports and airports), and renewable energy projects in Indonesia, is now permitted up to 100 percent. The prospective capital city of East Kalimantan Province boasts an energy potential of 20 GW from geothermal, hydro, wind, and solar power plants.
Currently, business license applications in Indonesia are streamlined for entrepreneurs worldwide. However, some businesses may require specific permits and licenses that cannot be obtained through the Online Single Submission System (OSS). In such cases, you can rely on the assistance of Moores Rowland Indonesia to craft a timely, cost-effective, and professionally handled business plan.
Challenges in Investing in the New Capital Nusantara
Investors in the Capital City (IKN) face several challenges, including political stability and upcoming general elections. The identity of Joko Widodo's successor as the president of Indonesia is of great interest to investors. Additionally, the allocation of IDR 455.62 trillion for post-COVID economic recovery in 2022 has raised concerns about the post-pandemic economic outlook.
Furthermore, the process of relocating the capital city is undeniably costly, presenting another significant challenge. Nonetheless, the government's strategy is to relocate approximately 16 thousand civil servants in the initial phase, necessitating the development of housing, schools, and hospitals.
Tax Incentives for Indonesian IKN Investors
The Indonesian government provides fiscal incentives to investors who invest their capital in the National Capital City (IKN) of the Archipelago, East Kalimantan. The incentives have been outlined in Government Regulation (PP) Number 12 of 2023 concerning Provision of Business Licensing, Ease of Business, and Investment Facilities for Business in the National Capital of the Archipelago.
What fiscal incentives are provided? In general, PP 12 of 2023 offers 10 fiscal incentives for parties interested in being involved in IKN development, including:
- Corporate Income Tax reductions
- Deduction for vocational activities
- Deduction for research and development activities
- Deduction for donations
- 0% final income tax for Micro, Small, Medium companies with turnover under IDR 50 billion
- Income Tax Article 21 borne by the government.
- Financial center Income Tax facilities
- Income Tax facility for relocation of head office
- VAT and Sales Tax on Luxury Goods Facilities
- Customs and Excise Facilities
Aside of incentives offered by the Central Government listed above, there are investment facilities offered by the IKN Authority, in the form of Special Tax and IKN Revenue incentives along with provision of facility, land and infrastructure to conduct investment activities.
How Moores Rowland Indonesia Can Facilitate Your Investment Journey
Nusantara aspires to become the world's most sustainable city, a symbol of national identity, and a driving force behind Indonesia's future economy. Furthermore, the capital's relocation is a pivotal element of the country's broader structural transformation.
For foreign business owners seeking to expand their operations in Indonesia, a range of options are available. However, an investment using the Penanaman Modal Asing (PMA) structure is the only business model that allows up to 100% foreign ownership.
Don't miss out on the services offered by Moores Rowland Indonesia, including company licenses and ESG advising as the Indonesian government opens up opportunities for international investors to operate within the Indonesian Capital City (IKN).
Please get in touch with us for additional details on our services including tax advisory: contact-Jakarta@moores-rowland.com or contact-Bali@moores-rowland.com.