Indonesia is entering a new phase of accelerated industrialization aligned with its Indonesia Emas 2045 vision. The Government is prioritizing downstream processing, strengthening manufacturing capabilities, and digital economic transformation as key growth drivers.
Within this broader strategy, the Corporate Income Tax reduction facility, widely known as a tax holiday, has become one of the most aggressive fiscal instruments to attract foreign direct investment.
For foreign investors considering expansion into Indonesia, understanding how to obtain a tax holiday is no longer merely a tax issue. It is a strategic decision that directly affects cash flow, financing structure, and long term profitability projections.
With the introduction of Indonesia’s Global Minimum Tax policy at 15 percent, investment planning must now be approached with greater precision.
Through Minister of Finance Regulation Number 69 of 2024 (Peraturan Menteri Keuangan Nomor 69 Tahun 2024), the Government has extended the application deadline for tax holiday facilities until 31 December 2025 while preparing the regulatory framework for 2026.
This extension creates a critical window for investors to secure incentives before the global tax landscape fully evolves.
In practical terms, how to obtain a tax holiday in Indonesia begins with validating the business sector, meeting the minimum investment threshold, and submitting the application through the Online Single Submission Risk Based Approach (OSS RBA) system, before the company commences commercial production.
Structure and Benefits of the Tax Holiday Facility in Indonesia
A tax holiday refers to a Corporate Income Tax reduction facility, known in Indonesia as Pajak Penghasilan Badan (PPh Badan), granted on income derived from the main business activities of companies categorized as pioneer industries.
This facility is designed to stimulate investment in strategic sectors that generate high value added and significant multiplier effects for the national economy. The benefit structure is determined hierarchically based on the realized investment value.
For investments of at least IDR 500 billion, companies are eligible for a 100 percent Corporate Income Tax reduction for a period ranging from 5 to 20 fiscal years, depending on the investment scale.
The detailed structure is as follows:
| Investment Value | Years |
| IDR 500 billion to less than IDR 1 trillion | 5 years |
| IDR 1 trillion to less than IDR 5 trillion | 7 years |
| IDR 5 trillion to less than IDR 15 trillion | 10 years |
| IDR 15 trillion to less than IDR 30 trillion | 15 years |
| More than IDR 30 trillion | 20 years |
For investments between IDR 100 billion and less than IDR 500 billion, a 50 percent Corporate Income Tax reduction is available for five fiscal years.
After the main incentive period ends, a transitional period applies. Recipients of the 100 percent reduction receive a 50 percent reduction for an additional two fiscal years. Recipients of the 50 percent reduction receive a 25 percent reduction for two additional fiscal years.
However, these benefits do not automatically apply to all investments. The facility is granted only if the proposed project qualifies as a pioneer industry in accordance with prevailing regulations.
Eighteen Pioneer Industry Sectors Eligible for the Facility
A key element in understanding how to obtain a tax holiday is ensuring that the project qualifies as a pioneer industry. The Government has designated eighteen pioneer industry groups, covering approximately 174 Indonesian Standard Industrial Classification codes (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI).
These sectors include:
- Integrated upstream basic metals including nickel, aluminum, and copper
- Oil and gas refining
- Integrated petrochemicals
- Integrated organic and inorganic basic chemicals
- Active pharmaceutical ingredients manufacturing
- Irradiation and electromedical equipment
- Core electronic and semiconductor components
- Industrial machinery and robotics components
- Motor vehicles including electric vehicle ecosystems
- Economic infrastructure such as ports and toll roads
- Digital economy activities including data centers and hosting services
Sector eligibility depends heavily on the alignment of the KBLI code stated in the Business Identification Number (Nomor Induk Berusaha or NIB), registered within the OSS system. Misalignment of KBLI codes is one of the most common reasons for rejection.
For industries not explicitly listed among the eighteen sectors, a quantitative assessment pathway is available. Investors must achieve a minimum score of 80 points based on criteria such as labor absorption, Domestic Component Level (Tingkat Komponen Dalam Negeri or TKDN), project location outside Java, technology transfer, and overall economic value added.
Impact of Indonesia’s Global Minimum Tax on the Tax Holiday
Beginning in 2024 and 2025, Indonesia implemented the OECD Pillar Two framework through a Global Minimum Tax mechanism set at 15 percent. This rule applies to multinational enterprise groups with consolidated annual revenue of at least EUR 750 million in at least two of the previous four fiscal years.
If a company benefits from a 100 percent tax holiday and its effective tax rate falls below 15 percent, Indonesia will impose a Domestic Minimum Top Up Tax to reach the 15 percent threshold.
For medium scale investors below the revenue threshold, the tax holiday benefit can still be fully enjoyed under domestic rules.
For large multinational groups, the facility remains advantageous because an effective tax rate of 15 percent is still lower than the standard Corporate Income Tax rate of 22 percent. Effective Tax Rate (ETR) simulation and planning therefore become critical components of the investment decision.
Key Requirements for Foreign Investors
The requirements follow Minister of Finance Regulation Number 130 of 2020, as amended by PMK 69 Tahun 2024.
Key criteria include:
- The company must be established as an Indonesian legal entity or a Foreign Direct Investment Company (Perseroan Terbatas Penanaman Modal Asing or PT PMA)
- The investment must be new and must not have previously received a Corporate Income Tax facility decision
- The debt to equity ratio must not exceed 4 to 1
- All shareholders must possess a valid Tax Clearance Certificate (Surat Keterangan Fiskal or SKF)
- The company must commit to realizing the investment within one year after approval
Failure to comply with the Debt-to-Equity (DER) ratio requirement may result in disallowed interest deductions and potential rejection of the application.
Step by Step Application Process through OSS RBA
Applications must be submitted through the OSS RBA platform.
First, the PT PMA must be legally established and obtain a valid NIB with the appropriate KBLI classification.
Second, the applicant selects the Tax Holiday facility under the facilities menu in OSS before commencing commercial production.
Required documents include:
- A fixed asset investment plan with detailed layout
- Financial projections and capital structure documentation
- Tax Clearance Certificates for the company and its shareholders
The Ministry of Investment, formerly known as Badan Koordinasi Penanaman Modal or BKPM, conducts the technical evaluation. For clearly categorized pioneer industries, verification is generally faster. For projects applying through the scoring mechanism, interministerial coordination is required.
The final stage is the issuance of a Minister of Finance Decree (Keputusan Menteri Keuangan or KMK), specifying the percentage and duration of the tax reduction.
Special Incentives in the New Capital City and Special Economic Zones
Under Minister of Finance Regulation Number 28 of 2024, a more aggressive incentive regime applies in the New Capital City, known as Ibu Kota Nusantara or IKN.
The minimum investment threshold in IKN is IDR 10 billion, with a maximum tax holiday duration of up to 30 years for certain sectors. Financial services and regional headquarters operations are also eligible.
Special Economic Zones provide similar incentives, subject to project type and location.
Post Approval Compliance and Risk of Revocation
After the KMK is issued, compliance obligations become critical.
Companies must submit the Investment Activity Report (Laporan Kegiatan Penanaman Modal or LKPM), on a quarterly basis through the OSS system. Investment realization and employment data must align with the original plan.
The determination of the Commencement of Commercial Production (Saat Mulai Berproduksi Komersial or SMB) is conducted through an audit by the Directorate General of Taxes (Direktorat Jenderal Pajak or DJP). The tax holiday period officially begins from the fiscal year in which SMB is approved.
Non compliance or material discrepancies in fixed assets may result in revocation of the facility.
Strategic Approach to Optimizing How to Obtain a Tax Holiday
For foreign investors, the most effective approach is to structure the investment correctly from the outset rather than treating the tax holiday as a procedural afterthought.
Recommended actions include:
- Conducting a detailed KBLI audit prior to NIB registration
- Simulating the impact of Indonesia’s Global Minimum Tax on the ETR
- Structuring financing to comply with the DER
- Ensuring readiness for LKPM reporting and ongoing compliance
- Evaluating location alternatives such as IKN
This structured approach significantly reduces administrative rejection and revocation risks.
The Role of XPND in Securing Tax Holiday Facilities
Understanding how to obtain a tax holiday in Indonesia requires more than meeting formal requirements. Investors must ensure that investment structuring, KBLI selection, capital allocation, and financial projections align with PMK 69 Tahun 2024 and Indonesia’s Global Minimum Tax framework.
In practice, technical inconsistencies such as KBLI misalignment, non-compliant capital structure, or incomplete OSS data may result in administrative delays or formal rejection of the application. Early stage planning is therefore essential.
XPND supports investors from the initial PT PMA establishment stage, validating sector eligibility and structuring investments in accordance with regulatory parameters. For multinational groups, effective tax rate impact analysis is integrated into pre application planning.
During implementation, document coordination and OSS data consistency are prioritized. After approval, monitoring investment realization, LKPM submission, and SMB determination remains essential to prevent revocation.
Through a structured and regulation aligned approach, XPND assists foreign investors in securing tax holiday facilities in a manner that ensures long term protection and optimal fiscal efficiency throughout the incentive period.
