Tax Allowance for PT PMA: A Strategic Guide to Leveraging Tax Incentives in Indonesia’s Priority Sectors

In the global competition to attract Foreign Direct Investment, fiscal policy serves as a strategic instrument that determines a country’s competitiveness.

Indonesia positions tax incentives as part of its long term investment architecture, particularly for business sectors that generate significant impact on industrialization, resource downstreaming, and regional economic equalization.

One of the key instruments within this policy framework is the Tax Allowance for PT PMA, which refers to a Corporate Income Tax incentive under Article 31A of the Income Tax Law, formally implemented through Government Regulation Number 78 of 2019. 

This scheme is designed to support Foreign Investment Limited Liability Companies, known as Perseroan Terbatas Penanaman Modal Asing or PT PMA, in establishing or expanding production capacity in Indonesia, particularly within designated priority sectors.

Unlike a Tax Holiday, which provides full corporate income tax exemption for pioneer industries with substantial investment thresholds, a Tax Allowance provides relief based on fixed asset investment costs. 

This approach offers broader flexibility for manufacturing, infrastructure, technology, and other sectors that deliver substantial economic contributions, even if they are not classified as pioneer industries.

Legal Framework and Regulatory Developments in 2025

The primary legal basis for the Tax Allowance is Government Regulation Number 78 of 2019, which replaced previous regulations. 

Hierarchically, this policy originates from Article 31A of the Income Tax Law, which authorizes the government to grant fiscal facilities for investments that generate significant economic impact.

Recent regulatory developments have strengthened the integration between fiscal incentives and the licensing system. Government Regulation Number 28 of 2025 concerning Risk Based Business Licensing replaces Government Regulation Number 5 of 2021 and reinforces the role of the Online Single Submission system, known as OSS, as a single gateway for licensing and investment incentive applications.

Key changes introduced under Government Regulation Number 28 of 2025 include:

• Full integration of fiscal incentive applications within the OSS system
• Parallel submission mechanisms for environmental and technical approvals
• Clear service time limits under a positive silence principle
• Expansion of covered business sectors

Minister of Investment Regulation Number 5 of 2025 further provides technical guidance for PT PMA in applying for incentives through OSS, including adjustments to minimum investment requirements and the integration of technical compliance. 

For foreign investors, these updates enhance procedural certainty while shortening project realization timelines.

The Four Pillars of the Tax Allowance Facility

The Tax Allowance for PT PMA is structured around four main pillars that improve cash flow during the early phase of investment. These pillars operate collectively and directly influence medium term tax planning.

Thirty Percent Net Income Reduction

Companies are entitled to reduce taxable net income by 30 percent of the value of tangible fixed asset investments. This reduction is allocated over six fiscal years starting from the commencement of commercial production, at five percent per year.

From a financial perspective, this mechanism lowers the taxable base, thereby reducing corporate income tax liabilities during the early operational period. The benefit is particularly relevant during the construction and stabilization phase of a project.

Accelerated Depreciation and Amortization

The facility allows depreciation and amortization to be calculated over half of the normal useful life. By recognizing higher expenses in the early years, companies gain stronger liquidity before the project reaches its break even point.

Reduced Withholding Tax on Dividends

Withholding Tax Article 26 on dividends distributed to foreign shareholders is reduced to 10 percent or to a lower rate if stipulated under a Double Taxation Avoidance Agreement. For multinational groups, this provision improves capital repatriation efficiency and enhances profit distribution planning.

Extended Loss Carry Forward

Fiscal loss carry forward may be extended up to a maximum of ten years, subject to additional qualifying criteria. These criteria include:

• Investment within industrial zones
• Investment in strategic infrastructure sectors
• Use of at least 70 percent local raw materials
• Employment of at least 600 local workers
• Research and development expenditure of at least 5 percent of total investment
• Business expansion from prior investments

This flexibility provides fiscal protection for projects with extended construction periods or capital intensive characteristics.

Strategic Considerations Between Tax Allowance and Tax Holiday

For PT PMA, selecting the appropriate incentive requires structural evaluation that considers investment scale, business sector, and long term tax projections.

A Tax Holiday offers corporate income tax exemption of up to 100 percent for a specific period, subject to minimum investment thresholds ranging from IDR 100 billion to IDR 500 billion, depending on industry classification.

By contrast, the Tax Allowance does not impose a uniform national investment threshold but instead refers to sector specific criteria under Government Regulation Number 78 of 2019. The fundamental distinction lies in the incentive mechanism:

• A Tax Holiday eliminates corporate income tax payable for a defined period
• A Tax Allowance reduces the taxable base while maintaining the applicable tax rate

Within the context of the Global Minimum Tax (GMT) set at 15 percent, the Tax Allowance is generally considered more stable because companies continue to record and pay taxes in Indonesia. This reduces the potential risk of additional top up tax in the investor’s home jurisdiction.

The Impact of KBLI 2025 on Incentive Eligibility

The Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI) is a critical variable in determining eligibility for incentives. The 2025 update introduces structural changes, including the splitting and merging of business codes, which affect licensing and investment requirements.

Incorrect classification may result in:

• Rejection of the incentive application
• Non compliance with the Positive Investment List
• Obstacles in Investment Activity Reporting (Laporan Kegiatan Penanaman Modal)

A six month transition period requires companies to update their OSS data to maintain incentive eligibility. An internal audit of KBLI codes is therefore essential before submitting a Tax Allowance application for PT PMA.

Application Procedure through the Online Single Submission System

The application process for the Tax Allowance for PT PMA consists of two sequential phases.

Application Phase

Applications must be submitted through OSS simultaneously with or within one year after the issuance of the Business Identification Number (NIB).

The process includes:

• Validation of corporate data and KBLI classification
• Automatic verification of the Tax Clearance Certificate
• Submission of investment plans and Internal Rate of Return projections
• Evaluation by the Investment Coordinating Board known as Badan Koordinasi Penanaman Modal
• Issuance of a Minister of Finance Decree

Utilization Phase

The facility may only be utilized after commercial production has commenced and verification by the Directorate General of Taxes has been completed. Investors must submit detailed fixed asset realization reports and be prepared for on site inspections. Any modification of submitted data during the audit process may result in suspension of the facility.

Capital Structure and PT PMA Status

Minister of Investment Regulation Number 5 of 2025 sets the minimum total investment at IDR 10 billion per KBLI with a minimum paid up capital of IDR 2.5 billion. The remaining investment may consist of machinery, equipment, or construction costs.

As a large scale enterprise, PT PMA is required to establish partnerships with local Micro, Small, and Medium Enterprises through the OSS system. This obligation forms part of the policy design to ensure that investment benefits are distributed inclusively.

Challenges and Risk Mitigation

Practical implementation still presents administrative and technical challenges. Common obstacles include complex field verification procedures, differing interpretations of KBLI classifications, and insufficient asset documentation.

To mitigate these risks, companies are advised to conduct legal and KBLI audits prior to registration, maintain structured fixed asset documentation from the outset of investment, and perform long term tax simulations that incorporate Global Minimum Tax implications.

The Role of XPND in Optimizing Tax Incentives

The complexity of the Tax Allowance for PT PMA lies in coordinating investment structuring, KBLI classification, OSS validation, and documentation readiness during tax verification. Errors at an early stage may delay approval or invalidate granted facilities. 

In this context, strategic advisory support becomes essential. Foreign investors require an integrated approach that aligns legal, tax, and investment licensing considerations.

As a strategic partner, XPND supports this process through initial ownership and KBLI audits, long term fiscal impact simulations including Global Minimum Tax analysis, assistance in OSS based applications through to Ministerial approval, and preparation of fixed asset realization documentation for tax verification.

This structured approach enables PT PMA to optimize the Tax Allowance while maintaining legal certainty and tax compliance.

In an increasingly competitive investment environment, fiscal decisions form part of long term business strategy. With proper planning and professional guidance, the Tax Allowance can serve as an effective instrument to strengthen investment structures in Indonesia.