A brief introduction to Indonesia´s Special Economic Zones

      

A SEZ is a designated area within Indonesia in which businesses can perform certain economic functions and benefit from various facilities. Each SEZ focuses on particular business sectors, and the facilities available depend on the SEZ's focus. Since 2009, the government has established 24 SEZs across Indonesia, with 20 fully operational and the rest in development. These SEZs cover diverse sectors such as healthcare, education, manufacturing, tourism, and entertainment.

     

The focus of an SEZ is influenced by various factors, primarily the potential of the region where it is located. For example, the Mandalika SEZ on the picturesque island of Lombok leverages its natural beauty to focus on tourism, specifically sport tourism, and regularly hosts international racing events such as MotoGP, ARRC, and GT World Challenge Asia. Another example is the Nongsa SEZ, commonly known as Nongsa Digital Park (NDP) in Batam, which focuses on the development of the digital and creative economy. NDP is advertised as an ideal location for data centers due to its geographical location (and far from earthquake lines).

     

SEZs offer various fiscal and non-fiscal facilities, including tax holidays, tax allowances, exemptions from import duties and excise, and simplified licensing and immigration processes. While all investors can generally benefit from investing in SEZs regardless of their business activities, the most substantial incentives are typically reserved for investors whose business activities align with the SEZ's focus. For instance, a manufacturing company in a manufacturing-focused SEZ may qualify for both tax holidays and tax allowances, whereas companies with other business activities in the same SEZ might only be eligible for tax allowances.

     

Foreigners with specific expertise and qualifications working in SEZs may also enjoy benefits such as more relaxed tax rules, simplified expatriate employment regulations, and the ability to own property within the SEZ. However, it is important to note that the incentives offered at SEZs are not granted automatically. Investors often need to go through an application process to enjoy these incentives. The application process can be complex and prolonged due to conflicting regulations.

     

With a growing number of SEZs available, finding one that suits your needs should not be too difficult. However, sound planning is essential to ensure that you can fully take advantage of the incentives offered.

     

Rödl & Partner will closely monitor the situation and provide regular updates. Please contact us if you wish to receive more comprehensive advice on this topic.