Financial Centre to Have Own Rules, from Tax to Banking Supervision

The House of Representatives (DPR) has revealed that the draft law on the Indonesian International Financial Centre (PFII) will contain numerous exemptions from national regulations. These carve-outs will cover taxation, financial sector supervision, and the legal system, in a bid to enhance Indonesia’s competitiveness in attracting global investment. Mukhamad Misbakhun, Chair of the DPR’s Commission XI, stated that the establishment of the PFII sends a strong message to international market players that Indonesia possesses a financial zone with a special regime designed to compete with global financial centres. He explained that the zone would be granted various exceptions from general provisions in force in Indonesia, ranging from the tax system and financial sector oversight mechanisms to the use of common law for business dispute resolution. All these provisions will be formulated jointly by the DPR and the government during the bill’s deliberation. “Because there are many exceptions. Exceptions from the taxation system, exceptions from the financial sector supervisory system, exceptions from the legal system, because a common law system will be used, not civil law,” Misbakhun said at the DPR building on Friday. The area will also have special judicial authority so that business dispute resolution can be carried out more quickly, simply, and with legal certainty for investors. This model is expected to attract foreign companies to establish business entities within the PFII jurisdiction. Domestic businesses will also have the opportunity to set up companies in the zone. “The banking sector, insurance sector, pension funds, venture capital, securities, and other financial assets can all be established there,” he added. Misbakhun noted that the PFII will be a special enclave governed by its own law, meaning these special provisions will not require amendments to existing sectoral laws. However, he assured that financial activities in the zone will still be recorded in national economic statistics, including cross-border transactions, foreign capital flows, and dividend payments. “If foreigners enter there, we record it statistically as foreign exchange reserves. If they pay dividends there, they will be recorded as part of our foreign exchange reserves,” he explained. In drafting the bill, the DPR will also involve Bank Indonesia to discuss the currency system arrangements and harmonise the provisions with other regulations, such as laws on taxation, customs and excise, banking, and judicial authority. Misbakhun believes the PFII will be an important instrument to increase Indonesia’s competitiveness against more established international financial centres, such as Labuan in Malaysia and the Dubai International Financial Centre. He expressed hope that the zone, with its special legal regime and incentives, would encourage foreign investment into both the real and financial sectors, ultimately positioning Indonesia as an international financial hub in the region.