Indonesia Prepares 50-Year Tax Holiday and 0% Income Tax to Rival Dubai and Singapore Financial Hubs

The government is preparing a major package of tax facilities to encourage the formation of the Indonesian International Financial Centre (PFII). The incentives range from a 50-year tax holiday and a 0% income tax rate to exemptions from withholding tax, Value Added Tax (VAT), and import duties for various transactions. These facilities are offered to financial sector companies, supporting businesses, workers, foreign investors, and the family members of ultra-high-net-worth individuals who establish family offices in Indonesia.

Under the proposed PFII Bill, financial sector companies are eligible for a 50-year tax holiday. Supporting companies and other sectors, including hotels, restaurants, and shopping centres that support PFII operations, will also receive a tax holiday, with the duration to be set by government regulation. Business actors will be exempt from withholding tax and will use a territorial tax system, meaning their tax base is limited to income sourced from Indonesia. This differs from the general Indonesian tax system, which taxes worldwide income.

For workers, foreign employees in the financial sector can receive a final income tax rate of 0% and use the territorial tax system. The 0% final income tax rate is also prepared for Indonesian citizen financial sector workers and ad hoc judges, with the duration of the facility to be regulated further. Foreign investors will be exempt from withholding tax on all income originating from the PFII for 50 years. Family members of ultra-high-net-worth individuals registered with a family office and holding a golden visa will not be considered Indonesian tax subjects, even if they reside in Indonesia for more than 183 days a year.

Property and imported goods for the development of the PFII zone will also receive tax breaks. The handover of buildings such as landed houses, apartments, offices, and shopping centres will not be subject to VAT. Exemptions also apply to construction services and imported goods used in the development of the PFII. Imported goods will be free from import duties, and the purchase of luxury residences in the PFII area will be exempt from Sales Tax on Luxury Goods and Article 22 Income Tax. Grant transactions to fulfil the initial capital of the PFII will also receive income tax and VAT facilities.

Despite the extensive tax incentives, all business actors must meet economic substance requirements, including minimum investment value, number of workers, annual operational expenditure, presence of management and control, and the conduct of main business activities within the PFII. Detailed provisions will be set by government regulation based on the proposal of the PFII Board, and violators remain subject to sanctions under applicable tax regulations. Finance Minister Purbaya Yudhi Sadewa emphasised that the PFII is directed to provide benefits for the domestic economy, stating that the law is not only to attract global investors but also to ensure alignment with national interests by opening access to international capital and investment for long-term financing to accelerate national economic growth.