Not Tax, This Is What Indonesia's PFII Must 'Sell' to Rival Singapore

The plan to establish the Indonesia International Financial Centre (PFII) signals the country’s new ambition to enter the global financial map. However, if the benchmark is Singapore, Indonesia must understand that its neighbour did not become a powerhouse solely through low taxes. Singapore built its advantage on trust, consistent regulation, a legal system familiar to global investors, and a deep financial services ecosystem. The latest data from the Monetary Authority of Singapore (MAS), released in 2025 for the end-2024 position, shows the city-state’s asset management industry recorded assets under management (AUM) of approximately S$6.07 trillion. This figure demonstrates Singapore’s massive scale as a cross-border fund management centre. Singapore’s model is not merely a place to park money. The majority of funds managed in Singapore originate from overseas, accounting for roughly 77%. Yet only about 12% of these funds are reinvested back into Singapore. This means Singapore acts as a hub where global funds are managed, structured, administered, and directed to various regional and global assets. Singapore’s main strength lies in trust. Global investors are comfortable because of MAS as a credible regulator, a common law legal system, a network of global banks, private bankers, fund administrators, law firms, auditors, tax consultants, and the Variable Capital Company (VCC) structure. The VCC is a flexible fund vehicle that can take the form of a single fund or an umbrella fund with multiple sub-funds. For investors, the search is not just for tax rates. They seek certainty: whether contracts can be enforced, whether money can flow in and out freely, whether disputes can be resolved quickly, whether the regulator is consistent, and whether rules do not change suddenly. On the Indonesian side, the circulating PFII draft is still an initial framework. The draft already contains important elements such as the PFII territory, the PFII Board, the PFII Financial Services Authority (LPJK PFII), the PFII Court, an arbitration institution, the use of English, tax facilities, foreign exchange transactions, and room to adopt international commercial law principles. However, the most decisive details are not yet finalised. The market must await derivative regulations, whether through Government Regulations, PFII Board Regulations, LPJK PFII rules, or technical tax rules. These details will determine whether the PFII becomes a credible financial centre or merely a tax-incentivised zone. Some aspects to watch include the PFII’s location, its relationship with Special Economic Zones, business licensing requirements, the form of tax facilities, foreign exchange repatriation rules, economic substance standards, the LPJK PFII’s relationship with the Financial Services Authority (OJK) and Bank Indonesia, and the PFII Court mechanism. Indonesia cannot simply imitate Singapore. If it only offers low taxes, English, and more flexible laws, investors will still ask: why move from Singapore? Indonesia’s advantage lies precisely in its real assets. The country possesses nickel, palm oil, coal for the energy transition, geothermal resources, forests, mangroves, carbon credits, infrastructure, a large domestic market, and a pipeline of state-owned enterprise and Danantara projects. Therefore, the PFII should be positioned as a real asset and transition finance centre. Under this concept, global investors could enter through the PFII to finance low-carbon smelters, battery supply chains, palm oil downstream processing, geothermal power plants, mangrove-based carbon projects, ports, toll roads, data centres, and Danantara or state-owned enterprise projects. Over a decade, Singapore’s AUM more than doubled. This shows that a financial centre is not built through a single law, but through policy consistency and ecosystem depth. The key for the PFII is ensuring that full facilities are not granted automatically to all parties. The greatest facilities should be directed towards investments that genuinely have economic linkages with Indonesia, whether through projects, commodities, shares, bonds, carbon credits, infrastructure, or financing for domestic companies. If the subsequent detailed rules are robust, the PFII could become a bridge between global capital and Indonesia’s real assets. But if they are too loose, the PFII risks becoming merely a low-tax booking centre. Singapore wins by being a place where global money is managed. Indonesia can win if it manages to turn its real assets into credible and attractive financial products for global investors. The government is targeting the PFII to attract foreign funds amounting to Rp300 trillion to Rp500 trillion. The Director General of Financial Sector Stability and Development at the Ministry of Finance, Herman Saheruddin, stated that this estimate depends on the PFII’s ability to compete with global financial centres like Singapore and Dubai. Incoming funds are expected to take the form of global investment, ranging from the opening of foreign bank branches to the establishment of companies in the PFII area. The government hopes the PFII’s presence will make Indonesia a competitive international financial centre. Herman confirmed that the tax regime in the PFII will still refer to global tax standards, including complying with the global minimum tax provisions. He stressed that Indonesia cannot implement a race to the bottom strategy by cutting taxes without limit to attract investment.