Renewable Energies - New Legal and Tax Developments in Indonesia

​In a nutshell:

In the light of significant infrastructure deficits the Indonesian government promotes the utilization of renewable energy to generate electricity; it is envisaged to generate 35.000 MW in 2019. The depletion of fossil-based energy reserves requires innovation to ensure sustainable energy supplies. Indonesia has a large potential to utilize renewable energy, such as geothermal, wind, bioenergy, solar energy, water flow and other hydro powers. In this regard we see a certain facilitation progress of the investment and tax environment.

New Negative List 

On 18 May 2016, the Indonesian government issued the new Negative List as set out in Presidential Regulation number 44 of 2016 on List of Business Fields Closed to Investment and Business Fields Open with Condition to Investment to replace the old negative list (Presidential Regulation number 39 of 2014). Conditions on foreign investment are mostly imposed in form of shareholding limitations. The new Negative List provides some positive developments in the investment sector of renewable energies, an overview can be seen in below table.

Table 1: Comparison of the negative lists from the years 2014 and 2016

(Click to enlarge)

Tax Facilities for Renewable Energy Resource Utilization 

Income Tax

Tax Facilities 

• Investment allowance at 30% of total investment, for a period of 6 years
• Accelerated depreciation and amortization¹

Table 2: Depreciation and amortization procedure
(Click to enlarge)

• Withholding tax rate on dividends paid to non-resident at 10%, or at lower applicable tax treaty rate

• Extended carried forward loss period from 5 years up to 10 years, depending on the following conditions:
  

1. Additional 1 year: The investment is located in industrial or bonded zone
2. Additional 1 year: Employs at least 500 Indonesian manpower during 5 consecutive years
   
3. Additional 1 year: Expense of economic and social infrastructure in the investment location amounts at least 10 billion IDR
4. Additional 1 year: Domestic R&D expense amounts at least 5% of total investment during 5 year period
5. Additional 1 year: Utilizes domestic raw materials/components at least 70% since the 4th year
      
• Exemption of withholding income tax Article 22 for import of machinery and equipment (assembled or not assembled), but not including spare parts;
  
                                 

Beantragung der Steuererleichterungen

• Taxpayer’s application shall be submitted to the Head of the Investment Coordination Board BKPM, and it will be proposed by The Head of BKPM to the Ministry of Finance through the Director General of Taxation (DGT) with the following attachments:
   
1. Copy of Taxpayer Identification Number 
   
2. Permit license of new investment or additional investment, including the details
      
• The proposal received by the DGT will be further examined and the decree concerning the facility entitlement/rejection will be published about 10 days after the proposal was received.
  

 
Utilization

• Facility of investment allowance may be utilized after the Taxpayer realizes 80% of the investment plan. This provision is not applied to Taxpayers who are already granted with the facility based on the Government Regulation No. 1 of 2007 and Government Regulation No. 62 of 2008
• Facility of exemption from Income Tax Article 22 is utilized automatically without requiring a certificate of exemption

Value Added Tax (VAT)

Freistellung von der Mehrwertsteuer für den Import von Maschinen und Ausstattungen (montiert oder zerlegt), nicht anwendbar für Ersatzteile.

Import Duty²

• Exemption of Import Duty for import of machinery, goods and materials based on MOF Regulation No. 176 / PMK.Oll / 2009 on facility exemption from import duty on goods and materials, engineering and for industrial development in capital investments, along with amendments.
  
• Exemption of Import Duty for import of Capital Goods based on MOF Regulation No. 154/PMKOll/2008 on exemption of import duty on capital goods imports in the context of Development in Industrial Power Generation for Public Interest, along with amendments.

PV Pricing Challenges 

Although various legal reforms to facilitate investment in this sector were conducted by the government, difficulties remain. Investors considering to engage in the renewable energy sector have no guarantee that the electricity generated by their power plant can be sold at proper price to the Indonesian state owned company holding the monopolistic right to provide electricity to end customers, i.e. PT PLN (Perusahaan Listrik Negara / State Electricity Company).

The issue is further addressed by the Indonesian government which issued Presidential Decree number 18 of 2016 granting rights to the Governor of DKI Jakarta, Mayor of Tangerang Selatan, Mayor of Bandung, Mayor of Semarang, Mayor of Surakarta, Mayor of Surabaya and Mayor of Makasar to appoint a local state owned company or private company to develop power plants generating energy from city waste. The respective selling price to PT PLN will be determined by MEMR.
 

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¹ Beneficiaries of tax breaks: taxpayers who carry out renewable energy activities in Indonesia

² MoF Regulation No. 21/PMK.011/2010