Indonesia New Special Economic Zone 2024

• 15 Jan 2025

In Indonesia, the Special Economic Zones (Kawasan Ekonomi Khusus or “KEK”) is a special zone designated for businesses that are granted with certain incentives and facilities from the government to establish their presence and perform their businesses in the zones. Throughout 2024, the Indonesian Government has stipulated four new KEKs, adding the total number of KEK in Indonesia to twenty four KEKs from previously only twenty KEKs.

Based on Article 3 (1) of Law No. 39 of 2009 on Special Economic Zone, lastly amended by Law No. 6 of 2023 on Enactment of Government Regulation in Lieu of Law No. 2 of 2022 or “KEK Law”, the government distinguishes eight main business sectors, which can be operated in a KEK. These business sectors include production and processing, logistics and distribution, development of technology, tourism, education, health, energy, and/or other economic activities.

In this article, we provide a summary of descriptions of these new KEKs, with the attached benefits and facilities.

Four New KEKs
Please refer to the following table below for the list of new KEKs, including their locations and
designated activities:
 

These new KEKs cover all business sectors permitted under KEK Law, providing a broader range of opportunities for business actors. Each of these KEKs brings unique potentials to its designated business activities and geographical location:

a. Tanjung Sauh KEK: This KEK offers opportunities for businesses in shipping, warehousing, and industrial processing, considering it is positioned near Singapore and Malaysia.

b. Setangga KEK: This KEK is an ideal place for mining, resource processing, and energy development businesses, considering its location in a resource-rich region.

c. Banten KEK: Since Banten is located near Jakarta, this KEK is appropriate for businesses in innovation-driven sectors such as technology, digital economy, and healthcare.

d. Batam KEK: This KEK could be a hub for tourism and health businesses. Batam KEK utilizes its natural attractions and strategic location as it is near Singapore.

Benefits and Facilities of KEK

The government’s benefits and incentives given to businesses in KEK include, inter alia: (i) taxation, (ii) traffic of goods, (iii) manpower, (iv) immigration, (v) land and spatial planning, (vi) business licensing, and (vii) other facilities (Article 2 (2) of GR No. 40 of 2021 on the Implementation of Special Economic Zone (“GR 40/2021”)).

In this article, we provide further elaboration on the taxation and manpower benefits, business actors should be aware of. Please observe the following points below:

a. Taxation: the taxation benefits offer facilities in the form of reduction or exemption of taxes, customs, and excise obligations within the KEK area. Some of the tax benefits in KEK are as follows:

(i) Reduction of Corporate Income Tax (“CIT”): A business with a minimum investment value of IDR 100 billion shall be given 100% reduction of CIT for period of 10 years (Article 5 (1) and (2) of Ministry of Finance (“MoF”) Regulation No. 237/PMK.010/2020 on Taxation, Customs, and Excises Treatment in Special Economic Zone as amended by MoF Regulation No.v33/PMK.010/2021).

Additionally, CIT exemption also applies to businesses that make land-related transactions, including land acquisition, land sales or purchases, or land leases (Article 80 of GR 40/2021).

(ii) Exemption of Value Added Tax (“VAT”): Businesses also receive VAT exemptions, including VAT and sales tax on luxury goods within the KEK area. This exemption is valid for several activities, such as imports of certain goods into the KEK and delivery of goods between businesses (Article 83 (1) of GR 40/2021 and Article 22 of MoF Reg. 237/2020).

(iii) Customs and Excise Benefits: The exemption of import duty in KEK area applies to business actors or importer of capital goods, provided they are under the construction or development stage (Article 89 (1) – (2) of GR 40/2021)

Once a business is in the production stage, the government provides (i) exemption of import duty for its consumer goods and free import tax in KEK designated for tourism; (ii) postponement of import duty and free import tax; and/or (iii) exemption of excise duty for raw or supporting materials, provided the final goods are not subject to excise (Article 89 (3) of GR 40/2021).

(b) Manpower: One benefit to the manpower sector is easier permit for foreign workers. As mandated by Manpower Law, an employer is required to obtain Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or “RPTKA”) before hiring a foreign worker. RPTKA is granted for six months and a maximum two year period (Article 17 (1) – (2) of Government Regulation No. 34 of 2021 on Foreign Workers or “GR 34/2021”).

When the company is hiring a foreign worker to work in KEK area, the RPTKA can be granted for the maximum five years. For foreigners serving as members of the Board of Directors (“BoD”) or Board of Commissioners (“BoC”), the RPTKA may be granted for the duration of their tenure. (Article 105 (2) of GR 40/2021 and Article 17 (3) of GR 34/2021).

Concluding Remarks

The number of newly established KEKs in Indonesia has increased significantly in 2024. During the preceding years, only one KEK was opened in each of 2023 and 2022. With the opening of these new KEKs, the total number of KEKs in Indonesia has reached 24. However, these new KEKs are still in construction and development phases. It may take up to three years before these KEKs can become fully operational.

The new KEKs reflect competitive and attractive opportunity for foreign investors to establish their businesses in a tax-friendly establishment within the Southeast Asia region.

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The article above was prepared by Audria Putri (Senior Associate), Mia Sari (Senior Associate), and M. Irfan Yusuf (Associate).