IKN Indonesia Opens New Doors to Foreign Investment

The Importance of Foreign Investment for IKN Indonesia

  • InCorp Editorial Team
  • 19 June 2024
  • 5 minute reading time

Indonesia’s new capital city, Ibu Kota Nusantara (IKN), offers a golden opportunity for foreign investors. Nusantara Capital aims to simplify and enhance investing in Indonesia by reducing bureaucracy and offering assistance to foster a conducive business environment. 

With its prime location and friendly policies, IKN Indonesia is paving the way for growth and collaboration for those serious about investing. 

Indonesia’s Plan to Build A New Capital City

Indonesia is presently in the process of establishing a new capital city called Nusantara, featuring a forest city concept located in North Penajam Paser, East Kalimantan.

Bambang Susantono, the Head of the Nusantara Capital Authority (OIKN), affirmed that investor interest in contributing to developing Indonesia’s new capital, Nusantara, remains strong, demonstrating a positive market outlook.

Required Investment in the IKN Project

President Joko Widodo has commenced 23 non-APBN (non-state budget) development projects within the Indonesia New Capital throughout 2023. Foreign investors participating in the Government and Business Entity Cooperation (KPBU) scheme are undergoing selection processes to contribute to developing residential and smart city technology in IKN Indonesia.

Beyond housing development, foreign investors are engaged in six categories of IKN initiative projects focused on establishing a smart city. These categories include urban systems, government services, access and mobility, safety and security, environment and sustainability, and livability for urban life.

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Opportunities for Foreign Investors

IKN Indonesia Opens New Doors to Foreign Investment

The government is promptly preparing mechanisms for foreign investor cooperation in IKN. To this end, the Nusantara Capital Authority Business Entity (BUO) will quickly prepare a cooperation format with the Indonesia Investment Authority.

Boyke P. Soebroto, CEO of the Nusantara Capital Authority Business Entity (BUO), stated that they are preparing to offer three sectors—telecommunications, transportation, and energy—to foreign investors. These three areas require significant and rapid investments.

Indonesia’s Investment Climate

Indonesia offers investors a favorable investment climate, especially those interested in IKN. Those are:

Ease of Doing Business in IKN Indonesia

  • Article 17, Paragraph 3: The IKN authority assures the duration of the Right to Utilize Land (HGU), Right to Build (HGB), or land use rights to business entities stipulated in the agreement.
  • Article 18, Paragraph 1: Grants the HGU a maximum duration of 95 years over the IKN authority’s Land Management Rights (HPL) through the first cycle.
  • Article 18, Paragraph 4: Within ten years before the end of the first cycle of HGU, business entities may apply for the renewal of HGU for a second cycle with a maximum duration of 95 years.
  • Article 19, Paragraph 1: Grants the HGB a maximum duration of 80 years over the HPL of the IKN authority through the first cycle.
  • Article 20, Paragraph 1: Grants a maximum duration of 80 years for land use rights over the HPL of the IKN authority through the first cycle.
  • Article 21, Paragraph 1: The grant of Land Rights in the form of HGU, HGB, or land use rights over HPL is subject to Land and Building Acquisition Duty (BPHTB) at a rate of 0 percent of the acquisition value for a certain period.
  • Article 21, Paragraph 2: After obtaining approval from the IKN authority, individuals may transfer, inherit, or encumber land rights (HAT).

Foreign Workers in IKN Indonesia

  • Article 22, Paragraph 2: Within ten years, foreign workers employed in the IKN area may receive approval for using foreign workers’ plans, with the possibility of extension.
  • Article 22, Paragraph 3: Businesses employing foreign workers are exempt from the obligation to pay compensation for using foreign workers for a certain period.
  • Article 23, Paragraph 1: The authorities may grant foreign workers ten-year residency permits.
  • Article 23, Paragraph 2: If the residency permit is nearing expiration, the employer and the foreign worker may extend it by the terms of their employment agreement.

Investment Facilities in IKN Indonesia

Article 27:

  • Reduced corporate income tax for domestic companies investing in IKN.
  • Special tax rates for financial activities conducted within the designated financial center.
  • Lower tax burdens for companies establishing or relocating headquarters and regional offices in IKN.
  • Tax breaks for businesses implementing work practices, internships, and competency-based training programs.
  • Tax reductions for companies conducting specific research and development activities.
  • Tax incentives for contributions towards public facilities, social facilities, and other non-profit amenities within IKN.
  • Government assumption of final income tax for employees under Article 21.
  • Zero final income tax on unavoidable gross business turnover for Micro, Small, and Medium Enterprises (MSMEs).
  • Reduced tax rates on the transfer of land and building ownership within IKN.

Corporate Income Tax Reduction Facilities in IKN Indonesia

  • Granted for investments in IKN with a minimum value of IDR 10 billion.
  • For investments strategically significant to accelerate the development and growth of IKN.
  • Granted at 100 percent of the total corporate income tax owed.
  • For infrastructure and public service sectors, granted for a 30-year tax period from 2023 to 2030.
  • From 2023 to 2030, economic sectors will receive a 20-year tax period grant.
  • From 2023 to 2030, other sectors will receive a 10-year tax period grant.

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Start Maximizing the Potential of IKN with InCorp

The emergence of IKN Indonesia presents a wealth of investment prospects for businesses seeking growth opportunities. Entrepreneurs looking to venture into IKN can benefit from InCorp Indonesia’s expertise.

With our specialized services in company registration and business licensing, we facilitate establishing your business within the IKN framework. 

By engaging InCorp, you gain access to comprehensive support to navigate the intricacies of setting up your business in IKN, ensuring a smooth and efficient process from start to finish.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

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