The government of Indonesia selected two islands - Resort islands Bintan and Rempang, situated near Singapore - as the possible location for its tax haven (a low-tax jurisdiction that should prevent Indonesian taxpayers from moving their assets to other countries in search of more attractive tax rates, while non-residents will also be able to establish so-called shell companies). Currently, a significant portion of Indonesian funds flow to offshore financial centers in Singapore, Mauritius, British Virgin Islands and Panama.
Last month former Indonesian Finance Minister Bambang Brodjonegoro told reporters that the Indonesian tax haven should be located on an island where infrastructure is sufficient and with an international banking institution available in the area. The islands Bintan and Rempang that are the candidates for the tax haven are located only one-hour (by ferry) from Singapore and next to the Indonesian island of Batam (a free trade zone). Rempang is connected to Batam by a road bridge.
The Indonesian government is eager to create a tax haven soon as it fears outflows of funds three years after the tax amnesty program has finished. The country's tax amnesty program, which runs from mid-July 2016 to 31 March 2017, stipulates that repatriated funds (back into Indonesia) need to remain in specific investment instruments for at least three years. After this three-year period, however, the individual or company is allowed to move its assets abroad, most likely in order to enjoy more competitive tax rates in the so-called tax havens. An Indonesian tax haven would be the solution to prevent massive outflows three years after the ending of the tax amnesty scheme. The Indonesian government targets to see the repatriation of IDR 1,000 trillion (approx. USD $76 billion) through the tax amnesty program.
When the Indonesian tax haven can be inaugurated remains unknown. Indonesian Coordinating Maritime Minister Luhut Panjaitan said on Friday (12/08) that the government first needs to revise the existing tax laws, prepare additional infrastructure, and curb red tape in order to smoothen business activities in the area.
Poll Indonesia Investments
Do you think that Indonesia's tax amnesty program will be a success?
Voting possible: -
- Yes, I do (50.6%)
- No, I don't (32.8%)
- I don't know (16.6%)
Total amount of votes: 2421
Corporate Income Tax in Indonesia
Last week, both Indonesian President Joko Widodo and Finance Minister Sri Mulyani Indrawati (who replaced Bambang Brodjonegoro in the latest cabinet reshuffle) stated that Indonesia's corporate income tax rate could be cut to 17 percent, from 25 percent currently, in order to make it more attractive for investors to move, or keep, their business in Indonesia. Ken Dwijugiasteadi, the Finance Ministry’s Taxation Director General, even suggested that the nation's corporate income tax could be cut as low as 10 percent (equaling the nation's value-added tax).
Read more: Tax System of Indonesia