Indonesia has been planning to build a new capital city since 2019. The Government’s decision to relocate the capital from Jakarta to a new city is an effort to ease the overcrowding and traffic congestion in the capital, as well as reduce the risk of natural disasters, such as floods and earthquakes. Ibu Kota Nusantara (“IKN”), the name of this new capital, is expected to be built on the island of Borneo, in East Kalimantan province.

The Government’s plan for IKN includes a focus on business and economic growth. They believe that by creating a city designed with business in mind, they can attract more investment and create a more competitive economy. To achieve this goal, the Government is planning to build a state-of-the-art business district in IKN.

As part of the plan, the Government has issued Regulation No. 12 on Business License Issuance, Ease of Doing Business, and Investment Facilities for Businesses in IKN (“Regulation 12”). Under Regulation 12, the Central Government and IKN Authority are authorized to provide investors planning to develop IKN, with fiscal (as well as non-fiscal) incentives. These incentives by the Central Government include income tax, value-added tax, and sales tax on luxury goods facilities. Meanwhile, those by the Authority include land procurement assistance.

The incentives, however, are limited only to investors that meet certain criteria stipulated by Regulation 12. These criteria include holding the appropriate general business licenses and taxpayers and fulfilling shareholding limits.

Overall, Regulation 12 and incentives for investors in IKN are designed to create a supportive and sustainable environment for businesses. By working with investors to promote economic growth, while also ensuring that IKN is developed in a responsible and sustainable manner, the Government is taking important steps to promote the long-term success of IKN.

Regulation 12 will be effective immediately starting on the day it was promulgated, 6 March 2023.

This constitutes merely our initial review of Regulation 12 and must not be treated as our legal opinion. Any use of this other than for your internal or personal reference is prohibited unless a prior written consent has been obtained from us.

Should you have any questions, feel free to contact us through:

Ronaldi Reisman (Founding Partner): rreisman@rspstrategic.com 

Claudein Kezia Lainsamputty (Associate): ckezia@rspstrategic.com