Special Economic Zone in Indonesia – Pocket Guide
Learn all about the Special Economic Zone in Indonesia with 3E Accounting’s pocket guide to Kawasan Ekonomi Khusus.
Special Economic Zones (SEZs) are specially designated areas that offer tax breaks and tariff concessions. These trade and business laws vary from the rest of the applicable regulations of the country. SEZs are located within the boundaries of a country, offering economic and strategic benefits due to their geographical position. The Special Economic Zone in Indonesia is being developed at a rapid pace to increase trade and revive the pandemic-hit economy. Spanning from the east to the west of Indonesia, these SEZs are created specifically for the purpose of ease of doing business.
A Special Place to Trade
SEZs are aimed at kick-starting economies and increasing investment. Indonesian SEZs have sustainable infrastructure implementation and special facilities aimed at attracting investors. The Indonesian Government recently ratified Regulation No. 1 of 2020 in a bid to attract USD50 billion in investment. It is aimed at simplifying taxation and expanding incentives to achieve its financial targets within the next decade. Some of the proposals include export-oriented zones and a digital park. The export-oriented zones will cater to the automotive and electronic industries as well as basic chemical industries.
Article 3 of this regulation stipulates that SEZs can be in new areas or existing zones can be expanded. It also allows for SEZs to be established in Free Trade Zones and Free Port. Currently, the total investment in SEZs amount only to USD1.5 billion.
In Indonesia, SEZs fall under the purview of Law No. 39 of 2009 on Special Economic Zones, which sets out the standards for zoning. These include, amongst others:
- Article 3 of the Law, i.e., purposes as established by the National Council include:
- Financial services
- Technology development
- Export processing
- Other economic activities
- Article 4 of the Law, i.e. criteria include:
- Clear boundaries not encroaching on conservation areas.
- Follows Regional Spatial Planning.
- Provincial, district, city, regional administration supports the SEZ.
- Proximity to prime resource potential, international trading hub, or international shipping channel.
The new Regulation allows SEZs to be proposed by any legally incorporated business entity. Ministry or non-ministerial government institution. These include limited liability companies, joint ventures or consortiums, and even state-owned enterprises and regional governments. Written proposals need to be submitted to the National Council and if approved, will grant the operation of the SEZ for a maximum of three years. Indonesia currently has eleven operational SEZs or Kawasan Ekonomi Khusus (KEK):
- KEK Arun Lhokseumawe
- KEK Bitung
- KEK Galang Batang
- KEK Maloy Batuta Trans Kalimantan (MBTK)
- KEK Mandalika
- KEK Morotai
- KEK Palu
- KEK Sei Mangkei
- KEK Sorong
- KEK Tanjung Kelayang
- KEK Tanjung Lesung
Four more SEZs are under construction:
- KEK Kendal
- KEK Likupang
- KEK Singhasari
- KEK Tanjung Api-Api
However, the recently passed Omnibus Law affects and amends Law No. 39 of 2009. It has added education, health, and sports sectors while adopting a whole range of other exemptions. This includes the appointment of directors, exemptions on imports, the appointment of foreign commissioners, etc. To learn more about the Special Economic Zone in Indonesia, Contact 3E Accounting today. We offer customizable solutions and guidance for all your business needs.