To increase investment into Nusantara, the Government of Indonesia has issued Regulation No. 12 of 2023 (GR 12/2023) regarding Business Licensing, Ease of Doing Business and Investment Facility in Nusantara. Under GR 12/2023, companies are exempted from maximum foreign ownership requirements and are eligible to extend 95-year land permits for another 95-year cycle– the longest duration in Indonesia. Other incentives include allowing businesses to employ foreign workers for a period of 10 years with a possibility for future extension and exempting employers from contributing towards the Foreign Worker Compensation Fund.
These incentives build upon existing initiatives to draw businesses to the new capital. Indonesia has previously announced that banks and insurers which invest in Nusantara before 2035 would receive income tax exemptions for a maximum of 25 years, while those who invest before 2045 will receive a tax exemption of up to 20 years. Companies that invest at least $10 billion rupiah are eligible to receive a 100 percent tax break for anywhere between 10 to 30 years, with incentives dependent on the sector targeted by the investment. Individual income tax will also be borne by the government until 2035.
Experts believe that companies are delaying investments in Nusantara until after the 2024 Presidential elections, which could see the election of a new leader who chooses to deprioritize. However, assurance that the project will continue under a new Presidential administration is likely to abate investor concerns in the long-run.
Indonesia has broken ground on its new capital city Nusantara in East Kalimantan province. As public funds will only be used for 20 percent of the project, foreign investments and private funding remain key to the project’s success. In March 2023, the Nusantara Capital City Authority (NCCA) announced that 150 prospective local and foreign investors have signed letters of intent (LOIs) to assist in the capital’s construction and development. Only 14% of the city’s infrastructure has been completed thus far, even though Nusantara’s completion is slated for 2024.
