27 ASIAN LEGAL BUSINESS – NOVEMBER 2023 WWW.LEGALBUSINESSONLINE.COM INDONESIA “Law firms can leverage government efforts in relation to IKN by assisting clients in identifying the projects which are available to investors as well as in the pipelines, advising about the benefits to investors of investing in IKN, identifying causes of delays in getting the benefits or in starting a project, as well in navigating the regulatory requirements or processes for doing business in IKN,” says Nadia Soraya, a partner at Baker McKenzie’s Indonesia member firm Hadiputranto, Hadinoto & Partners (HHP). NO SENSE OF SECURITY Experts say that the government has offered strong incentives to potential investors, but fails to provide a sense of security, especially surrounding implementation. “We believe that the incentives granted for investors in IKN will be a big selling point for investors. While the current regulations are lacking a sense of security for investors, especially regarding their implementation, there is still hope that implementing regulations would give more clearance for us to navigate the regulatory aspect of investment and project development in IKN,” Soraya says. As of Nov. 2, not a single foreign investor had finalised an investment agreement in the new capital. Jokowi has attributed this to sense of purposeful restraint on behalf of foreign investors, in order to give domestic players the first chance to invest. During the groundbreaking ceremony of Pakuwon Nusantara (a superblock) in the IKN area in East Kalimantan Province on Nov. 1, the President detailed that at least 130 investors from Singapore had come to see IKN in person several months ago, while investors from South Korea, Japan, Malaysia and the United Arab Emirates had also visited. According to data provided by the Nusantara Capital City Authority and compiled by PwC, there have been 182 letters of intent from investors expressing their interest in the project since October 2022, around 50 percent of whom are foreigners. The government has put in place measures to attract foreign investors to the new city, including Government Regulation 12 of 2023, which offers incentives such as corporate income tax exemptions, tax holidays, and personal income tax exemptions for investments in priority projects such as ports, airports, renewable energy systems, and healthcare services, among many others. Bambang Susantono, chair of the Nusantara authority, has also said in an investor meet that funding the project will be profitable, citing an 11 percent to 13 percent potential return on investing in the city’s power system. One of the most attractive sets of measures is the tax exemptions. The government will provide up to 100 percent corporate income tax exemption of between 10 and 30 years for domestic taxpayers that invest at least 10 billion rupiah ($651,000) in the new capital. The duration of the incentive depends on the sectors in which the investment is directed. Businesses operating in the new capital city will be allowed to employ foreign workers for a period of 10 years, which can be further extended. The government is offering investors 95-year land use permits, extendable for another 95 years and thus totalling 190 years for land use. Soraya explains that while the regulation incentivises private domestic and foreign investments in the region, it still remains general in nature and may not sufficiently address investor concerns in the region. “While the government of Indonesia has issued a set of rules and regulations to attract investment in Nusantara Capital City, including giving incentives and facilities for investing as well as ensuring the ease of doing business in IKN, these regulations are still pretty much general in nature. More detailed regulations are needed to implement the general regulations currently in existence.” Soraya says. “The Indonesian government’s concerted efforts to promote foreign investments in IKN present a plethora of opportunities. Law firms, with their legal acumen and in-depth knowledge of the regulatory landscape, are instrumental in ensuring that clients can leverage these initiatives effectively while remaining compliant.” — Bintang Hidayanto, Guido Hidayanto & Partners
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