Indonesia Legal Update: Incentives for Four-Wheeled Battery Electric Vehicles

The Indonesian Government has issued a regulation that provides guidance on the granting of incentives for Battery Electric Vehicles (“BEVs”) previously introduced in Presidential Regulation No. 55 of 2019 regarding the Acceleration of the Battery Electric Vehicles for Road Transportation Program, as amended by Presidential Regulation No. 79 of 2023 (“PR 55/2019 as amended”).

Minister of Investment/Head of the Investment Coordinating Board (BKPM) Regulation No.  6 of 2023 regarding Guidelines and Governance on the Granting of Incentives for the Import and/or Delivery of Four-Wheeled Battery Electric Vehicles in the Event of Investment Acceleration (“Regulation 6/2023”) provides further guidance regarding the criteria, requirements, and procedures associated with the granting of such incentives.

Article 2 paragraphs (1) and (2) of Regulation 6/2023 provides that business actors may be granted incentives for the importation of completely built-up (CBU) four-wheeled BEVs and completely knocked-down (CKD) four-wheeled BEVs that will be assembled in Indonesia with local content of at least 20% and less than 40%.

Incentives are in the form of 0% import duty and a commitment by the Indonesian Government to bear the luxury-goods sales tax for a period extending from the promulgation of Regulation 6/2023 until December 31, 2025. Notably, Regulation 6/2023 contains prohibitions on business actors reapplying for incentives related to certain four-wheeled BEVs.

Incentive Recipient Criteria and Requirements

Business actors intending to obtain the incentives must meet criteria provided under Article 2 paragraph (5) of Regulation 6/2023. They must be industrial companies that:

1. will construct a four-wheeled BEV manufacturing facility in Indonesia;
2. has invested in a four-wheeled internal combustion engine-based motor vehicle manufacturing facility in Indonesia that will be completely/partially converted to the production of four-wheeled BEVs; and/or
3. has invested in a four-wheeled BEV manufacturing facility in Indonesia to introduce new products by improving planning and/or production capacity.

Business actors must also commit to the production of four-wheeled BEVs in Indonesia that meet the technical specifications set by the Ministry of Industry.

Regulation 6/2023 further describes the commitments required to qualify for the incentives, which are to:

1. produce four-wheeled BEVs in Indonesia in an amount and with technical specifications at least identical to the realized four-wheeled BEV imports (and/or deliveries);
2. apply for Ministry of Industry verification; and
3. pay sanctions if the first commitment is not fulfilled.

The commitment to produce four-wheeled BEVs in Indonesia under Regulation 6/2023 requires readiness for commercial production and implementation of production by no later than January 1, 2026, and December 31, 2027, respectively, while fulfilling the minimum local content requirements under PR 55/2019 as amended.

Process to Receive Incentives

To receive the incentives, business actors must apply through the Online Single Submission (“OSS”) System for an incentive proposal letter (“Proposal Letter”) and an incentive utilization approval letter (“Utilization Approval Letter”) in regard to the import and/or delivery of four-wheeled BEVs. The application must be submitted by March 1, 2025.

Such applications can be done in a gradual fashion. After the first Utilization Approval Letter is issued, incentives shall be granted for, at most, 25% of the total four-wheeled BEVs for which incentives were applied for in the Proposal Letter. Second-phase and any subsequent Utilization Approval Letters that are issued shall grant incentives in proportion to the realization of the investment with reference to the results of a field inspection as provided under Regulation 6/2023.

Proposal Letter

The application for a Proposal Letter must be accompanied by the required documents identified in Regulation 6/2023. Once completed, the application shall be subject to discussion. If the application is deemed to have been submitted completely and correctly the OSS System shall issue the Proposal Letter in accordance with the format provided in Annex III of Regulation 6/2023.

Utilization Approval Letter

A business actor in possession of a Proposal Letter may then proceed to apply for a Utilization Approval Letter by submitting a bank guarantee pursuant to the requirements of Regulation 6/2023, which shall be verified by the Ministry of Investment/BKPM and the issuing bank.

If the application is deemed to be in accordance with the applicable requirements, the OSS System shall notify the business actor of this decision before issuing the Utilization Approval Letter within five days of such notice. The format for the Utilization Approval Letter can be found in Annex V of Regulation 6/2023. Business actors intending to utilize the incentives are obligated to act as importers and to attach the Utilization Approval Letter in their Import Declaration.

As stated previously, the second-phase and subsequent applications for a Utilization Approval Letter will be issued following a field inspection by the Ministry of Investment/BKPM. The field inspection shall be conducted within five working days after an application is received to verify the realization of the investment.

Supervision and Sanctions

The Ministry of Investment/BKPM shall conduct routine supervision in relation to the granting and utilization of incentives for four-wheeled BEVs. Such supervision takes the form of field inspections and/or the delivery of a Capital Investment Activities Report through the OSS System by the business actor.

If a business actor fails to submit an industry verification application to the Ministry of Industry by April 30, 2028, sanctions may be imposed under Article 10 paragraph (4) of Regulation 6/2023. The amount of such sanctions shall be equal to the value of the incentive that has been utilized over the unrealized commitments of the business actor and payment shall be made to the state treasury.

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