Mining in Indonesia – Duties, Royalties and Taxes

Law 4/2009 on Coal and Mineral Mining (Law 4/2009) obliges mining permit (IUP) and special mining permit (IUPK) holders to pay dead rent and royalties, which are categorized as non-tax state revenue (PNBP). The draft Amendment to Law 4/2009 (the Mining Law Amendment) additionally provides that PNBP includes other types of PNBP in accordance with the laws and regulations.

Government Regulation (GR) 81/2019 requires IUP and IUPK holders to pay dead rent of 30,000 rupiah per hectare per year for the exploration stage and 20,000 to 60,000 rupiah per hectare per year for the operation production stage. Additionally, IUP and IUPK holders must pay royalties ranging from 1 percent to 10 percent of the sale price of the minerals produced per year, depending on the type of mineral products. Dead rent and royalties payable by contract of work (CoW) holders are stipulated in the relevant contract.

IUP and IUPK holders are generally subject to:

• income tax at the rate of 25 percent of net taxable profit;
• VAT at 10 percent for the delivery of goods or services; and
• regional taxes and retributions.

The tax rate for CoW holders is stipulated in the relevant contract.

Tax Advantages and Incentives

GR 78/2019 on Income Tax Facilities for Investment in Certain Business Sectors and/or Located in Certain Areas (as amended) provides tax allowances for the mining sector are available subject to the fulfilment of certain criteria. Tax allowances include:

• a reduction of net taxable income up to 30 percent of the amount that has been invested, in the form of tangible fixed assets including land, prorated at 5 per cent for six years calculated from the commencement of commercial operation;
• an accelerated depreciation of tangible assets and amortisation of intangible assets;
• withholding tax on the dividends that are paid to non-residents, other than permanent establishments, at a rate of 10 percent; and
• an increased loss carry forward period from five years to 10 years

These allowances are generally applicable for the construction or expansion of smelters.

Transfer Taxes and Capital Gains

Under Law 4/2009, a mining license is not transferrable to another party, except for the transfer of an IUP from an IUP holder to its subsidiary or the transfer of an IUP of a state-owned enterprise to its subsidiary, pursuant to GR 23/2010. Such transfer is subject to the approval of the Ministry of Energy and Mineral Resources (MEMR), pursuant to article 66(k) of MEMR Regulation 7/2020. There is no provision on transfer taxes or capital gains resulting from the transfer of licenses.

It appears that the provisions on the transfer of IUP will be relaxed under the Mining Law Amendment, which requires IUP holders to complete the exploration stage and fulfil administrative, technical and financial requirements to subsequently obtain MEMR approval.  There is also no provision on transfer taxes or capital gains resulting from the transfer of licenses in the Mining Law Amendment. However, under the Mining Law Amendment the transfer of IUPs would be further regulated under an implementing government regulation.

This first appeared in the Lexology GTDT Mining 2020 global guide.

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