In 2023, as a part of efforts to establish the Capital City of Nusantara (Ibu Kota Nusantara – “IKN”) as a sustainable global city and a future driver of the Indonesian economy, the government issued Regulation No. 12 of 2023 on the Issuance of Business Licenses, Ease of Doing Business and Investment Facilities for Business Actors Within the Capital City of Nusantara (“Regulation 12/2023”), which has been in force since 6 March 2023.[1] In essence, Regulation 12/2023 addresses the issuance of business licenses, ease of doing business and the various investment facilities and incentives that are available to business actors who engage in business activities within IKN and certain regions of Kalimantan that are categorized as part of the IKN economic superhub (“Partner Regions”).[2]

However, the government recently also issued Regulation No. 29 of 2024 as the Amendment to Regulation 12/2023 (“Amendment”), which has been in force since 12 August 2024.[3] The Amendment, while maintaining the core provisions on ease of doing business and the various investment facilities and incentives that are available to business actors within IKN and Partner Regions, also further clarifies several details, primarily concerning the granting of land rights and the duration of the cycles that can be provided.

Against the above backdrop, this edition of ILB offers an analysis of the following matters:

1. Clarified Provisions on Business Licensing Requirements and Adjusted Land Rights;
2. Adjusted Provisions on Housing and Settlement Areas; and
3. Adjusted Investment Facilities and Incentives.

Clarified Provisions on Business Licensing Requirements and Adjusted Land Rights

The Amendment clarifies the criteria under which the detailed spatial plan of the capital city may be reviewed as a strategic national policy change, in line with IKN conditions and applicable Laws.[4] Additionally, environmental approvals, a fundamental requirement for business licensing, will now be issued based on the following considerations:[5]

1. An environmental feasibility decision, which is required for businesses and/or activities that must be accompanied by environmental impact analysis documents or environmental management and monitoring efforts; and/or
2. A statement of willingness to manage and monitor the environment.

These approvals will be granted by the IKN Authority and further addressed under a forthcoming Regulation of the Head of the IKN Authority.[6] Moreover, the Amendment has now expanded the various sources of funding that are available to the IKN Authority in order to appoint certified or accredited institutions or experts to verify the approval granting processes, as well as various requirements for business licenses and/or sector-specific business licenses in line with certain risks. These sources now include the IKN budget.[7]

The Amendment also broadly expands the authority of the IKN Authority as regards the management of land rights. Said authority now encompasses:[8]

1. Planning;
2. Security and maintenance;
3. Administration; and
4. Supervision and control.

The IKN Authority now guarantees the certainty of the duration of land rights for the first cycle, which can be extended for a second cycle as stipulated in the relevant agreements.[9] Said cycles break down as follows:[10]

1. Right to Cultivate (Hak Guna Usaha – “HGU”) for a maximum of 95 years through the first cycle, which can be extended for a second cycle for a maximum of 95 years based on criteria and evaluation stages;
2. Right to Build (Hak Guna Bangunan – “HGB”) for a maximum of 80 years through the first cycle, which can be extended for a second cycle for a maximum of 80 years based on criteria and evaluation stages; and
3. Right to Use for a maximum of 80 years through the first cycle, which can be extended for a second cycle for a maximum of 80 years based on criteria and evaluation stages.

Finally, the Amendment introduces various additional criteria that the IKN Authority will apply every five years when evaluating the granting of rights during the first cycle, including ensuring that land is not abandoned.[11] Moreover, business actors may apply for the renewal of their HGU, HGB or Right to Use for a second cycle up to ten years before their first cycle rights expire.[12]

Adjusted Provisions on Housing and Settlement Areas

The Amendment now clarifies that business actors operating within the housing and settlement areas sector who cannot fulfill the balanced housing obligation in other regions may do so within the IKN area in line with the detailed IKN spatial plan.[13] The fulfillment of this obligation may be achieved by submitting an application to the Head of the IKN Authority and by either constructing balanced housing within the IKN area or by paying a conversion fee for the fulfillment of balanced housing.[14] Thus, the Head of the  IKN Authority will determine the implementation of the balanced housing obligation in accordance with the priorities for housing and settlement area development within the IKN area and report it to the Minister of Home Affairs and the Minister of Public Works and Housing (collectively referred to as “Ministers”).[15] The results of said implementation will be reported on an annual basis at the least by the Head of the IKN Authority to the Ministers.[16]

Through the Amendment, the business actors outlined above will be able to enjoy the following incentives:[17]

1. Assistance for housing development programs;
2. Tax relief for simple houses in accordance with applicable Laws;
3. Assistance with infrastructure, facilities and public utilities;
4. Facilitation of land acquisition for housing developments and expansions;
5. Support for accessibility to balanced housing locations within the IKN area;
6. Exemption to land and building title transfer tax;
7. Land and building tax relief for certain periods; and/or
8. Awards for balanced housing development.

Adjusted Investment Facilities and Incentives

The Amendment has now adjusted the IKN Authority’s power to provide investment facilities, which now include special regional tax facilities for IKN, special IKN revenue and special IKN levies, as well as the facilitation and provision of land and infrastructure for all investment activities that are undertaken within the IKN area.[18] However, it should be noted that further provisions regarding the granting of facilities under the IKN Authority’s jurisdiction will be addressed in a forthcoming Regulation of the Head of IKN Authority.[19]

Moreover, the Amendment has also changed the term, “special tax facilities” to “special regional tax facilities”, which encompass incentives in the form of reductions, relief or exemptions from taxes and special IKN revenues.[20] In this regard, the provision of investment facilities that are part of special regional tax facilities can be granted in accordance with priorities that are stipulated by the Head of the IKN Authority.[21]

Key Takeaways

The hope is that the Amendment will increase business actors’ interest in investing in IKN and Partner Regions, as numerous incentives and facilities will now be provided by the Indonesian Government. Moreover, business actors should also pay attention to the HAT cycle durations that are stipulated under the Amendment and extend them in line with the specified timelines. Finally, business actors are expected to wisely maximize the facilities provided by the government in order to create a sustainable IKN region. _(RL)

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Source: hukumonline.com