Key incentives include up to a 100 percent corporate (PPh Badan) and individual income tax discount (the latter specifically for foreign financial experts), exemptions from value-added tax (VAT) and luxury goods tax (PPnBM), and non-fiscal perks such as golden visas, simplified immigration, and residency permits. The center is designed to encompass 17 financial fields and six supporting sectors. Indonesian lawmakers argue that generous concessions are necessary to enhance Indonesia’s competitiveness as a G20 member and fulfill its critical need for foreign direct investment (FDI).
However, there is concern that this generous incentive regime could backfire. For example, the zero percent tax rate at the PFII (Pusat Finansial Internasional Indonesia) could become the breeding ground for capital round tripping practices. Capital round-tripping is defined as a deceptive financial practice where money is moved out of a country through offshore shell companies, or tax havens, and then returned to the originating country disguised as foreign investment, loans, or trade income. Therefore, technically, the funds that originate from Indonesia could be reclassified as FDI that enjoys zero corporate income tax in the new financial center of Indonesia.
Addressing these anxieties, Herman Saheruddin, Director General of Financial Sector Stability and Development at the Ministry of Finance, has stated that the entry of foreign investment into the PFII will be strictly screened to prevent such abuse.
While the business community, represented by the Indonesian Chamber of Commerce and Industry (Kadin Indonesia), welcomes the incentives that are being discussed by the DPR, they emphasize the need for a level playing field for domestic investors. They emphasize that PFII’s success should be measured by high-quality job creation and knowledge transfer, urging regular evaluations to ensure economic benefits outweigh lost tax revenues.
Meanwhile, academics have voiced caution, advising the government to recalculate these aggressive tax cuts. Experts warn that a blanket 100 percent tax discount could disrupt the national investment ecosystem and diminish state revenue, suggesting instead that incentives be tailored to specific financial products rather than broad business sectors. Furthermore, legal analysts warn against creating an exclusive fiscal regime detached from the state’s unified financial system.
Table 1 – Seventeen Financial Sector Business Activities in the PFII:
| Business Activity |
| – Banking |
| – Insurance |
| – Islamic Finance (Sharia Finance) |
| – Capital Markets, Financial Derivatives, and Carbon Exchanges |
| – Pension Funds |
| – Financing |
| – Venture Capital |
| – Financial Sector Technology Innovation (Fintech) |
| – Financial Guarantees |
| – International Commodity Trading/Exchanges |
| – Bullion (Bullion Banking/Precious Metals) |
| – Trust Fund Management (Trust) |
| – Financial Instrument Management (Special Purpose Vehicle/SPV) |
| – Financial Conglomerate Holding Companies (Financial Holding Company) |
| – Money Markets, Foreign Exchange Markets, and their Derivative Transactions |
| – Family Wealth Management Institutions (Family Office) |
| – Other Financial Sector Business Activities |
Source: Draft Bill on Indonesian International Financial Center
Indonesia plans to build a complete business ecosystem. After all, if top-tier global law firms and accounting giants don’t set up offices inside the PFII, foreign banks won’t want to move there either, because they rely on these support systems every single day to do business. Therefore, the following supporting business activities are needed in the PFII:
Table 2 – Financial Sector Supporting Business Activities Needed in PFII:
| Business Activity |
| – Public Accountants |
| – Valuation/Appraisal Services |
| – Notaries |
| – Legal Consultants |
| – Financial Consultants |
| – Other Financial Sector Supporting Business Activities |
The Conflict with Global Minimum Tax
Another matter requiring urgent clarity is Indonesia’s commitment to the global consensus implementing a 15 percent global minimum tax (Pillar Two). The PFII’s zero percent corporate income tax rate directly contradicts this international agreement. Under Pillar Two rules, if a multinational corporation pays zero percent in the PFII, its home jurisdiction has the right to collect the 15 percent difference via a “top-up tax”. Consequently, Indonesia risks giving up its own tax revenue only to hand it over to foreign treasuries, completely neutralizing the incentive for the investor. While the draft bill notes that tax reductions will “respect international agreements,” officials have yet to offer a concrete explanation of how these two clashing policies will coexist.
Five Risks
Telisa Falianty, a Professor at the Faculty of Economics and Business, Universitas Indonesia (UI), laid out a series of consequences stemming from these provisions (specifically if the tax rate in the PFII is set at zero percent) during a meeting with Commission XI of the DPR.
First, adopting a zone model with its own distinct legal, taxation, and governance regime is prone to triggering facility abuse.
Second, a tax incentive of up to zero percent risks conflicting with the commitment to implement the 15 percent global minimum tax.
Third, there is a high probability that domestic capital will be flown abroad, only to be brought back as foreign investment solely to chase tax-free facilities (capital round tripping).
Fourth, massive incentives for investors could reinforce a perception of injustice among the general public of Indonesia, including domestic businesses, who bear the burden of VAT and income tax. This could lower public trust and voluntary tax compliance.
Fifth, without strict rules of the game and economic substance, the PFII risks becoming merely a tax haven or a parking lot for funds without real economic activity.
Ultimately, while the allure of a world-class financial hub fueled by a 100 percent tax holiday is undeniably strong, the structural risks are too significant to ignore. To prevent the PFII from devolving into a hollow tax haven or a vehicle for domestic capital round-tripping, the government must move past broad promises of aggressive concessions. Policymakers must swiftly reconcile the framework with the 15 percent global minimum tax, safeguard the domestic business landscape, and enforce rigorous regulatory screening.
