Indonesia Passes Financial Hub Law, Offers 50-Year Tax Holiday

Indonesia’s parliament passed a law on July 21 establishing the Pusat Finansial Internasional Indonesia, or PFII, a specially regulated international financial centre. It offers sweeping tax incentives as Southeast Asia’s largest economy seeks to attract global capital and retain more financial activity onshore.

Qualifying investors could receive a 0% corporate income-tax rate for as long as 50 years, lawmakers said, while businesses operating within the centres would be permitted to conduct transactions in foreign currencies. The legislation, comprising 10 chapters and 73 articles, was approved by acclamation after every parliamentary faction backed it.

The finance ministry has estimated the first centre could attract between Rp300 Tn and Rp500 Tn ($16.7 Bn to $27.8 Bn) in investment, including foreign banking operations and newly established business entities.

Indonesia is targeting investment banks, wealth-management firms, family offices and aircraft- and ship-leasing companies, Mohamad Hekal, deputy chairman of the House of Representatives’ Commission XI and chairman of the Bill’s working committee, said after the vote.

The law forms part of President Prabowo Subianto’s drive to deepen Indonesia’s financial markets and draw more foreign capital into an economy he wants growing at 8% a year by 2029, the final year of his current term. Indonesia’s economy expanded 5.61% year on year in the first quarter of 2026.

Indonesia has long sought to develop a domestic wealth-management industry capable of rivalling Singapore, where many affluent Indonesian families hold and manage assets. Officials have said the incentives draw on those offered by established financial centres like Dubai.

Beyond the income-tax incentive, the framework provides for relief on value-added tax, sales tax on luxury goods and customs duties, along with exemptions for certain income generated outside Indonesia. It also sets out tax treatment for inheritance and the initial investment in the PFII. The rates, beneficiaries and eligibility conditions for several incentives will be detailed in implementing regulations.

The 0% rate will not override Indonesia’s obligations under the OECD’s Pillar Two framework. Hekal said multinational groups covered by the rules would remain subject to a minimum effective tax rate of 15%. Pillar Two generally applies to multinational groups with annual revenue of at least €750 Mn.

Economists have separately warned that weak economic-substance and beneficial-ownership rules could allow round-tripping, in which domestic funds are routed offshore and returned as purported foreign investment to obtain tax benefits. Rahma Gafmi, a professor of economics at Airlangga University, said companies should be required to demonstrate genuine operations and disclose their ultimate beneficial owners.

Economists have separately warned that weak economic-substance and beneficial-ownership rules could allow round-tripping, in which domestic funds are routed offshore and returned as purported foreign investment to obtain tax benefits. Rahma Gafmi, an economics professor at Airlangga University, said companies should be required to demonstrate genuine operations and disclose their ultimate beneficial owners.

The government has not confirmed where the first centre will be located. The Coordinating Ministry for Economic Affairs identified Bali as a potential site earlier this year.

The law provides for a supervisory council, a dedicated management authority, a PFII financial-services supervisory body, an arbitration body and a special court to adjudicate disputes arising within the zones.

The centre’s legal framework would be permitted, within defined limits, to adopt or adapt principles of international commercial law while remaining under Indonesian sovereignty, Finance Minister Purbaya Yudhi Sadewa told parliament. He said the centre would complement rather than replace the existing domestic financial system.

Indonesia’s sovereign wealth fund, Danantara, is expected to provide the initial capital for a company that will operate a financial centre. However, neither the amount nor the financing structure has been disclosed.

The legislation moved rapidly through parliament. Formal deliberations began on July 2, followed by public hearings from July 6 to 9 and detailed discussions from July 9 to 20. Drafting and synchronisation were conducted from July 17 to 19, with the text finalised on the morning of July 20.

The accelerated timetable followed Law No. 4 of 2026 on Financial Sector Development and Strengthening, which required the PFII legislation to be completed within three months of the law’s promulgation on June 17.

The full statutory text was not immediately released after the vote, leaving the precise scope, beneficiaries and qualifying conditions for several incentives to be clarified through the published law and subsequent implementing regulations.