On July 21, 2026, the House of Representatives officially passed the Indonesia International Financial Center (Pusat Finansial Internasional Indonesia/PFII) bill into law. The legislation passed after all factions agreed to the results of discussions with the government at the first-stage deliberation, completed the previous day, July 20, 2026. With the bill formally approved, Indonesia now has a dedicated legal basis to develop an internationally competitive financial center.
The establishment of the PFII is mandated by Law of the Republic of Indonesia Number 4 of 2026 concerning Amendments to the Law of the Republic of Indonesia Number 4 of 2023 concerning Financial Sector Development and Strengthening (P2SK). The policy is designed as a strategic instrument to expand local financial markets while creating an ecosystem capable of competing with established international financial centers in the region. The government and the House of Representatives consider a more competitive legal framework necessary to leverage opportunities arising from global capital relocation amid evolving international economic and geopolitical conditions.
Through the PFII Law, the government expects Indonesia to attract international capital, broaden sources of development financing, and encourage the presence of global financial institutions, asset management companies, wealth management firms, family offices, and other financial services providers. To support these objectives, the PFII Law provides not only greater legal certainty and easier business operations, but also competitive incentives, including tax incentives and regulatory arrangements designed to enhance Indonesia’s appeal as a regional hub for international financial activities.
PFII Law is also envisioned to position Indonesia not only as an investment destination, but as a location for high-value financial activities, including asset management, multinational corporate treasury operations, financial instrument trading, reinsurance, and wealth management.
Notably, many financial transactions related to investments in Indonesia have historically been conducted through overseas financial centers, particularly Singapore and Hong Kong. Consequently, much of the economic value added, employment, and financial-sector revenue generated by such activities has accrued to other jurisdictions. The circumstance suggests that Indonesia’s large domestic market alone is not sufficient to establish the country as an international financial center without competitive regulations, legal certainty, infrastructure, and fiscal policies.
Tax Incentives as a Competitive Tool
Tax is a primary factor in competition among countries seeking to attract investment and financial activities. Major international financial centers offer competitive tax incentives. Singapore, for example, provides incentives for fund managers, treasury centers, and investment fund managers. Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), and Hong Kong have also developed tax regimes designed to support the competitiveness of their financial sectors.
Accordingly, the government has positioned tax incentives as a core pillar of the PFII. The objective goes beyond reducing investors’ tax burdens. It encourages high-value economic activities in Indonesia, which in turn could strengthen the financial market, create employment opportunities, and broaden the state’s revenue base.
Regardless, the effectiveness of these incentives will ultimately depend on the economic benefits they generate. The government will also need to ensure that incentives are granted only to businesses conducting genuine economic activities in Indonesia, rather than entities merely relocating their legal domicile.
Tax Incentives Available
PFII Law provides scope for various tax incentives. For income tax, the government may provide special tax rates, exemptions, or reductions on specific income, as well as more competitive tax treatment for dividends, capital gains, and income earned by foreign investors, subject to applicable provisions.
For value-added tax (VAT), incentives may include VAT exemptions or non-collection on transactions related to international financial services. The government also provides customs and excise incentives to support activities within the international financial center.
These incentives are intended for participants across the financial industry, including fund managers, asset management companies, treasury centers, family offices, special purpose vehicles (SPVs), reinsurance companies, international financial institutions, and multinational companies establishing their regional financial functions in Indonesia.
However, tax incentives alone will not determine a PFII's success. Experience from established international financial centers shows that legal certainty, credible regulators, efficient licensing processes, investor protection, and policy stability are equally important in attracting investment. Tax incentives can therefore serve as an important prerequisite for boosting competitiveness, but broader improvements to the financial ecosystem must accompany them.
Balancing Competitiveness and State Revenue
Tax incentives under the PFII need to be managed carefully. Every tax incentive represents a tax expenditure, or potential state revenue forgone in pursuit of specific economic objectives. Their effectiveness should therefore be assessed based on the economic benefits generated, rather than simply the amount of investment attracted.
The government must also consider international taxation developments. The global minimum tax (GMT) under the OECD’s Pillar Two establishes a minimum effective tax rate of 15% for multinational enterprise groups. If incentives reduce a company’s effective tax rate below the threshold, the resulting tax difference may be collected by the jurisdiction in which the parent entity is located. Thus, PFII incentives should align with international tax standards to remain effective.
Furthermore, the government needs to anticipate risks such as profit shifting, treaty shopping, and shell company formation. To prevent abuse, access to incentives should be linked to economic substance requirements, such as the number of professional employees, investment value, the location of business decision-making, and the scale of operational activities conducted in Indonesia.
Regular evaluation will also be necessary to assess the policy's effectiveness. Relevant indicators could include growth in assets managed in Indonesia, an increase in the number of international financial institutions, job creation, and contributions to financial market development. Such evaluations can provide a basis for maintaining, adjusting, or withdrawing incentives that are no longer effective.
The Outlook for PFII
The PFII forms part of the government’s broader efforts to foster the competitiveness of Indonesia’s financial sector. Within this framework, tax incentives can help attract high-value financial activities. Nevertheless, their effectiveness will depend on legal certainty, sound governance, policy stability, and ease of doing business.
Incentives should also be granted selectively, linked to genuine economic activity, and aligned with international tax standards. With this approach, tax incentives can do more than attract investment. They can also generate sustainable benefits for the financial sector and state revenue.
PFII could become a catalyst for Indonesia’s economic transformation if designed and implemented consistently. Conversely, if its strategy relies primarily on tax-rate competition, Indonesia could end up in a costly race to the bottom without receiving commensurate economic benefits. The government’s challenge is therefore not simply to offer appealing incentives, but to build an international financial center that fosters confidence, innovation, and sustainable value for the national economy.
For the latest information and professional assistance on the PFII and its tax implications, contact Ideatax. We are ready to help you deliver solutions tailored to your business needs.
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