Income Tax Exemptions for Non-Profits in the Education and Research and Development Sectors

The excess income derived by educational institutions and research and development institutions that is reinvested within four years of being declared is exempt from income tax. The regulatory framework for this is Article 4(3)(m) of Law No. 7 of 1983 as amended finally by Law No. 36 of 2008. The exemption is contained in Minister of Finance Regulation No. 80/PMK.03/2009.

The regulation requires that the excess income be invested in infrastructure and / or equipment and within a period not to exceed four years from the date that the income was declared. The infrastructure and equipment is defined as buildings and land; office, laboratory, and library equipment; and, student dormitories, teacher housing, and sports facilities. Before a non-profit can claim the exemption it must be registered with the relevant authorities as a non-profit.

If the excess income is not reinvested into infrastructure and equipment within the proscribed period then the income is to be taxed according to the prevailing laws and regulations.

Any further regulations required in this area are to be in the form of Director General of Tax Regulations.