Presence or partnership
The government aims to introduce a new Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia or "KBLI”) that will be specific to game developers. As a result, overseas game developers will be required to incorporate a legal entity or enter into partnership with a local game developer, and ensure that their local subsidiary or local partner adhere to the KBLI, in order to distribute their game to Indonesian consumers. The relevant authority i.e. the Ministry of Communication and Informatics (MOCI) is currently preparing technical regulations for these purposes.
The proposal was announced in January 2024 and received a mixed (mostly negative) reception from consumers and the industry alike. This is thought to be due to the concern that games published by a foreign developer may be blocked or be inaccessible in Indonesia because of the lack of a local presence or partnership. Whilst the aim of the government appears to be to protect game developers from unfettered competition, critics fear the measure will hinder the development of the industry. We wait to hear how the MOCI will structure the regulations and how they will be implemented.
Skills development
The Indonesian government has also highlighted its intention to cooperate with educational institutions to train Indonesian game developers whilst there remains a skills shortage. The government is planning to introduce training and mentoring programmes and plans to create a workforce of some 1,200 to develop 3-5 multiplayer-based flagship games. This policy is expected to address the skills shortage in Indonesia's gaming industry, which affects most of the game developers in Indonesia. The government is also preparing to introduce a gaming-based curriculum in vocational high school and higher education.
Funding
Another measure to spur the development of the gaming industry is to provide funding through a public service agency (Badan Layanan Umum or "BLU"). BLU is a non-profit special entity within a ministry established to sell goods and/or services. A BLU supporting the development of the gaming industry will be established within The Ministry of Tourism and Creative Economy (MOTCE). The government also plans to encourage private financing, through fund matching and venture capital, by launching a Game Fund financing scheme, which aims to raise funding of US$40 million each year. This financing scheme is currently being prepared by the MOTCE.
Tax holiday
The gaming industry will be regarded as a "pioneer" industry, eligible for a corporate income tax holiday. Under the Ministry of Finance Regulation No. 130/PMK.010/2020 on Provision of Corporate Income Tax Reduction Facilities (MoF Regulation 130/2020), pioneer industries are eligible for:
- 100 per cent of the amount of the income tax payable in respect of an investment value of at least Rp500 billion; and
- 50 per cent of the amount of income tax payable in respect of an investment value ranging from at least Rp100 billion to Rp500 billion.
We expect further amendments to the MOF Regulation 130/2020, to further boost the gaming industry as one of the foremost growth industries in Indonesia, following the enactment of PR 19/2024.
All things considered, PR 19/2024 reflects the government’s intention to make Indonesia one of the leaders in the emerging gaming industry in Asia. It will be interesting to see how the government will accommodate the development of local game studios development without hurting the interests of foreign game publishers and the Indonesian consumer. Hogan Lovells is well placed to assist with your proposed investment or any queries in regards to the gaming sector in Indonesia.
Authored by Mochamad Kasmali, Karina Antonio, Fakharsyah Hanif Sugiyartomo, and Nigel Sharman.
