Batam Free Trade Zone: Customs, VAT and Licences for Investors

The Batam free trade zone is a KPBPB (Kawasan Perdagangan Bebas dan Pelabuhan Bebas, a free trade zone and free port): an area inside Indonesia’s legal territory but separate from its customs territory, which the government regulation (Peraturan Pemerintah, PP) on these zones defines as free of import duty, value added tax (VAT), luxury-goods sales tax and excise (PP 41/2021, Article 1 point 1). In practice the relief comes with conditions, and goods that leave the zone for the rest of Indonesia are subject to VAT, and to import duty if they are of foreign origin.

A free trade zone is a different regime from a special economic zone (KEK, Kawasan Ekonomi Khusus), which has its own law (UU 39/2009) and its own facilities, set out in our guide to special economic zones in Indonesia.

Who runs the Batam free trade zone

Each zone has an authority, which manages, develops and builds it (PP 41/2021, Article 8(3)(a)). In Batam that authority is BP Batam (Badan Pengusahaan Batam), which also issues the licences described below.

Licences come from BP Batam, through OSS

In the Batam free trade zone, BP Batam issues the basic requirements, the business licences and the supporting licences for businesses that set up and operate there (PP 41/2021, Article 20(2)(a), as replaced by PP 25/2025). The basic requirements include approvals such as environmental approval (PP 23/2026, Appendix II, part A).

Two things will be familiar:

• Which licences apply follows the national rules. The types of licence refer to the national rules on risk-based business licensing (Article 20(6)).
• The application goes through OSS (Online Single Submission), the government’s licensing system, with BP Batam as the issuer (Article 20(10)).

Our guide to OSS and business licensing explains how those rules work.

Goods coming in and going out

Goods enter and leave the zone through a designated port (PP 41/2021, Article 28(1)), under the supervision of the Directorate General of Customs and Excise (Article 29). Only a business holding a licence from BP Batam can bring goods in or take them out, and the goods it brings in are those related to its business (Article 31(1) and (3)).

Import duty and excise

Goods brought into the zone through a designated port from abroad, from another free trade zone, from a bonded storage area or from a special economic zone are exempt from import duty (Article 58(1)). Goods from abroad are also exempt from anti-dumping, countervailing, safeguard and retaliatory duties (Article 58(2)).

The duty comes back into play when foreign goods leave the zone for the rest of Indonesia: import duty must then be paid (Article 59(1)). Goods wholly obtained in the zone and sent abroad follow the export rules (Article 59(4)(a)).

Excise goods are treated separately: excise applies when they come in from abroad (Article 61(1)), though excise may be waived for goods used as raw or auxiliary materials in industry (Article 62(1)).

VAT and income tax Article 22

The VAT rules turn on where the goods come from and where they go.

• From abroad: goods brought in are exempt from VAT (PPN, Pajak Pertambahan Nilai), and income tax Article 22 (PPh 22, Pajak Penghasilan), the tax collected on imports, is not collected (Article 49(2)).
• Within the zone: a supply of goods inside the zone is exempt from VAT (Article 49(1)).
• Bought from elsewhere in Indonesia: the seller does not collect VAT on goods delivered to a business in the zone (Article 49(5)). Two conditions apply. The goods enter through a designated port with a document proving they arrived (Article 50(1)), and the zone business notifies the tax office of the purchase before the goods arrive (Article 51(1)). Without the notice, the seller charges VAT (Article 51(3)).
• Sold into the rest of Indonesia: VAT is collected on the sale (Article 53(3)), and income tax Article 22 is due on goods of foreign origin (Article 53(5)).

Services follow the same idea. Services and intangible goods from abroad used in the zone, and those supplied within it, are exempt from VAT (Article 55(1) and (2)). A service supplied from the zone for use elsewhere in Indonesia carries VAT (Article 55(3)).

Import restrictions, and the change of 12 May 2026

Goods that are prohibited stay prohibited, both coming in from abroad and going out abroad (PP 41/2021, Article 64(1)). Import restrictions, known as lartas (larangan dan pembatasan), apply to goods entering the zone from abroad only where they protect consumers buying goods sold in the zone, health, security or the environment (Article 64(2)).

Since 12 May 2026, the Head of BP Batam can exempt imports into the Batam free trade zone from those restrictions, after taking the advice of the zone council (Article 64(4a), inserted by PP 23/2026).

The national import process, from the importer identification number to the first shipment, is covered in our guide to importing goods into Indonesia.

What this article does not cover

This article covers goods, customs, excise and VAT. Corporate income tax incentives are a separate subject, covered in our overview of Indonesia’s tax incentives, and the income tax reduction for special economic zones is explained in the zone guide linked above.

The company itself is an Indonesian limited company (PT, Perseroan Terbatas). A foreign-owned one is a PT PMA (Penanaman Modal Asing, foreign investment), and its capital and investment plan are explained in our guide to PT PMA capital requirements.

Questions people ask

Setting up a company to invest in Batam

We set up companies anywhere in Indonesia, Batam included, and the process runs online: a PT PMA for a foreign shareholder, or a PT Local, a domestic company. Once the business is running, our corporate tax team keeps its returns and registrations in order.