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Japan-Indonesia EPA to Change the Operation of the USDFS (Special Use Tax Exemption System)

February 08, 2023

On January 3, the Indonesian Ministry of Industry issued Minister of Industry Regulation No. 2023-2, amending the rules for importing steel products under the duty-free system for specified uses (USDFS) of the Japan-Indonesia Economic Partnership Agreement (IJEPA). With the issuance of this regulation, companies that have registered their business as "support industries," such as suppliers of raw materials, are now required to obtain either a clearance preferred partner (MITA) or an authorized operator (AEO) status in order to use the USDFS.

Previously, the industries that could use the USDFS were limited to (1) manufacturing (automobiles, electrical and electronic equipment, heavy and construction machinery, and energy equipment), (2) steel service centers that perform cutting and blanking operations, and (3) support industries.

The amendment adds the following conditions for support industries to qualify for USDFS: (1) the majority of the shares must be held by Japanese or Indonesian investors, and (2) the company must qualify as a MITA or AEO.

Since MITA is a system that does not allow active acquisition, it is expected that more and more businesses will move toward acquiring AEO status in the future. It has not yet been determined whether a grace period, such as the current USDFS application, will be granted to companies that have not yet acquired MITA or AEO until they do so. It is necessary to keep a close watch on future developments.


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