Special economic zones and industrial zones play a crucial role in driving economic growth by attracting investment, fostering business activities, and creating employment. These designated economic areas provide specialized facilities, incentives, and infrastructure to support various industries.
While industrial zones primarily focus on manufacturing and production, special economic zones offer broader opportunities, including tourism, logistics, and technology. Understanding their difference is essential for businesses looking to expand in the right economic environment. Therefore, let’s explore the key distinctions between these zones.
What is an Industrial Zone?
An industrial zone is a designated area developed and managed by an industrial zone company to facilitate industrial activities. These zones are specifically designed to cluster manufacturing companies, optimize production, and streamline operations through shared infrastructure and resources.
Businesses in an industrial zone benefit from efficient logistics, government support, and a well-organized industrial ecosystem.
Facilities and Infrastructure in Industrial Zones
Industrial zones are equipped with essential industrial infrastructure and support facilities to ensure smooth business operations.
a. Industrial Infrastructure
To support manufacturing activities, industrial zones must provide the following:
- Energy and electricity networks – Ensuring stable power supply for industrial operations.
- Telecommunications network – High-speed internet and communication .
- Water supply networks and raw water assurance – Ensuring adequate access to water resources.
- Wastewater Treatment Plant – Proper wastewater management and hygiene facilities.
- Transportation networks – Well-planned roads, rail, and port access for efficient logistics.
b. Supporting Infrastructure
Beyond industrial operations, businesses and workers in industrial zones require:
- Housing – Employee accommodations close to the workplace.
- Education and training facilities – Institutions for workforce upskilling.
- Research and development centers – Enhancing innovation and competitiveness.
- Healthcare services – Hospitals and clinics for workers and residents.
- Firefighting units – Safety measures to prevent industrial disasters.
- Waste disposal systems – Efficient waste management solutions.
c. Basic Infrastructure Obligations for Industrial Zone Companies
Every industrial zone company must ensure the availability of:
- Raw water treatment facilities – To provide clean water for industries.
- Wastewater treatment plants – Managing industrial waste responsibly.
- Drainage Channels – Preventing flooding and water stagnation.
- Street lighting installations – Ensuring safety and visibility in the zone.
- Road networks – Well-maintained roads for smooth operations.
Regulatory Environment in Industrial Zones
Industrial zones are subject to strict government regulations to ensure operational efficiency and environmental sustainability. In Indonesia, Government Regulation No. 142 of 2015 governs the establishment and management of industrial zones. This regulation set guidelines on:
- Environmental compliance – Industries must implement eco-friendly practices and waste management.
- Operational standards – Ensuring all industrial activities adhere to safety and efficiency regulations.
- Land use and zoning laws – Controlling industrial expansion and preventing misuse of land.
By operating within an industrial zone, companies can benefit from government support, streamlined permits, and ready-to-use infrastructure, making it an attractive choice for manufacturers.
What is a Special Economic Zone?
A Special Economic Zone (SEZ) is a strategic government initiative designed to stimulate economic growth, industrialization, and job creation. SEZs are specially designated areas that provide businesses with ultimate incentives and facilities, making them highly attractive for both domestic and foreign investors.
Unlike industrial zones, which focus primarily on manufacturing, SEZs cover a broader range of industries, including tourism, logistics, technology, and financial services.
By establishing SEZs, the government aims to decentralize economic activities, promote regional development, and enhance global competitiveness. These zones offer a business-friendly environment with streamlined regulations, tax benefits, relaxed import-export policies, and simplified investment procedures.
Incentives and Benefits of Special Economic Zones
One of the main reasons businesses choose to operate in SEZs is the extensive range of incentives and benefits offered to investors. These incentives are classified into fiscal and non-fiscal incentives.
Fiscal Incentives
| Tax Holiday | Tax Holiday applies on income received or obtained from the main activities carried out. |
| Tax Allowance | Tax Allowance applies (for activities outside the KEK’s main activities) regulated in PMK 237/2020 jo 33/2021. |
| VAT or VAT and Luxury Tax | VAT or VAT and Luxury Goods Tax Not Collected on the delivery of certain Tangible Taxable Goods from TLDDP, free zones, and bonded storage places to Business Entities and/or Business Actors; import of certain Tangible Taxable Goods into KEK by Business Entities and/or Business Actors; import of Consumer Goods into tourism SEZs by Business Entities and/or Business Actors; etc. |
| Import Tax |
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| Tax | Exempted (raw materials or auxiliary materials in the manufacture of final products that are not excisable goods). |
| Income Tax 22 on Imports |
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| Inland FTA | Import duty rate of 0% applies (TKDN of at least 40%) |
| Goods Traffic | Goods subject to import and export provisions may be granted exemptions and/or relaxations. |
| Use of Foreign Workers | The validity period of RPTKA for work is more than 6 months, a maximum of 2 years, and can be extended. |
| Immigration |
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| Land and Spatial Planning | In accordance with applicable laws and regulations. |
| Business Licensing (tms Basic Requirements) |
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These incentives drastically lower the cost of doing business, making SEZs an ideal location for companies looking to optimize their operations and maximize profits.
Non-Fiscal Incentives
| Non-fiscal Incentives | • Licensing Ease • Foreign Ownership in Tourism SEZ • Specific Labor Regulations • Immigration • Land and Spatial Planning • Comprehensive Government Infrastructure Support • Environmental Comfort • Other Incentives and Facilities |
These non-fiscal incentives create a highly supportive ecosystem for investors, encouraging seamless business operations, faster project implementation, and lower operational risks.
Economic Impact of Special Economic Zones
SEZs drive regional and national economic growth by attracting investment, creating jobs, and enhancing infrastructure. For example, Indonesia’s SEZ has delivered impressive results, strengthening its role as an economic accelerator.
According to the latest data from the National Council for Special Economic Zones, as of the end of 2023, the impact of SEZs on Indonesia’s economy has been substantial:
- 331 businesses have been established and are operating across 20 Special Economic Zones.
- IDR 177.5 trillion in realized investment has been recorded, reflecting growing investor confidence.
- 117,492 jobs have been created, supporting regional employment and skill development.
- SEZs contribute significantly to Indonesia’s economy across various sectors. Some notable examples include Special Economic Zones in the tourism and agro-industry sectors, with recent investment realizations as follows:
- KEK Galang Batang (Bintan, Riau Islands) – Realized investment of IDR 17.9 trillion as of Q3 2023, primarily from mineral processing and export activities.
- KEK Mandalika (Lombok, West Nusa Tenggara) – Realized investment of IDR 5.2 trillion by mid-2023, as a tourism-focused destination with resorts and international-scale events.
- KEI Sei Mangkei (North Sumatra) – Realized investment of approximately IDR 13.3 trillion, driven by agro-industrial development and supporting facilities.
- In parallel with SEZ development, Indonesia’s economy has shown impressive resilience, recording an average 5% GDP growth for eight consecutive quarters, including during and after the pandemic.
These figures highlight the undeniable value of SEZs in fostering economic development, enhancing regional prosperity, and creating sustainable investment opportunities.
Key Differences Between Special Economic Zones and Industrial Zones
Both special economic zones and industrial zones are designed to boost economic activities, attract investments, and generate employment, but they serve distinct purposes and offer different benefits.
To simplify the comparison, let’s break down the major differences between industrial zones and special economic zones across key factors.
| Factor | Industrial Zones | Special Economic Zones |
| Primary Purpose | Manufacturing and production efficiency | Broad economic development, including multiple industries |
| Industry Focus | Manufacturing, processing, assembly | Manufacturing, tourism, logistics, finance, technology |
| Geographic Scope | Typically located near major cities or ports | Strategically placed across various regions to boost economic balance |
| Government Support | Basic infrastructure support | Stronger incentives, tax breaks, and regulatory flexibility |
| Tax & Fiscal Benefits | Limited tax incentives | Extensive tax exemptions, duty-free imports, corporate tax breaks |
| Regulations | Subject to national industry regulations | Flexible regulations with relaxed trade, labor, and investment policies |
| Export Obligations | Some industries may have export requirements | No mandatory export obligations |
| Ownership Rules | Subject to foreign ownership limitations | No foreign ownership restrictions in most sectors |
| Infrastructure | Focused on industrial utilities (power, water, roads) | Includes commercial, residential, and industrial infrastructure |
| Business Licensing | Standard licensing procedures | Streamlined business licensing with fewer restrictions |
Choosing the Right Zone for Your Business
Picking between an industrial zone or a special economic zone depends on your industry, investment goals, and operational needs. Here’s how to decide:
Choose an Industrial Zone if ….
- Your business is focused on manufacturing, processing, or assembly.
- You need ready-to-use infrastructure such as power, water, and transportation networks.
- You are targeting domestic and export markets but don’t need extensive tax breaks.
- You prefer structured regulations and industry-standard compliance.
Choose a Special Economic Zone if …
- You want broader incentives, such as corporate tax breaks, duty-free imports, and relaxed regulations.
- Your industry is in tourism, finance, logistics, technology, or other high-growth sectors.
- You’re an international investor looking for full foreign ownership options.
- You need flexibility in trade policies, labor laws, and licensing.
Both industrial zones and special economic zones offer unique advantages, and the right choice depends on your business model and growth strategy. Special economic zones provide greater economic flexibility, investment perks, and regulatory ease, while industrial zones offer structured industrial support and manufacturing efficiency.
Subang Smartpolitan as a Cutting-Edge Industrial Zone in Indonesia
Located in Subang, West Java, Indonesia, Subang Smartpolitan is a next-generation industrial city designed to support Indonesia’s growing manufacturing, technology, and logistics sectors. Positioned near major transportation hubs—including toll roads, ports, and rail networks—this smart industrial hub provides businesses with strategic connectivity,
As a future-focused industrial development, Subang Smartpolitan is more than just a typical Industrial Zone—it integrates elements commonly found in Special Economic Zones (KEK), such as high-tech infrastructure, sustainable urban planning, and a business-friendly ecosystem.
This unique combination makes it one of Indonesia’s most promising destinations for investment and industrial expansion.
Optimizing Business Opportunities in Indonesia’s Dynamic Economic Zones
Indonesia’s industrial zones and special economic zones provide distinct advantages, but Subang Smartpolitan offers the best of both worlds. Businesses looking for strategic connectivity, sustainability, and long-term investment potential should strongly consider this “Green, Smart, and Sustainable City”.
For companies seeking to expand in Indonesia with long-term growth potential, Subang Smartpolitan is a golden opportunity. If you are interested in knowing more about Subang Smartpolitan, please visit our website to contact us.
FAQ
- What are the main advantages of setting up a business in an industrial zone compared to a special economic zone?
Industrial zones offer key advantages such as ready-to-use infrastructure, predictable regulations, and proximity to logistics networks, which are essential for manufacturing and production efficiency. These zones are purpose-built for industrial activities, allowing businesses to optimize operations, reduce setup time, and benefit from a well-organized ecosystem tailored for manufacturers.
- Can a company in an industrial zone receive the same tax incentives as in a special economic zone?
No, special economic zones offer broader tax incentives such as corporate tax deductions, VAT exemptions, and customs duty relief, while industrial zones may have limited tax benefits, depending on local government policies. However, industrial zones still provide operational efficiency, logistics advantages, and government support for industrial development.
- What types of businesses are most suitable in Subang Smartpolitan?
Subang Smartpolitan is ideal for manufacturing, logistics, automotive, pharmaceuticals, and high-value industries that require sustainable infrastructure, strategic location, and seamless connectivity to ports and transportation hubs.
- Where is Subang Smartpolitan located?
Subang Smartpolitan is located in Subang, West Java, Indonesia, strategically positioned near the Trans-Java Toll Road, Patimban Seaport (40 km), and Kertajati International Airport (70 km), making it a prime industrial hub.
- Who can I contact to learn more about opportunities in Subang Smartpolitan?
For more information about opportunities in Subang Smartpolitan, please visit the official website at suryacipta.com.