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Indonesia: Investing in 2018 is a ‘No-Brainer’

Indonesia: Investing in 2018 is a ‘No-Brainer’

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Indonesia, as a developing country, requires adequate investment from both domestic and foreign sources in order to support the development and fulfillment of infrastructure and other facilities toward the betterment and positive welfare of society. In the third Quarter III (July-September) 2017, investment realization reached IDR 176.6 trillion, a significant comparative increase from the previous year. In fact, numbers grew by 13.7% compared to the same period in 2016. During the first nine months of 2017, from January – September 2017, investment realization cumulatively reached IDR 513.2 trillion, achieving 75.6% of the 2017 national target of IDR 678.8 trillion (BKPM Press Release October 30th 2017, red.)

Unsurprisingly, Indonesia responded to the considerable investment growth through legal provisions to further momentum. Chariman Thomas Lembong of The Indonesia Investment Coordinating Board or Badan Koordinasi Penanaman Modal (“BKPM”), which serves as the first and main entrance for foreign investors, issued the Chairman of BKPM Regulation Number 13 Year 2017 concerning the Guidelines and Procedures for Licensing and Facility of Investment (“BKPM Reg 13/2017”).

BKPM Reg 13/2017 serves as an implementing regulation in support of Presidential Regulation Number 91 Year 2017, which concerns Accelerating the Implementation of Business, with the overall goal of simplifying the other regulations for licensing and facility of investment in order to boost domestic and foreign direct investment. The following comparisons depict the distinctions:

No. Subject BKPM Reg 15/2015 BKPM Reg 13/2017
1. Starting business :
  • New business establishment
  • New business establishment
  • Changing status
  • Adding new business scope
  • Adding new project location
  • Adding production capacity for industrial sectors (business expansion)
  • Adding business scopes within the same business field except for industrial sectors
  • Must have ‘Principle License’ for every activity prior applying for the ‘Business License’ Especially for business scopes within these following categories:
  • Business scopes which require construction activities
  • Business scopes which can obtain investment facilities
  • Business scopes which may have evironmental pollution implications on either a large or medium scale
  • Business scopes which are related to state defense, infrastructure, energy, and mineral resources management
  • li
  • Other business scopes which are in accordance with the sectoral regulations
  • Are obliged to have a “Capital Investment Registration” document (“PI”) prior to applying for the ‘Business License’.

    For business scopes outside the categories above are included in the broad category of "scope of direct business license". Some examples may include trade, business consulting etc.

    Authorizing institutions for the issuance outside the Industrial Area Foreign Direct Investment at Central Indonesia Service One-Door Integrated Services.

    Local Direct Investment at the Investment Official of One-Door Integrated Services in accordance with the distribution of authority between Provincial and Regency/City Government.

    Authorizing institutions for the issuance within the areas of Special Economic Zone, Free Trade and Free Port Area Issued by :
  • The Administrator of Special Economic Zone
  • The Management of Free Trade and Free Port Area
  • Same
    2. Starting production
  • Must haveBusiness License
  • Must have Principle License first
  • Nomenclatur for Business License naming is in accordance with the related technical ministry
  • Business License directly prior to having Principle License, with these following conditions:

    i. Indonesian business entity with a maximum foreign share ownership in accordance with the laws and regulations, i.e. Indonesia Negative Investment List 2016 (Presidential Regulation Number 44 Year 2016);

    ii. Possess Tax Identification Number (NPWP); and

    iii. Have an office/business place.

  • Nomenclatur for Business License naming is in accordance with the related technical ministry.
  • 3. General provisions to qualify as a large Foreign Direct Investment 1. Investment value is more than IDR 10 billion not including land and buildings
    2. Banned for using Nominee scheme
    1. Investment value is more than IDR 10 billion not including land and buildings (including industrial sectors), however, specifically for:

    a) Property sector (intact building or integrated housings): total investment value is greater than IDR 10 billion including land and buildings
    b) Property sector for unit forms: total investment value is greater than IDR 10 billion not including land and buildingsDebt to Equity Ratio 4 : 1

    2. Issued and Paid Up capital are no less than IDR 2,5 billion

    3. Capital participation for each shareholder in one Company is no less than IDR 10 million

    4. Banned for using nominee scheme. In cases where the proof of share ownership in a Limited Liability Company is needed, the investor shall make a written statement letter specifying that the shares are truly owned by him/her, and the letter must be recorded by a Notary in Indonesia (waarmerking).

    4. Divestation
  • Following the sectoral regulations
  • Following the sectoral regulations
  • Does not have to follow the divestation regulation as long as the situation fulfills the following document requirements:

  • a) For a joint venture company: the Indonesian party states that he/she does not intend to claim share ownership in accordance with the divestation regulation stipulated in the approval letter and/or Business License; or
    b) For foreign direct investment companies, which 100% of the shares are owned by foreign parties, all investors state that they do not have any commitment/agreement with any Indonesian party to sell the shares.
    5. Investors of a Joint Venture Company Not regulated The capital participation of a Joint Venture Company is temporary and can not exceed 10 (ten) years, commencing from the date of investment which has been approved by the Minister of Law and Human Rights
    6. Terms of an extension period for project completion Prior to the expiration of the project completion period 30 (thirty) days prior to the expiration of the project completion period

    As one may logicially assume, the BKPM Reg 13/2017 is expected to surface as a substantial supporting factor in attracting participation within and improving the investment climate throughout Indonesia through its ability to synergize with other laws and regulations. Unequivocally, we believe the existence of the BKPM Reg 13/2017 will spark and fuel broad and diverse investments during 2018 that will contribute to noteworthy developments. We support and encourage prospective domestic and foreign investors to understand how they can best capitalize on the new provisions. Now is the time; we are here to help.

    By: Dewi Susanti, S.H., M.KN.

    Jakarta, 30 January, 2018

    Indonesia: Investing in 2018 is a ‘No-Brainer’