Overview On The Foreign Direct Investment Regulations In Indonesia
Foreign direct investment is quite impacting the business growth in Indonesia since the first quarter of 2020. According to the Indonesia Investment Coordinating Board (“BKPM”), the foreign direct investment realisation value until the second quarter has reached US$6,779,600,000.00 (six billion seven hundred seventy-nine million six hundred thousand United States Dollar). Energy sectors are the most interesting sector for foreign investment besides mining, transportation and telecommunication. The side effect of this investment is creating many job opportunities and economic and development growth in several areas.
Following the Foreign Investment enthusiasm that will bring business and will build companies in Indonesia, the Indonesian Government commits to provide an ease bureaucracy for the foreign investment in applying the business license in Indonesia. As a concrete action, the Indonesian Government has revised several investment regulations. Foreign business actors, including foreign national, a foreign business entity, and/or a foreign government are allowed to makes an investment by investing their capital in a new or existing company in Indonesia. This activity is commonly known as the Foreign Direct Investment or Penanaman Modal Asing.
Foreign Investment Capital Requirements
As regulates under the Law No. 25 of 2007 concerning Investment (“Indonesia Investment Law”), there is a discrepancy on the form of business enterprise between domestic and foreign investment. Domestic investment may be conducted in the form of an enterprise, which is in the form of a legal entity, non-legalized entity or sole proprietorship; meanwhile the foreign investment shall be in the form of a limited liability company under the laws of the Republic of Indonesia and domiciled in the territory of the Republic of Indonesia.
Further to Article 6 of BKPM Regulation No. 1 of 2020 concerning Guidelines for Implementation of Electronic Integrated Business Licensing Services (“BKPM Regulation 1/2020”), the foreign business actors must comply with the following investment value requirements:
- The total investment value must above than Rp10,000,000,000.00 (ten billion Indonesian Rupiah) excluding land and buildings per one business sector selected from the Indonesia Standard Business Classification or known as the Klasifikasi Baku Lapangan Usaha Indonesia (“KBLI”);
- The value of issued capital is equal to the paid-up capital, at least 25% (twenty-five percent) of the Authorised Capital or equals to Rp2,500,000,000.00 (two billion five hundred million Indonesian Rupiah); and
- Each shareholder must hold minimum Rp10,000,000.00 (ten million rupiah) worth of shares or more.
Preparation
Before establishing the Foreign Direct Investment Company, foreign investors must determine the company’s business activities according to the KBLI and simultaneously comply to the Presidential Regulation No 44 of 2016 concerning List of Business Fields Closed and Business Fields Open with Conditions to Investment (“Indonesia Investment Negative List”).
For your information, the KBLI is the standard business classification published by the Central Bureau of Statistics of the Republic of Indonesia which adapted from the International Standard Industrial Classification of All Economic Activities (ISIC) published by the United Nations of Statistical Division (UNSD) and the conditions of economic activity in Indonesia. The KBLI will ease every investor to determine their business classification and to determine what business licensing they will obtain.
Furthermore, the Indonesia Investment Negative List is designed to ease the foreign investors to know the limitation of shares ownership by foreign investment on several business sectors; whether the business sector is open to foreign investment, closed, or open with shareholding limitation. Business sectors that are not identified in the Indonesia Investment Negative List are generally considered to be fully open 100% (one hundred percent) shares ownership for foreign investment, unless it is regulates otherwise by the Indonesian Laws and Regulations.
Setting up a Foreign Direct Investment Company
After determining the business sector and have complied with the capital requirements for foreign investment in Indonesia, the potential investor must form the limited liability company (“PT”) which regulated under Law No. 40 of 2007 concerning Limited Liability Companies (“Law 40/2007”). The PT should be owned by minimum 2 (two) parties and each party could be individual or legal entity.
In establishing the PT, the potential investor should obtain the Company’s Deed of Establishment and its ratification granted by the Minister of Law and Human Rights of the Republic of Indonesia (“MOLHR”). The Company’s Deed of Establishment contains the following information:
- Name and domicile address of the Company;
- Purposes and objectives of the Company (line of business);
- The Articles of Association;
- The composition of the Board of Directors and the Board of Commissioners; and
- The shareholders’ structure and their identities.
After receiving an approval from the MOLHR, the Company should obtain the Company Taxpayer Identification Number (NPWP) granted by the local tax office, Business Identification Number (NIB), Business Licenses (Izin Usaha) and Commercial Licenses (Izin Komersil) granted by the Online Single Submission System (“OSS”). Please be noted that the Business Licenses and Commercial Licenses are not yet effective until the Company fulfill the required commitments. The commitment depends on what business sectors are chosen.
Hope the above information is helpful. Should you have any queries regarding this matter, please do not hesitate to contact us.
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