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New Foreign Direct Investment Regulation in Indonesia

Indonesia Investment Coordinating Board (“BKPM”), as the authorized government institution for (among others) foreign direct investment, has issued Head of BKPM Regulation No. 13 of 2017 regarding Guidelines and Procedures of Investment Licensing and Facilities (the “New BKPM Regulation”) on 4 December 2017. The New BKPM Regulation is effective for Central One Door Integrated Service at BKPM as of 2 January 2018.

One of the key changes provided in the New BKPM Regulation is related to the obtaining of the investment licenses. Previously, foreign investors in all business fields must obtain the investment registration (previously known as the ‘principle license’) and followed with the business license in order to start operating its business activities. Currently pursuant to the Article 11 (2) of the New BKPM Regulation, investors in certain business fields could directly be given the business license, provided that such business fields must be: (i) business fields that do not need construction activities; or (ii) business fields that do not need customs exemption on the imported machines/ capital goods. In more detail, the business fields that could directly be given the business license are (among others) consultancy, web portal, and design services.

Prior in obtaining the business license, the investors must: (i) establish an Indonesian legal entity with foreign shareholding limitation pursuant to the provisions in the laws and regulations; (ii) obtain taxpayer registration number; and (iii) secure an office/business space.

Aside from the above provisions, the New Regulation is stricter on the investment realization for a foreign limited liability company (“PT PMA”). The New BKPM Regulation has included the provisions in Law No. 20 of 2008 regarding Micro, Small and Medium Business, whereas as PT PMA is considered as a large scale business qualification, PT PMA must: (a) have net asset of more than Rp10 billion excluding land and building of the business premises; or (b) have annual sale result of more than Rp50 billion, as proven by the company’s financial statement (the “Provision”). It should be noted that it is still unclear whether the term ‘net asset’ is interpreted as issued and paid-up capital by BKPM, or simply means net asset concept from the accounting perspective in general.

Actually, business license is valid as long as the company still operates its production/operation. However, for PT PMA that has not satisfied the Provision, then the business license is only given with a validity period for one year and could be extended for another one year. Such PT PMA can apply for business license that is valid as long as the company still operates its production/operation after it has satisfied the Provision.

We believe that the above new provisions (among others) in the New BKPM Regulation are meant to improve the ease of doing business in Indonesia.

Published by: Robert Hasan
Published on: 27 Nov 2018
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