Foreign Direct Investment
In respect of foreign investment and a foreign investor, the Investment Law defines “Foreign Investment” as an activity by a foreign investor to invest in business in Indonesia, whether wholly using foreign capital or by establishing a joint venture with a domestic investor. “Foreign Investor” is defined as a foreign citizen, a foreign business entity, or a foreign government engaged in investment in Indonesia.
Further, “Foreign Capital” is defined as capital owned by a foreign state, national, business entity, legal entity or an Indonesian legal entity, in which the capital is owned partly or wholly by a foreign party. In conclusion, any participation of foreign capital in an Indonesian company (either with minority or majority interest) will be deemed foreign investment.
Government has discretion to reject any foreign investment application in fields that are restricted or closed to investment (domestic or foreign), including narcotics or gambling, or on national security and public order grounds.
Foreign investment in Indonesia is generally governed by the Investment Law and its ancillary regulations. The Investment Law requires the Government to stipulate the fields of activity open to foreign investment, and to set the priority and any special conditions placed on such investments. It also permits the Government to determine that certain areas are closed to further investment.
The Investment Law also stipulates that industries relating to national defense are completely closed to foreign investment and, as noted above, that certain sectors deemed important to the state and affect the livelihood of the population cannot be undertaken by foreign investors alone (i.e., without local participation): harbors; production/transmission/distribution of electricity; telecommunications; shipping; aviation; drinking water supply; public railways; atomic reactors; and the mass media.
Based on these provisions, the Government has issued, from time to time, lists on investment that are closed or conditionally open to foreign investment (“Negative List”).
The Negative List distinguishes business fields that are:
a. closed to foreign investment, including gambling, government-run museums, manufacturing of alcoholic beverages, air navigation services;
b. conditionally open to (foreign) investment, i.e., requiring a partnership with micro, small, or medium enterprises,
or cooperatives, and reserved for micro, small, or medium enterprises (not open to foreign investment), including radio and television broadcasters, commercial plantations, travel agents, etc.; and.
The Investment Law is applicable to all foreign investment in Indonesia regardless of the amount of investment. Further, the Investment Law and its implementing regulations require that foreign investment in Indonesia must fulfil a minimum investment of more than IDR 10 billion (excluding land and buildings). Certain sectors may impose a higher investment value such as freight forwarding services that require a minimum USD 4 million investment.
If the investment is made by acquiring an existing company in Indonesia, it will be subject to merger control requirements.
Company Law:
The Company law stipulates the general regulation concerning the limited liability company (perseroan terbatas or “PT”), including, among others, establishment, corporate organs, and requirements of PT.
In particular, all FDI in Indonesia must be made in the form of a PT.
Hence in the case of FDI, the Company Law must be read in conjunction with Investment Law and its implementing regulations.
If you’d like to know further regarding investment and company regulation in Indonesia, you can send your inquiries to our email at : mail@enplaw.id
