ANNOUNCEMENT 11 Dec 2017

On 11 December 2017, the Indonesian Investment Coordination Board (BKPM) issued regulation 13/2017 easing the investment approval process.

NUMBER OF INTERVENTIONS

2

  • 1 harmful
  • 0 neutral
  • 1 liberalising
Inception date: 02 Jan 2018 | Removal date: open ended
Still in force

FDI: Entry and ownership rule

The BKPM regulation 13/2017 introduces a new investment approval procedure. Instead of a Principle License ("Izin Prinsip"), foreign investments will require an Investment Registration ("Pendaftaran Penanaman Modal") instead, speeding up the process to register a business from three to one day. Furthermore, businesses will now be able to skip the Investment Registration altogether and directly obtain a Business License ("Izin Usaha"), as long as they

  • (a) do not carry out construction services;
  • (b) require investment facilities;
  • (c) have the potential to have a medium and large environmental pollution impact;
  • (d) are related to national defence, natural resource management, energy and infrastructure;
  • (e) involve other business restrictions specified in existing laws and regulation (art. 10(4) of BKPM regulation 13/2017).

Article 11(2) of the regulation also stipulates that in order to qualify for the Investment Registration exemption, the business:

  • "a. has incorporated Indonesian business with the limitation of share ownership in accordance with the provisions of laws and regulations;
  • b. already has a Taxpayer Identification Number; and
  • c. possesses an office/place of business."

Nevertheless, according to the Allen & Overy law firm, "The exemption from the requirement to obtain the Investment Registration or Pendaftaran Penanaman Modal illustrates BKPM’s attempt to simplify the process of obtaining investment approvals. It is unclear, however, how the exemption will work in practice, especially as notaries and the Ministry of Law and Human Rights typically require BKPM’s initial approval to process respectively the deed of establishment of a PMA company and the required notification and/or approvals." (see Secondary Sources)

Furthermore, the Business License will only be granted for one year and will have to be renewed afterwards, unless the business qualifies as a "large-scale business", i.e. net assets (excl. land and buildings) of more than 10 billion IDR (ca. 740,000 USD) or annual sales of 50 billion IDR (ca. 3.7 million USD). The Business License will also be revoked if the business does not start operating within the first year since receiving the license.

Potentially annulled divestment requirements

In previous legislation, foreign shareholders were required to largely divest their shares purchased before 2007 - these obligations, however, have not been fully enforced, e.g. due to a lack of local shareholder interest. Article 16(6) of the BKPM regulation introduces now the possibility for foreign shareholders to retain their shares or buy back divested shares if the company's Indonesian shareholders provide a resolution to BKPM insisting that they waive their right to purchase the foreign-owned shares. In the case of companies fully owned by foreign shareholders, they must provide a statement saying they have not committed to any agreement with any Indonesian parties to sell their shares.

The regulation came into force on 2 January 2018 at the central level and will come into force by 2 July 2018 at the provincial level.

AFFECTED SECTORS

 
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AFFECTED PRODUCTS

 
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Inception date: 02 Jan 2018 | Removal date: open ended
Still in force

FDI: Treatment and operations, nes

According to article 6(3) of the BKPM regulation 13/2017, the subsidiaries of foreign investment companies ("Penanaman Modal Asing") will be required to convert from domestic investment companies (Penanaman Modal Dalam Negeri) into PMAs. The regulation does not set out a deadline for this transformation but requires the subsidiaries to be classified as PMAs during a corporate action, e.g. a merger or a stock split.

Regulation 13/2017 came into force on 2 January 2018 at the central level and will come into force on the provincial level at the latest on 2 July 2018.

 

 
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