Indonesia Corporate Law Series

One of the key regulations governing foreign investment in Indonesia is the Presidential Regulation No. 44 of 2016 regarding List of Business Fields that Are Closed and Business Fields that Are Open with Requirements for Capital Investment (Negative Investment List).

The Negative Investment List provides the areas in which investment is prohibited for foreign entities and areas that have certain investment restrictions for foreign entities. In addition to the Negative Investment List, the relevant laws and regulations that governing the particular business sector must be reviewed to determine whether the business sector is open for foreign investment.

For example, a construction services business is open for up to 67% foreign investment, and an insurance business is open for up to 80% foreign investment.

If a business sector is not listed in the Negative Investment List then it should be open 100% for foreign investment without any conditions. However, in practice, investors must confirm this with the prevailing relevant law and regulations, the BKPM and other relevant government officials before making any investment in Indonesia.

The main regulatory body for foreign investment is the BKPM. However, depending on the business, specific industry regulators may require the foreign investor to acquire an operating licence. It is always advisable for foreign investors to get a full picture of the required licences in the early stage of investment.

It is worth noting that the Government recently introduced the Online Single Submission (OSS) system, as regulated under GR 24/2018, under which the issuance and supervision of a significant portion of capital investment licensing was transferred from the BKPM and several other government agencies to the OSS system supervised by the Coordinating Ministry for Economic Affairs. However, the BKPM was mandated to supervise the OSS system.

Further, under BKPM Regulation No. 6 of 2018 regarding Guidelines and Procedures for Capital Licensing and Investment Facilities (BKPM Reg. 6/2018), not all licensing applications and approvals were transferred from the BKPM to be managed by the OSS system, therefore the BKPMs One-Stop Integrated Services is still processing and issuing licences in the following sectors:

Energy and mineral resources (electricity, oil and gas, minerals and coal);

Public works and public housing;

Customs and excise facilities; and

Other foreign investment licences (representative office, branch office, limited stay visa, change of status from stay permit on arrival into limited stay permit, and change of status from limited stay permit into permanent stay permit).

With the newly established OSS system, the effect on foreign investment in Indonesia, specifically, and business in the larger context remains to be seen. There is a transition period of six months to get the OSS system up and running, but in practice, it may take longer and require co-operation across relevant ministries.