FOREIGN INVESTMENT

 

The Government of Indonesia adopts two kinds of foreign investment, namely foreign investment through joint venture between foreign and Indonesian partners, where the partnership may involve legal entity or individuals; and foreign investment through 100% foreign shareholding.

 


Joint Venture Investment

 

Foreign investment, further referred to as PMA (Penanaman Modal Asing), means the direct investment of foreign capital in Indonesia to establish an enterprise here. The fundamental law primarily governing the foreign investment is Law No. 1/1967 on Foreign Capital Investment, as amended by Law No. 11/1970, which referred to generally as the Foreign Investment Law.

The law provides a broad statutory framework for the encouragement, protection, and regulation of foreign investment. Until today, this law is still considered compatible with Indonesia’s current needs. As a legal basis, the law is fairly accommodative to various deregulatory policies and measures that have been and will be adopted by the government.

Under the Foreign Investment Law No. 1/1967, a PMA company is established as a joint venture scheme between foreign and Indonesian partners. The company established is then referred to as a Joint Venture Foreign Investment company. The joint venture entity shall take the form of a Limited Liability Company subject to the Indonesian Corporate Laws, denoted as PT (Perseroan Terbatas).

The delegation of authority from the President of the Republic of Indonesia to the Minister of Investment/Chairman of the Investment Coordinating Board (BKPM) to issue foreign investment approval up to US$. 100,0 million. Previously, foreign investment approval in Indonesia, at any amount, was issued by the President of the Republic of Indonesia. Foreign Investment approval of more than US$. 100,0 million should still issued by the President.

The foreign partners may be foreign nationals/individuals and/or foreign legal bodies (companies); whereas the Indonesia partners may be Indonesian nationals/individuals, existing joint venture PMA companies, existing PMDN companies, non-PMA/PMDN private companies, state-owned enterprises (BUMN - Badan Usaha Milik Negara), regional-owned companies (BUMD - Badan Usaha Milik Daerah), and Cooperatives.

Numerous implementing regulations and decrees have been adopted and revised from time to time to flesh out important details of the investment regime. Foreign capital is broadly defined to include:

  

  • all foreign exchange that is not part of Indonesia’s reserves;

  • imported goods and services that are not financed by such reserves; and

  • reinvested earnings.

The new company formed from such investment must be domiciled in and operated wholly or for the greater part in Indonesia and must be a legal entity established under Indonesian Laws.

In addition to the Foreign Investment Law No. 1/1967, the PMA companies as well as other companies are still subject to sectoral policies applied by the corresponding ministry, such as those are stipulated in Law No. 5/1984 on Industry, Law No. 5/1967 on Forestry, and Law No. 12/1992 on Agricultural System, etc.     

The PMA company is granted a period of 30 years to operate after its legal formation. If within this period it commits an additional investment or expansion of its project, another 30 years of time is granted for the expansion project. Thus, a PMA company can, in effect, continuously exist if it keeps expanding or reinvesting.     

There is no requirement on the minimum amount of investment (equity plus loan). The amount is for the parties concerned to determine, based on their economic of scale and business considerations.     

A PMA company under joint venture scheme, which has been commercially operational, is allowed to set up new PMA companies under the same ownership. It is allowed to buy - through direct placement or through domestic stock exchange - the shares of an existing domestic company already commercially operational, as long as the line of business concerned is open for the foreign investment, that is not included in the DNI (Daftar Negatif Investasi - Negative List of Investment) as stipulated in the Presidential Decree No. 96/1998 on List of Sectors Closed for Investment. The purchased company in this case retains its corporate status.     

In the framework of financial rescue and export drive, foreign enterprises and foreign citizens may buy the shares of existing PMA or fully domestic companies through direct placement or through domestic stock exchange, as long as the line of business concerned is open for the FDI, that is not included in the DNI. In this case, the original corporate status of the purchased company may be retained.      

PMA companies in infrastructure projects such as seaports; generation and transmission as well as distribution of electricity for public use; telecommunications; shipping; airlines; potable water; public railways; atomic energy reactors; and mass media should be established by way of joint ventures between foreign and Indonesian partners provided that the Indonesian share is maintained at least 5%.
  
   


The 100% Foreign Shareholding

As of the issuance of the Government Regulation No. 20/1994, a PMA company may be established as a straight investment or Foreign Direct Investment (FDI), namely with 100%-Foreign Shareholding, either by foreign nationals/individuals and/or foreign legal bodies (companies).

Not later than 15 years of commercial operation, a 100% Foreign Shareholding company starts to be divested by selling some of its shares to Indonesian individuals and/or business entities, through direct placement and/or indirectly through domestic stock exchange.     

All of the clauses stipulated in the Foreign Investment Law No. 1/1967 as amended by Law No. 11/1970 and the DNI (Presidential Decree No. 96/1998 on List of Sectors Closed for Investment) are still applicable to the 100% Foreign Shareholding investment. 
 
   

 

  

Source : Investment Coordination Board of the Republic of Indonesi