New regulations aim to ease foreign direct investment in Indonesia.

Indonesia has in recent months passed numerous laws to attract investment, create new jobs, and stimulate the economy. Amongst the changes are relaxations on regulations controlling foreign direct investment (FDI). We look at the new opportunities for foreign investors and highlight the small print.

The ‘Omnibus Law’ on job creation was enacted by Indonesia’s President in November 2020 and provided a major revision of the 2007 Investment Law (see UNCTAD). Further to this, Indonesia has implemented a new regulation effective March 4th 2021 covering Foreign Direct Investment and Lines of Business, which has been colloquially called ‘the New List, or the Positive Investment List’, replacing what was termed ‘the Negative List’.

Industry sectors allowing 100% FDI

Certain sectors have been opened up to allow greater FDI:

  • Wholesale/distribution sector is re-opened to 100% foreign ownership (limited to 33% in 2014 and 67% in 2016)
  • Pharmaceuticals is promoted to a ‘priority’ sector and 100% foreign ownership (previously 85%) is permitted to encourage local pharma manufacturing and decrease dependence on imported medicines
  • E-commerce is opened to 100% foreign ownership and the requirement for IDR 100 billion investment has been dropped
  • Independent power plants (IPP) can be 100% foreign owned regardless of the generating capacity
  • Plantation sector is now 100% open to foreign ownership
  • Vegetables, fruit and seeds producers (that are subject to the Horticulture Law) are now 100% open to FDI, from a maximum of 30% previously
  • Specialised medical clinics (klinik utama), covering services such as dental, nursing and rehabilitation are open to 100% foreign ownership. Note this does not cover klinik pratama (general medical clinics, basic medical facilities and private maternity clinics) which are not open to any FDI.

Additional incentives to encourage FDI

As a further move towards welcoming more FDI into Indonesia, the New List nominates 245 business sectors as ‘priority’ and provides fiscal incentives such as tax allowances. You can read more on the Omnibus Law’s changes to taxation in our Tax Cluster news story.

Non-fiscal incentives to encourage FDI include immigration law relaxations for foreign personnel and what has been described as a ‘fairer’ labour regime when it comes to hiring and firing (Dr. Michael Goutama, The Straits Times March 8th 2021).

In general, there has been an attempt to cut the ‘red-tape’ to allow businesses to act faster and more efficiently. Thus, the Omnibus Law also calls for revamped procedures on e.g., business licensing.

Reasons for caution

The relaxed regulations allowing 100% foreign ownership do not apply to all businesses. There are:

  • 46 business activities where one or more of the following may apply:
    • FDI is subject to a maximum foreign shareholding limit
    • FDI requires specific approval from a relevant ministry
    • ‘greenfield’ FDI is limited to specific provinces
    • 100% reserved for domestic investors
  • Six business fields completely prohibited to FDI (e.g., casinos, fish harvesting, etc.)
  • 51 activities reserved for co-ops and SMEs
  • 38 sectors open to FDI if in partnership with co-ops and SMEs

(Source: www.lexology.com / ABNR)

  • Investment requirements for the financial sector are not subject to the Positive List, and are subject to the sectoral regulations applicable to the financial sector.

While the Omnibus Law on job creation does aim to encourage more FDI in Indonesia, it is important to point out that there are still considerable limitations on how FDI works. FDI in most cases must be made through an Indonesian limited liability company (perseroan terbatas PT) and only applies to large-scale businesses, as defined by Law No. 20 on Micro, Small and Medium Enterprises (2008), which requires minimum investment of IDR 10 billion and paid-up capital of 2.5 billion, although there are exceptions.

Navigating FDI in Indonesia

The initiatives by the Indonesian government to facilitate and encourage greater FDI are to be welcomed by foreign investors, especially MNCs. The moves certainly increase the attractiveness of entering the Indonesian market. However, the regulations and bureaucracy can still be a minefield to navigate without expert guidance. There is more certainty, but understanding all the variables often takes specialised knowledge.

Acclime’s regional teams are expertly positioned to advise on FDI opportunities in Indonesia, not only our offices in Indonesia itself, but also our offices nearer to you. Our Singapore office, for example, has considerable experience with Indonesia expansions, with 34% of Indonesia’s foreign investment coming from Singapore businesses in 2020. Reach out to Acclime’s experts to help you build and understand your Indonesia business case.

New regulations aim to ease foreign direct investment in Indonesia
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About Acclime Indonesia.

Acclime Indonesia helps established multinational companies and startups start and operate their business in Indonesia. By seamlessly navigating our clients through the complexities of the Indonesian laws and bureaucracy, we allow them to reclaim valuable time and fully focus on growing and developing their business.

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