Law No. 25 of 2007 on Investment, as amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (“Investment Law”) and its ancillary regulations, generally govern foreign investment in Indonesia. The Investment Law requires the Government of Indonesia (“Government”) to stipulate business fields that are open to foreign investment and to set priorities or special conditions for that investment. It also mandates the Government to determine business fields that are closed to investment.

One of the implementing regulations of the Investment Law is Presidential Regulation No. 10 of 2021 on Investment Business Fields, as amended by Presidential Regulation No. 49 of 2021 (the “Investment List”). Pursuant to the Investment Law and Investment List, all business fields are open to investment, except those that: (i) are determined as closed to investment, or (ii) that can only be carried out by the Government (strategic defense and security that cannot be engaged in by or be done in cooperation with other parties).

The Investment List stipulates business fields that are:

• Open for investment, which includes: (a) priority business fields; (b) subject to partnerships with cooperatives and micro, small, and medium enterprises; (c) subject to specific conditions; and (d) do not fall within the categories (a) to (c). These business fields can be performed by any investor (foreign and domestic).
• Closed to investment, i.e.:
• business activities stipulated in Article 12 of the Investment Law, will be further elaborated in our response to "What sectors are subject to Foreign Investment Restrictions screening?" below.
• manufacture of alcoholic liquor (under Indonesian Standard Business Classification (“KBLI”) 11010), alcoholic beverages (KBLI 11020) and malt beverages (KBLI 11031). For information, every line of business in Indonesia is assigned a 5-digit KBLI, and each KBLI describes the line of business concerned.
• Conditionally open to foreign direct investment (“FDI”) but subject to specific requirements and/or limitations, such as : (a) open to FDI but subject to a maximum foreign shareholding ownership, including within the framework of ASEAN cooperation, including trading/distribution, construction, transportation services, etc.; (b) open to FDI but subject to special approval from the relevant ministry; and/or (c) certain business fields that are limited, supervised, or regulated by separate regulations on supervision and control of alcohol beverages, (d) business fields subject to partnerships with micro, small, or medium enterprises.

In principle, unless specifically stipulated otherwise in other regulations, businesses that are not expressly listed in the Investment List as closed or conditionally open to investment are 100% open to investment (FDI or domestic).

Under normal circumstances, Indonesia is focused on a combination of economic protectionism and national security, with a focus on economic development and self-sufficiency. However, policies can change over time and are influenced by various factors, including leadership changes (Indonesia is planning presidential and legislative elections in Q1/Q2 of 2024) and evolving global circumstances.

Furthermore, since the COVID-19 pandemic, the Government has focused on economic protectionism. Despite the challenges of the pandemic, the Government has focused on health and social protection, as well as economic recovery. However, investment in national defense and security is reserved only for the Government. As part of economic development and improvements to ease of doing business in Indonesia, the Government has actively worked on cultivating a more favorable economic climate and legal certainty, i.e., implementing a series of regulations and improvements of the integrated online single submission (“OSS”) System for licensing to promote investment by launching the new Risk-Based OSS System ("RBA OSS System”), as well as to turn Indonesia’s economic potential into real economic strength, by using investment funds.

The Investment Law defines a “Foreign Investor” as a foreign citizen, entity, or government engaged in investment in Indonesia. It is not limited to particular countries.

In conclusion, participation by a foreign party in an Indonesian company (with either a minority or majority interest) would be considered foreign investment. In addition, an Indonesian entity with foreign shareholding would also be considered ‘foreign.’

The following sectors are subject to this type of screening:

1) Business fields closed to investment, based on the Investment Law, including:

• Cultivation and processing of class I narcotics;
• Any type of gambling enterprise or casino;
• Fishing of species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);
• Utilization or collection of coral and utilization or collection of coral from nature, used as building material/lime/calcium, in aquariums, or souvenirs/jewelry, as living coral or recently deceased coral;
• Manufacturing of chemical weapons;
• Manufacturing of industrial chemicals or of ozone-depleting substances.
• Alcoholic beverage-related business fields, which include the following KBLI codes:
  • production of alcoholic beverages (KBLI 11010);
  • production of wine (KBLI 11020); and
  • production of malted beverages (KBLI 11031).
• Activities in relation to public services or strategic defense and security are reserved for the Government.

2) Fields conditionally open to FDI, classified as:

a) Prioritized business fields

The Investment List specifies 246 business fields as prioritized projects that are:

• national strategic;
• capital-intensive;
• labor-intensive;
• high-technology;
• pioneer industry;
• export-oriented; or
• research, development or innovation-oriented.
  
  Prioritized businesses are entitled to receive fiscal and non-fiscal incentives as specified in the Investment List, and this priority is not related to FDI, but more the qualification of sectors and businesses that may obtain investment incentives. These are given in the form of tax and duty allowances (income tax allowances, tax holidays or investment allowances, and import duty waivers).
  
  Non-fiscal incentives include business license streamlining, supporting infrastructure provision, energy availability guarantees, raw material availability guarantees, and immigration, employment and other facilities provided under the law.

b) Fields allocated or reserved for partnership with cooperatives and Micro, Small and Medium Enterprises (“MSMEs”).

The Investment List allocates 106 groups of businesses for cooperatives and MSMEs, or in partnership with them.

(i) Businesses allocated for cooperatives and MSMEs

The criteria used by the Government to determine these lines of businesses are:

• business activities implementing no or less advanced technology;
• business activities with special processes, are labor incentive, or involve special and hereditary cultural heritage; and/or
• have capital of less than Rp10 billion (approx. USD630,000).

(ii) Businesses reserved for partnership with cooperatives and MSMEs

As a reference, according to the Law No. 20 of 2008 on MSME, as amended by Job Creation Law (“MSME Law”), partnerships with MSMEs can take several forms including: inti-plasma, sub-contract, franchises, general trade, distribution and agency, profit-sharing, joint ventures, and outsourcing.

c) Fields conditionally open to foreign investment subject to certain requirements

Some 37 lines of businesses are open with specific conditions (foreign ownership limitation, location, specific licensing, etc.). Foreign investors must thoroughly assess sectoral regulations to ensure that their business is open to foreign investment.

Further, businesses related to the alcoholic drinks industry are subject to control and supervision:

• Wholesale of alcoholic beverages (importers, distributors and sub-distributors) (KBLI 46333);
• Retail trading of liquor and alcoholic beverages (KBLI 47221); and
• Small retail trading of liquor and alcoholic beverages (KBLI 47826).

The following requirements and thresholds are applicable to FDI:

1) The minimum issued and paid-up capital of the FDI company is IDR 10 billion, irrespective of the number of lines of business chosen by the foreign investors. Thus, the minimum equity that must be fully deposited by the shareholders into the foreign investment company’s bank account in Indonesia should at least be Rp 10 billion.

2) In general, the investment value for FDI for (a) a line of business with 5-digit KBLI (b) several lines of businesses of wholesale trade activities with the same first 4-digit KBLI remains at above Rp 10 billion, excluding land and building value. Certain sectors may impose a higher investment value, e.g., manufacturing sector requires a minimum investment value of IDR 15 billion.

Components of the investment value for a newly established foreign investment company are as follows:

(a) fixed capital, including:
(i) Land procurement (value of the land owned by a company, expenses for land clearing, cut and fill activities);
(ii) Building (expenditure for building construction or renovation or addition of new building and facilities),building roads within the project location, warehouse, factory, and other facilities ;
(iii) Machinery (including additional/ replacement of machinery), equipment, spare parts for machinery (whether imported or purchased domestically), installation fees;
(iv) Other investment (including other expenses such as for operational vehicles, office equipment, building/land lease fee (if the company does not own land and/or buildings), survey fee, licensing fee, including operational fee before commencing commercial activities).

(b) working capital (for one turnover), that includes: expenditure for raw materials, supporting materials, purchase of inventory; operational vehicles; employee wages; operational costs (electricity, water, phone); company’s overhead costs, when the company is ready to carry out its commercial activities;

The investment value can be funded by capital, loans and/or retained earnings (for the company that has been operating).

3) If the investment is made by acquiring an existing company in Indonesia, it will be subject to a new Indonesian merger control requirements that will be further elaborated in our response to Number 6 below.

There are no specific notification requirements for a Foreign Investment Restriction. Primarily, in the current licensing regime where the license application must be processed via the OSS RBA System and the relevant ministry’s online system, the system will automatically provide a notification on the restriction and whether the foreign investor or business undertaking has fulfilled the relevant requirements.

However, there is a mechanism for approval and/or notification to the Ministry of Law and Human Rights (“MOLHR”) for establishment of a foreign investment company and acquisition of an existing Indonesian company to be assisted by a notary. In the process of setting up a new Indonesian company or acquisition of existing Indonesian companies, the notary will be involved in filings with the MOLHR, who will check whether the business is subject to certain requirements under the Investment List to ensure compliance, e.g., any maximum foreign shareholding percentage requirements, and to ensure the particular business complies with such requirements.

For investment made via the acquisition of an existing Indonesian company, there is post-notification under Foreign Investment Restriction rules, which will be subject to several conditions under Law No. 5 of 1999 on the Prohibition of Monopolistic and Unfair Business Competition Practices as amended by Job Creation Law (“Indonesian Competition Law”) and its implementing regulation, Regulation of the Indonesian Competition Supervisory Commission (“KPPU”) No. 3 of 2023 on Assessment of Merger, Amalgamation or Acquisition of Shares or Assets that will Result in Monopolistic and Unfair Business Competition Practices (“KPPU Reg. 3/2023”)

Under the Indonesian Competition Law and its implementing regulation, an acquisition transaction requires notification to KPPU if the following cumulative criteria are met:

(a) The transaction results in a change of control.
(b) The following assets/sales thresholds apply:
(i) Combined Indonesian asset value of: (i) the acquirer, its ultimate parent entity (“UPE”), and all the controlled subsidiaries of the UPE, and (ii) the target and its controlled subsidiaries, exceed IDR 2.5 trillion (approx. USD157 billion); and/or
(ii) Combined Indonesian sales value of (i) the acquirer, its UPE, and all the controlled subsidiaries of the UPE, and (ii) the target and its controlled subsidiaries exceed IDR 5 trillion (approx. USD314 million).
(c) The transaction has a direct impact on the Indonesian market.
(d) The transaction is carried out between non-affiliated companies.
(e) The transaction is not conducted solely to comply with prevailing laws and regulations.

If the proposed transaction meets all the above conditions, it will trigger mandatory notification under the Indonesian competition regulations for the acquirer of shares to notify the KPPU.

The mandatory notification must be made by the acquiring party in writing and submitted to the KPPU within 30 business days as of the effective date of transaction. In other words, it would be conducted after the completion of the proposed transaction.

Failure to comply with the mandatory notification requirement will render an undertaking liable to an administrative fine of IDR 1 billion (USD63,000) per day of non-performance, up to IDR 25 billion (USD1.57 million).

However, please also note that asset acquisitions are exempt from the notification obligation if they involve:

• A non-bank asset transfer transaction valued at < IDR 250 billion (approx. USD15.7 million);
• A bank asset transfer transaction valued at < IDR 2.5 trillion (approx. USD157 billion);
• The transfer of assets is carried out in the ordinary course of business;
• The assets have no relationship with the business activities of the companies acquiring the assets.

In addition to the approval and/or notification to MOLHR mentioned in our response to question 6 above, in general, no other specific approval is required prior to closing for certain lines of business.

However, an Indonesian company must ensure that the foreign investment requirements and foreign ownership in the Indonesian company comply with the requirements under the applicable laws and regulations, including the Investment List and other relevant regulations. Nevertheless, for certain sectors such as mining, banking and financial institutions, the authority’s consent will also be required prior to closing. The transaction cannot be concluded, and the approval will have a suspensory effect on the transaction.

The Government has implemented more measures in improving the ease of doing business in Indonesia, which includes the integration of online platforms into their public services. The RBA OSS System was launched in August 2021, which was still amid the pandemic, and therefore at that time many business undertakings encountered technical glitches in processing their investment and licensing applications via the RBA OSS System due to unclear procedure for certain license applications. The situation was further exacerbated with the difficulty experienced by business undertakings in obtaining clarification from the Ministry of Investment/Investment Coordinating Board (“BKPM”), as the Government imposed restrictions on face-to-face consultations with governmental institutions, including the BKPM. After COVID-19 pandemic-related restrictions were lifted in 2022, generally, the online application process via the RBA OSS System became much smoother, although some technical glitches may still occur within the System.

Further, following the COVID-19 pandemic, the new investment entered by business undertakings in Indonesia has expanded to technology businesses, including e-commerce, digital health services, and several new investments in manufacturing sector in Indonesia that includes manufacture of electric vehicles and batteries, health sectors, and others.

Government agencies have been actively reviewing, supervising, and monitoring investment (domestic and foreign) activities of Indonesian companies in Indonesia.

Generally, the Government will not delay, modify, or block an FDI, provided that the foreign investment company complies with the applicable law and regulations. Nevertheless, the Government also has complete discretion in rejecting FDIs that are ineligible under the rules (please refer to our response to question 4 above for details).

The supervisory authority for businesses involved in foreign direct investment is the BKPM. For businesses subject to BKPM’s supervision, operational and commercial activity will be reviewed by the line ministry or government institution concerned. For example, energy and mining are supervised by the Ministry of Energy and Mineral Resources, while industry and manufacturing fall under the Ministry of Industry. However, certain lines of business are subject to review by regulator, for example, banking and non-banking, which fall under the supervision of the Financial Services Authority (OJK) while upstream oil and gas fall under the Special Task Force for Upstream Oil and Gas (SKKMIGAS).

Enforcers can review a foreign investment for a violation by monitoring the reporting obligation and/or fulfillment of licensing requirements, etc. As part of its supervisory and monitoring role: (i) BKPM requires companies to report periodically investment value implementation through a capital investment activities report (“LKPM”); and (ii) BKPM, in coordination with central government ministries/non-ministry institutions and local governments, may carry out random, post-audit checks on the validity of data and information submitted to the OSS system and to verify whether the business actor has fulfilled all applicable technical requirements and obtained all applicable general permits. Following assessment, BKPM can sanction Indonesian companies via written/online warnings, administrative fines, or revocation of an Indonesian company’s licenses.

We have seen some cases as follows: (i) In 2022, BKPM revoked several mining business licenses of some companies due to violation of mining regulations including non-performance of mining activities, and (ii) the most recent enforcement practice by the authorities concerns the revocation by the BKPM is revoking the license of a foreign investment company engaged in trading business that was conducting e-commerce and public fundraising activities without proper business licenses.

As noted in our response to the question "Is your regime focused on economic protectionism, national security, or a combination?" above, the currently implemented policy can change over time because of the upcoming presidential election in 2024. Nevertheless, please note that until now many governmental institutions are still in the process of adjusting and issuing implementing regulations in accordance with the Job Creation Law.