CLIENT ALERT

ISSUANCE OF NEW PRESIDENTIAL REGULATION ON INVESTMENT BUSINESS ACTIVITIES

Subsequent to the issuance of Law No. 11 of 2020 on Job Creation on 2 November 2020 (“Omnibus Law”), which amended Law No. 25 of 2007 on Investment (“Investment Law”), the government issued the Presidential Regulation No. 10 of 2021 on Investment Business Activities (“PR 10/2021”). PR 10/2021 comes into effect as of 4 March 2021, revokes and replaces the Presidential Regulation No. 44 of 2016 on List of Business Fields that Are Closed and Business Fields that Are Conditionally Open for Investment (“Negative List”) that contained so-called the negative list.

The issuance of the new PR 10/2021 is aimed to further improve Indonesia’s business and investment climate by promoting certain priority industries through various incentives and privileges, simplifying the investment requirements, provide greater protection to cooperatives and micro, small, and medium-sized enterprises (“MSMEs”). PR 10/2021 also presents the significant changes to the list of businesses that subject to the foreign ownership restriction, such list has been reduced significantly.

Businesses that are not available for Investment

PR 10/2021 describes that, in general, all business fields are open for investment, except for those explicitly ruled to be closed for investment or can only be conducted by the Government.

Below are the business fields that are closed for investment, among others:

  1. cultivation and industry of category I narcotics;
  2. all forms of gambling and/or casino activities;
  3. capture of fish listed in the Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);
  4. utilization or harvesting of corals and taking of reefs from nature;
  5. chemical weapons manufacturing industry; and
  6. chemical industry and ozone-depleting substance

Prioritized Lines of Business

Prioritized business fields are those which satisfy these following criteria:

  1. a national strategic program or project;
  2. capital intensive;
  3. labor intensive;
  4. advanced technology;
  5. pioneer industries;
  6. oriented towards exports or imports; and/or
  7. oriented in research, development, and innovative

Both domestic or foreign investors investing in the prioritized business fields are eligible to receive fiscal incentives such as tax holidays, allowances, import duty exemptions, and/or non-fiscal incentives in the form of ease of attaining business licenses, work permits, and supporting infrastructure following the provisions of laws and implementing regulations. Other lines of business that are not listed as prioritized sectors may nevertheless be entitled to said incentives under sectoral laws and regulations.

Cooperatives and MSMEs

 Instead of providing a cluster of business fields that allocated specifically for MSMEs or cooperatives, PR 10/2021 has mandated certain criteria for a business to be allocated for MSMEs or cooperatives. PR 10/2021 describes that business which (i) do not utilize advanced technology,

(ii) labor-intensive and have a special and hereditary culture; and/or (iii) it required capital not exceeding Rp10.000.000.000 (ten billion Rupiah) (excluding land and building for its premises) shall be allocated for MSMEs or cooperatives. The aforesaid implies that companies that do not satisfy such criteria must partner up with MSMEs and cooperatives.

Furthermore, large scale companies need to get into a cooperation with MSMEs or cooperatives if they want to get into the businesses that are mostly carried out by cooperatives and/or MSMEs or those sectors with the potential to enter into a large supply chain.

Businesses with certain investment restrictions

 If the Negative List provided more than 300 lines of business that are subject to investment restriction, then PR 10/2021 has cut down that numbers to only 48 (as listed below). The new regulation provides that among the 48 lines of business there are:

  1. investment required    a    100%    domestic    investment    such    as    vessels    industry, telecommunication towers providers, and traditional medicine industry;
  2. investment with foreign capital ownership restriction such as mining, scheduled commercial air transportation, media press publisher and power generation below 1 MW; and
  3. investments which require special licenses such as main equipment industry (defense).

Special Economic Zones

 Investments carried out in special economic zones are not subject to foreign ownership limitations and special conditions that otherwise apply to a particular business sector. As of February 2021, the special economic zones in Indonesia are divided into two classifications being 11 (eleven) special economic zones are already in operation and 4 (four) are still in development. For more detailed information on the locations in question, visit https://kek.go.id/peta-sebaran-kek.

Portfolio Investment

Foreign ownership limitations are exempted if it is carried out indirectly or by way of portfolio investment through the domestic capital markets.

Investment Treaties

 The foreign ownership restrictions set out in PR 10/2021 will not apply to foreign investors which has been granted with special rights under investment treaties between Indonesia and their home countries unless the provision set forth in PR 10/2021 is more favorable for the investment.

Key Contacts

 For more detailed information, please contact:

Melissa Butarbutar

Partner

e: melissa.butarbutar@tjajolaw.id p: +62 21 2251 3653

Brahmantyo Jatiwidianto

Senior Associate

e: brahmantyo.jatiwidianto@tjajolaw.id p: +62 21 2251 3653

Michael Demetrius Hartanto

Associate

e: michael.demetrius@tjajolaw.id p: +62 21 2251 3653