B&A News Brief – New Indonesian Investment Regulation on Guidelines and Procedures For Licenses and Non-Licenses Capital Investments

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On 12 April 2013, the Indonesia’s Capital Investment Coordinating Board (“Badan Koordinasi Penanaman Modal or BKPM”) has issued a new investment regulation No. 5 of 2013 on Guidelines and Procedures for Licenses and Non Licenses Capital Investments, replacing the previous Regulation No. 12 of 2009 (“BKPM Reg 5/2013”). This BKPM Reg 5/2003 is effective as of 27 May 2013.

It is hoped that the BKPM Reg 5/2013 can improve the investment climate, by simplifying the investment licensing procedures.

Certain key provisions as provided by the BKPM Reg 5/2013 are as follows:

Minimum Investment
One of the difficulties that are often encountered by investors is the “unwritten policy” at the BKPM, especially concerning the minimum capital requirement for a Foreign Capital Investment Company (commonly called Penanaman Modal Asing or “PMA”).

The BKPM Reg 5/2013 set out the minimum investment for a PMA company to be greater than IDR 10 billion (approximately 1.02 million), excluding land and buildings, and the minimum value of paid-in capital is set at IDR 2.5 billion (approximately USD 255,000).

In addition, the BKPM also sets a minimum capital investment for a shareholder in a PMA company to be at least IDR 10 million.

Divestment Requirement
One question which is often asked by foreign investors before deciding to invest in Indonesia is the obligation to divest shares to foreign investors. This is because long before the enactment of the Investment Law No. 25 of 2007, the Government Regulation No. 20 of 1994 on the Ownership of Shares in Companies Established in the Framework of Foreign Investment provides that where a PMA Company is established with entirely foreign ownership, part of the shares in the company must be sold to Indonesian citizens or legal entities, either through direct sale agreements or the domestic capital market, no later than 15 years after the commencement by the company of commercial activities.

The Indonesian Mining regime also provides divestment requirement. A foreign-owned mining company is required to divest the majority control of the company (at least 51%), not later than ten years after commercial production.

The BKPM Reg 5/2013 states that any divestment obligations of a PMA Company to Indonesian individuals or companies as stipulated in the investment permits issued prior to the enactment of BKPM Reg. 5/2013 remain binding and must be performed by the PMA Company. The BKPM however, still give leeway for the foreign investor who has not found Indonesian partners to apply for postponement of divestment. The BKPM may grant extension for up to two years.

Venture Capital Company
The BKPM Reg 5/2013 stipulates that the Venture Capital Company shall no longer allowed to have shareholding in a large-scale Domestic Capital Investment Company (i.e., which have net assets above USD 10 billion) and PMA Company. Within ten years, the said venture capital company must divest its shares to the Indonesian.

Public Company
It is important to note that under the BKPM Reg 5/2013, a public company whose majority shares are owned by foreign investor shall be classified as a PMA Company. Consequently, any change of ownership of the controlling shareholder must obtain Principle Permit or Principle Permit for Amendment.

Investment Procedures
The BKPM has simplify the investment procedures. The Registration Approval as the preliminary step for setting up a PMA Company in Indonesia, as provided by the previous BKPM Regulation No. 12 of 2009, has no longer needed.

In order to start its business activity, both Domestic and PMA Companies must first obtain a Principle Permit. Principle Permit is a preliminary approval before the company commences its production/operations. Once the company is ready to commence commercial operations, it must apply for a Business Permit from the BKPM.

The application for the following Business License can be submitted through the BKPM:
a. Business License for Construction Business (Surat Izin Usaha Jasa Konstruksi or SIUJK);
b. Business License for Property Brokers (Surat Izin Usaha Perusahaan Perantara Perdagangan Properti or SIUP4);
c. Business License for Survey Business (Surat Izin Usaha Jasa Survei or SIUJS); and
d. Business License for Direct Sales (Surat Izin Usaha Penjualan Langsung or SIUPL).

Business Expansion
The BKPM Reg 5/2013 regulates the type of activities which shall be considered as business expansion and obliged to obtain Principle Permit for Expansion. Business expansion for industrial companies includes increase of production capacity for the same types of products and in the same location as the previous production which exceeds 30% of the allowed production capacity. Business expansion of non-industrial companies includes addition of new business activity and increase of production capacity.

Severe control of Foreign Ownership Prohibition
To invest in Indonesia, foreign investors should consider the what so-called the “Negative List”, i.e., business sectors that are absolutely closed to all domestic as well as foreign investment and those fields of business closed to only foreign investments. Under the BKPM Reg 5/2013, the BKPM seems to tighten their supervision in controlling the ultimate beneficial owner of a domestic company.

In this Regulation, a wholly-owned Indonesian company whose shares are purchased by foreign investor must list down all of their subsidiaries when submitting application to convert its status to become a PMA Company. Consequently, all of the subsidiaries of the newly converted PMA Company must also be converted to become a PMA Company. The BKPM gives a one-year grace period as of the issuance of the Principle Permit for the said subsidiaries to be converted into PMA Company.

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