New Regulation on Capital Investment Licensing and Facilities

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Authors: Juni Dani, Edly Febrian Widjaja

On 11 December 2017, the Chairman of the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or the “BKPM”) enacted its Regulation No. 13 of 2017 on Guidelines and Procedures for Licensing and Investment Facilities (“BKPM Reg. 13/2017”).

BKPM Reg. 13/2017 revokes several previous significant regulations on investment licensing in Indonesia, such as BKPM Regulation No. 14 of 2015 on Guidelines and Procedures for Investment Principal License (and its amendments), as well as BKPM Regulation No. 15 of 2015 on Guidelines and Procedures for Licensing and Non-Licensing of Investment.

Certain key provisions provided by BKPM Reg. 13/2017 are as follows:

I. INVESTMENT PROCEDURES

Under BKPM Reg. 13/2017, there are two phases of investment licensing procedures: Investment Registration (previously known as Principle License) for construction phase; and Business Permit for the production phase.

Investment Registration

Pursuant to the BKPM Reg. 13/2017, the companies that engage in the following business activities are required to apply for Investment Registration before they can apply for Business Permit:

a. Business activities which require time to conduct construction activity;
b. Business activities which are entitled to capital investment facilities pursuant to prevailing laws and regulations;
c. Business activities which may potentially cause medium and heavy environmental damage pursuant to prevailing laws and regulations;
d. Business activities related to state defense, natural resources or energy and infrastructure; or
e. Other business activities subject to certain requirements under the prevailing of sectoral regulations.

Investment Registration is granted for a minimum of 1 (one) year period and for a maximum of 5 (five) years period, depending on the characteristics of the business activity.

Any request or extension of Project Completion Period must be applied within 30 (thirty) days before the expiry date of the project completion period as stipulated under the Investment Registration concerned, otherwise the Company must re-apply for a new Investment Registration.

Business Permit

Investment Registration is not mandatory. Thus, a Business Permit can be directly issued for companies which meet the following criteria:

a. The company is established as an Indonesian entity with shares ownership limitation in accordance with the laws and regulations;
b. The company has obtained a Taxpayer Registration Number;
c. The company has occupied an office/business location;
d. The company’s business activity does not require construction phase;
e. The company’s business activity does not require an exemption of import duty facility for importing machine/capital goods.

BKPM Reg 13/2017 also requires a company which has applied for several business activities in its Investment Registration to simultaneously apply for Business Permit for all activities. In case the business activities are not all registered at the same time, then the business activity that was not being applied for Business Permit shall be considered as not implemented or cancelled.

II. INVESTMENT AMOUNT

Philosophically speaking, a foreign investment company (commonly called “PMA Company”) must be registered with large business qualification with the following criteria:

a. having a net asset greater than IDR 10 billion, excluding the land and building where business is conducted, in pursuance with the latest financial report; or
b. having annual sales of more than IDR 50 billion, in pursuance with the latest financial report.

Article 12 of BKPM Reg. 13/2017 specifically governs that for obtaining an Investment Registration and/or Business Permit, a PMA Company is required to fulfill the following requirements in relation to investment and capital amount:
a. Total investment value must be greater than IDR 10 billion, excluding land and buildings;
b. Minimum value of issued and paid-up capital is set at IDR 2.5 billion;
c. Minimum shareholding of IDR 10 million per shareholder. The percentage of shares ownership shall be calculated based on the nominal value of shares.

It is important to note that a PMA Company has already obtained Business Permit but wishes to commence new investment activities must comply with the above investment requirements.

III. DIVESTMENT OBLIGATION

Initially, the divestment obligation was stipulated under the Government Regulation No. 20 of 1994 which provides that for a PMA company with full foreign ownership, part of the shares in the company must be sold to Indonesian citizens or legal entities, either through direct sale agreements or via the domestic capital market, no later than 15 years after the commencement by the company of commercial activities.

BKPM Reg. 13/2017 governs that the divestment obligation, which has been provided by the BKPM to a certain PMA Company, is still required and must be fulfilled by the PMA Company.

However, the PMA Company may request for annulment of the said divestment obligation to the BKPM, provided that the PMA Company furnishes the following Resolution of the General Meeting of Shareholders (GMS):

a. For a Joint Venture Company: the Indonesian shareholder states that they do not intend/demand the ownership of the foreign shareholder’s shares, as obligated in the divestment requirement, as listed in the letter of investment approval and/or Business License; or
b. For a PMA Company with full foreign ownership: the shareholders state that they do not have commitment/agreement with any Indonesian parties to sell their shares.

BKPM Reg. 13/2017 came into effect as of 2 January 2018 (for BKPM Headquarters ) and as of 2 July 2018 (for regional BKPM).

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The Authors would like to acknowledge the contribution of our Junior Associate Mr. Vincensius Desta Galang Pratama in preparing this Legal Alert.

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