Indonesia Amends Investment Procedure

Continuing the movement to provide easier access for investment, the Indonesian government on 8 June 2016 amended provisions on the Investment Principal License (Izin Prinsip Penanaman Modal) legal framework (“Amendment”).[1]

The Investment Principal License is essentially the core documentation for any foreign business looking to establish a limited liability company in Indonesia.[2] The Investment Principal License is also required for any subsequent documentation in order to commence business operations, including among others:[3]

  1. Location Permit (Izin Lokasi);[4]
  2. Foreign Worker Recruitment Permit (Rencana Penggunaan Tenaga Kerja Asing);[5]
  3. Environmental License (Izin Lingkungan); and
  4. Any operational feasibility certificates and operational licenses

Better Facilitation of Businesses in Free-Trade Areas and Free Ports and Special Economic Zones

Companies which are located in certain Industrial Zones (Kawasan Industri)[6] or a Special Economic Zone (Kawasan Ekonomi Khusus)[7] and have secured an Investment Principal License are now allowed to commence construction activities without first securing any building permit or environmental documentation.[8]

However, the required building permits and environmental documentation must be secured before commencing any commercial production.[9]

Investment Principal License Issued Prior to Company Establishment

The Amendment now allows foreign investors to first secure an Investment Principal License or Investment License (Izin Investasi) prior to undertaking the process of establishing a limited liability company. Prior to the Amendment, foreign investors were required to first establish a limited liability company then subsequently secure an Investment Principal License for the said limited liability company.[10]

Portfolio Investment Does Not Count to Investment Cap

Generally, foreign investment is subject to restrictions imposed by Indonesia’s negative investment list.[11] In this respect, the Amendment asserts that any foreign portfolio investment made into a foreign investment limited liability company will not be subject to the negative investment list.[12]

As an example, a foreign-owned pest control company has foreign ownership of 67 percent, which is the maximum for foreign investment in a pest control company according to the negative investment list. If a portfolio investment by a foreign person or entity was to be made through this company’s publicly listed shares, the foreign-owned pest control company will not be found to exceed the allowed 67 percent cap for foreign ownership.

Investment License

An Investment License is different from an Investment Principal License. The most prominent feature of the Investment License is the swift processing time of 3 hours at most compared to the somewhat sluggish Investment Principal License which takes around a week to complete.[13]

In order to be eligible for an Investment License, an investment must have at least a total investment value of IDR 100,000,000,000 (approximately USD 7,550,000 as of the date of this article) or plans to employ a minimum of 1,000 locals.[14]

The Amendment further clarifies that only the following companies will be eligible for an Investment License:[15]

  1. Businesses in certain industries which are part of a production supply chain, provided that a statement letter or memorandum of understanding entered into with the company’s counterparts have been secured;
  2. Businesses located in a Special Economic Zone;[16] or
  3. Infrastructure projects in the following sectors: a) energy and mineral resources,[17] b) communication and information technology,[18] c) transportation,[19] and d) public works and housing.[20]

Transitional Provisions

The Amendment sets the deadline of 8 October 2016 for any project that have not been completed within the time period specified by the Investment Principal License to submit an application for an amendment or expansion, or to apply for a Business License.[21]

Furthermore, the Amendment also clarifies that for investments in the Modern Cikande Industrial Estate in Serang that have been granted with an Investment Principal License or Investment License prior to the issuance of the Amendment also enjoys the flexibility of commencing construction without securing building permits or environmental documentation.[22]

 


FOOTNOTES

[1] Head of Indonesia Investment Coordinating Board Regulation No. 6 of 2016 regarding the Amendment to Head of Indonesia Investment Coordinating Board Regulation No. 14 of 2015 regarding Guidelines and Procedures for Investment Principal License

[2] Amendment, Art. 1 no. 10

[3] Amendment, Art. 10 (3)

[4] For more information on Location Permits, see: Andin Aditya Rahman, “Foreign Worker Employment Policy Falls to Criticisms,” 20 November 2015

[5] For more information on how to hire foreign workers, see: Andin Aditya Rahman, “Securing Your Business Location in Indonesia,” 29 July 2015

[6] As of the date of this article, the only Industrial Zone with this flexibility is the Modern Cikande Industrial Estate in Serang pursuant to Head of the Indonesia Investment Coordinating Board Decree No. 24 of 2016 regarding Determination of Certain Industrial Zones for Investment Flexibility of Immediate Construction

[7] The following are the Special Economic Zones established as of the date of this article: a) Bitung (Matuari District, Bitung City, Sulawesi Utara Province) as established by Presidential Regulation No. 32 of 2014 regarding Bitung Special Economic Zone, b) Mandalika (Pujut District, Lombok Tengah Regency, Nusa Tenggara Barat Province) as established by Presidential Regulation No. 52 of 2014 regarding Mandalika Special Economic Zone, c) Morotai (Morotai Selatan District, Pulau Morotai Regency, Maluku Utara Province) as established by Presidential Regulation No. 56 of 2014 regarding Morotai Special Economic Zone, d) Palu (Tawaell District, Palu City, Sulawesi Tengah Province) as established by Presidential Regulation No. 31 of 2014 regarding Palu Special Economic Zone, e) Sei Mangkei (Bosar Maligas District, Simalungun Regency, Sumatera Utara Province) as established by Presidential Regulation No. 29 of 2012 regarding Sei Mangkei Special Economic Zone, f) Tanjung Api-Api (Teluk Payo Village, Banyuasin II District, Banyuasin Regency, Sumatera Selatan Province) as established by Presidential Regulation No. 51 of 2014 regarding Tanjung Api-Api Special Economic Zone, g) Tanjung Lesung (Panimbang District, Pendeglang Regency, Banten Province) as established by Presidential Regulation No. 26 of 2012 regarding Tanjung Lesung Special Economic Zone, and h) Maloy Batuta Trans Kalimantan (Kailorang District, Kutai Timur Regency, Kalimantan Timur Province) as established by Presidential Regulation No. 85 of 2014 regarding Maloy Batuta Trans Kalimantan Special Economic Zone.

[8] Amendment, Art. 10

[9] Amendment, Art. 10 (9)

[10] Amendment, Art. 12 (2)

[11] Indonesia’s negative investment list is contained under: Presidential Regulation No. 44 of 2016 on the List of Business Fields Which Are Closed and Conditionally Open to Investment.

[12] Amendment, Art. 25 (3a)

[13] Amendment, Art. 30 (3)

[14] Amendment, Art. 30 (1)

[15] Ibid

[16] Supra, n. 7

[17] Specifically: a) electricity power plants of more than 10 megawatts in a single location, b) electricity transmitters, c) electricity distributors, d) geothermal businesses, and e) temporary upstream oil and gas license

[18] Specifically: a) wired and wireless telecommunication businesses, b) satellite telecommunication, c) telecommunication networks integrated with telecommunication services, d) communication system services, e) public internet telephone services, f) multimedia services, g) internet service providers, h) premium call services, and i) other value-added telephone services

[19] Specifically: a) city train railing and train tourism transportation, b) other train transportation, c) sea port services, and d) business activities related to airport activities

[20] Specifically: a) toll roads, b) water and irrigation resources, c) drinkable water businesses, d) management and disposal of non-hazardous waste, and e) trash management systems and trash disposal

[21] Amendment, Art. 62 (5)

[22] Amendment, Art. 62 (6)


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