No specific deal is subject to FDI restrictions, except for:

• Acquisition of shares in an existing domestic company that engages in finance and banking business.
• Establishment or acquisition of companies operating in sectors in which FDI is prohibited or restricted under the Positive List of Investment (Positive List).

Foreign investment in certain sectors is prohibited, subject to a 49 percent cap or (in certain sectors allocated to small-medium enterprises) subject to a requirement to cooperate with small-medium enterprises.

The President and the Investment Coordinating Board (BKPM) are responsible for regulating foreign investment in Indonesia.

In addition, Bank Indonesia and the Financial Services Authority supervise FDI compliance in the banking and financial services sector.

No time limit.

Unlike the regime in force prior to the Omnibus Law, there is currently no requirement for any prior regulatory approval for the establishment of a foreign investment company or the acquisition of shares by a foreign investor in an existing company.

There are different practices for companies in the financial services and banking sectors, which may still require approval from the authorities to ensure compliance with FDI requirements.

National interest or national security.

The FDI regime only captures foreign investment and acquisitions within the territory of Indonesia.

There is no specific FDI procedure.

Investors only need to comply with the Indonesian Company Law (i.e., Law No. 40 of 2007 as amended under the Omnibus Law), the Positive List and the relevant licensing regulations for establishing a foreign investment company, and with the Indonesian Company Law for shares acquisition.

On average, it takes approximately two -four weeks to establish a foreign investment company.

Filing is no longer required in sectors other than banking and finance.

In the banking and finance sectors, failure to file a report or seek approval on the compliance with FDI requirements is subject to sanctions imposed by the Financial Services Authority, ranging from a warning to the revocation of a license (but there are generally no pecuniary or criminal penalties).

No specific provision to appeal a rejection by the competent authorities.

No special measures.

Foreign direct investment is regulated by Presidential Regulation No. 10 of 2021 (as amended by Presidential Regulation No. 49 of 2021), known as the Positive List of Investment (Positive List). The Positive List changes the previous regime, i.e., the Negative List of Investment.

The Positive List divides business activities into four categories, i.e.,

• Prioritized businesses.
• Businesses allocated for small-medium enterprises.
• Business activities with specific requirements.
• Other business activities.  

There are approximately 60 business activities that are dedicated for small-medium enterprises, for example, online retail trading of food and beverage, tobacco, chemicals, pharmaceutical, cosmetics, and laboratory equipment, online retail trading of textile, clothes, footwear and personal care and online retail trading of household equipment and kitchenware. These “small-medium enterprises” are Indonesian domestic capital companies only, because foreign invested companies are classified as large-scale enterprises with a minimum paid up capital of IDR10 billion. Therefore, foreign investors are generally not allowed to invest in these sectors, other than certain sectors in which foreign investment is specifically allowed by entering into a mandatory cooperation with small-medium enterprises (e.g., cement industry and lime products, and manufacture of engine and turbine components).

Business activities with specific requirements are subject to a 49 percent foreign ownership cap. Businesses that are listed in the prioritized businesses and other business activities are open to 100 percent foreign ownership. Prioritized businesses are eligible to receive incentives.

FDI requirements apply to equity ownership in a foreign investment company (i.e., a company in which a foreign person is a shareholder). Portfolio investment through the capital markets, and businesses located in special economic areas, are exempted from FDI requirements.

There is no national security review or filing in respect of foreign investment into Indonesia.

License

To improve the ease of doing business in Indonesia, the government enacted the so called Omnibus Law in 2020. Under the Omnibus Law, an investment license/permit is no longer required to conduct business activities in Indonesia. Given this, regardless of the transactions or business activities that investors engage in, starting from October 2020, the review and/or approval by the Indonesian Investment Coordinating Board (BKPM) is no longer required (see exception in answer to question 9).

In essence, there is no specific deal that is subject to FDI restrictions, except for the:

• Acquisition of shares in an existing domestic company that engages in finance and banking business.
• Establishment or acquisition of companies operating in sectors in which FDI is prohibited or restricted under the Positive List. 

If a foreigner acquires shares in a domestic company, the status of the company must be converted into a foreign investment company. The foreign shareholding must comply with the Positive List.

A foreigner is prohibited from acquiring Indonesian fixed assets, i.e., land and buildings.

The following are examples of sectors in which FDI is prohibited:

• Activities which are reserved for the central government (e.g., public services and national security).
• Narcotics
• Casino or gambling in any form.
• Chemical weapons industry.
• Traditional products (i.e., batik and traditional cosmetics, traditional medicines).
• Broadcasting
• Business activities that are dedicated for small-medium enterprises as mentioned above.

The following are examples of “business activities with specific requirements” in which, as noted in our answer to question 1, foreign ownership of equity interests is capped at 49 percent:

• Military airplane manufacturing and other military appliances.
• Water transportation
• Air transportation
• Courier

The President and the Investment Coordinating Board (BKPM) are responsible for regulating foreign investment in Indonesia. In addition, Bank Indonesia and the Financial Services Authority supervise FDI compliance in the banking and financial services sector.

But the Investment Coordinating Board (BKPM) no longer reviews FDI applications. Instead, the public notary has a major role in ensuring compliance with the FDI regulation. In particular, the public notary is responsible for ensuring compliance with the Positive List in each transaction (e.g., the establishment of a foreign investment company and the acquisition of shares by a foreign investor in a domestic company, and the filing to the Ministry of Law and Human Rights’ system in respect of the company establishment and the shares acquisition).  

The shareholders composition of a foreign investment company is set out in a deed of establishment (made before the public notary) which contains the articles of association, and is further reflected in the Online Single Submission Risk Based Licensing system. The system grants automated approval for foreign investment companies that meet the FDI requirements to be registered and apply for necessary licenses and permits.

Indonesian investment regulation does not recognize a lookback period.  

The government acknowledges a grandfathering principle. This principle allows investors to use more favorable FDI requirements. A concrete example: if a new regulation mandates stricter foreign ownership requirements for foreign investment companies, an existing foreign investment company is not required to adjust its shareholding structure to comply with the new regulation.

Unlike the regime in force prior to the Omnibus Law, there is currently no requirement for any prior regulatory approval for the establishment of a foreign investment company or the acquisition of shares by a foreign investor in an existing company. 

There are different practices for companies in the financial services and banking sectors, which may still require approval from the authorities to ensure compliance with FDI requirements.

Nominee

A nominee structure/arrangement is strictly prohibited under Indonesian Investment Law (i.e., Law No. 25 of 2007 as amended by the Omnibus Law). The nominee would be deemed, by law, as the valid and true owner of the shares, and any nominee arrangement could be declared null and void (in practice, by a court decision).

Control

An offshore transaction would not help to structure around the FDI restriction if the foreign shareholding in an Indonesian company would remain the same.

To obtain control in companies in which foreign ownership is capped at 49 percent, a typical arrangement would be to set two classes of shares: voting shares and non-voting shares. In some cases, a contractual arrangement to achieve control in the day-to-day operation of a company would be possible (particularly in a complex line of business, e.g., mining). In this case, a shareholder agreement or a joint operation agreement can be entered into in order to allow a minority shareholder to, for example, be in charge of the operation (i.e., appointing directors).

In addition, a convertible bonds arrangement may also be used to give to a foreign investor, as the bondholder, certain governance and veto rights in companies with foreign ownership restrictions.

There is no specific FDI procedure in Indonesia. Investors only need to comply with the Indonesian Company Law (i.e., Law No. 40 of 2007 as amended under the Omnibus Law), the Positive List and the relevant licensing regulations for establishing a foreign investment company, and with the Indonesian Company Law for shares acquisition. On average, it would take approximately two to four weeks to establish a foreign investment company.

Filing is no longer required in sectors other than banking and finance.

In the banking and finance sectors, filing is still mandatory. Any failure to file a report or seek approval on the compliance with FDI requirements such sectors is subject to sanctions imposed by the Financial Services Authority, ranging from a warning to the revocation of a license (but there are generally no pecuniary or criminal penalties).

Yes, approval from the relevant authority would be one of the conditions precedent to the closing. This requirement applies to the applicable sectoral regulations (for example, transactions in the financial services and banking, mining and oil and gas sectors).

There is no specific right to appeal a decision by the competent authorities (e.g., refusing to grant approval). 

Despite this, in general if the notary is satisfied that a transaction has met all requirements (e.g., a foreign investor establishes a company or acquires shares in a domestic company within the limits set out in the Positive List), the notary would simply make a submission with the relevant authority, and the company establishment or acquisition would be deemed to have been completed upon such submission with no additional approval from the authorities being required for such purpose.

But approval from the authorities might be required under applicable sectoral regulations (for example, transactions in the financial services and banking, mining and oil and gas sectors).

In general, as raised above, an approval from the relevant authorities (where required) would be one of the conditions precedent to the closing. For the financial and banking sectors, if a foreign shareholder would be entitled to appoint a director or commissioner in the foreign investment company, any nominated persons will be subject to a fit and proper test by the Financial Services Authority, which would also be one of the conditions precedent to the closing.

No special measures.

None that we are aware of.

The main recent legislative changes were the issuance of the Positive List replacing the Indonesian Negative Investment List, and the Omnibus Law. These developments aims at improving the ease of doing business in Indonesia and attracting foreign investments. The Positive List has reduced or removed restrictions from more than 350 lines of business that were previously prohibited/restricted to foreign investors.

We do not expect the government to impose additional foreign investment restrictions.

The government intends to boost investment across Indonesia, especially investment in the Special Economic Zones. Four new Special Economic Zones are being developed. The technology, manufacturing, tourism, infrastructure and renewable energy sectors are among the sectors in which the government aims to attract more foreign investment.

For more information contact Mochamad Kasmali, Partner, Jakarta