Investing in Indonesia: Some Changes Should be Known

  • InCorp Editorial Team
  • 1 June 2015
  • 8 minute reading time

Currently, Indonesia in ranks 114 out of 118 of ease doing business based on latest survey from World Bank. However, along with the new government, some business laws and regulations in various sectors have been changed to be tighter than before.

Cekindo helps you understand the critical points about investing in Indonesia.

After Jokowi was announced as the winner of Indonesia’s Presidential Election, there is an optimism of better climate to invest in Indonesia encouraged also through his speech in APEC CEO Summit to increase the ease of doing business in Indonesia.

“We have a national one-stop service office that can help you, that will serve you, that will facilitate you, that will give you your business permit” -Jokowi-

1. Changes to Negative Investment list

Since April last year, there is a new Indonesian Negative Investment List, May 4, 2014 which limits foreign shareholding in several sectors but increase foreign shareholding in other several sectors also. This has already given rise to many questions from foreign companies. Indonesia’s legal system continues to pose obstacles for foreign investors in various fields of law. Changes occurred in labor, tax, corporate, compliance and litigation. This changes is only applied to the new investment approval effective from 24th April 2014. While a grandfather clause is being applied by the Investment Coordinating Board (BKPM), which means that licenses issued by the previous Negative list rules will continue to apply. The current negative list will apply to all future approvals or licenses. In case a foreign distributor company operates under a grandfather clause and wants to extend its selling capacity, it will be treated by BKPM on case-by-case basis.

Some business fields which are increasing open to foreign investor

No. Business Field Previous Foreign Ownership Limitation Current Foreign Ownership Limitation
1. Advertising (for ASEAN only) Closed 51%
2. Venture capital 80% 85%
3. Port Provision services Public Private Partnership Project 49% 95%
4. Land transportation public facilities Closed 49%
5. Pharmaceutical 75% 85%
6. Motor vehicle testing Closed 49%
7. Electricity transmission and distribution PPP project 95% 100%
8. Large-scale power plants producing above 10MW built under PPP project 95% 100%

Some other business fields which are conditionally open for investment

No. Business Field Previous Foreign Ownership Limitation Current Foreign Ownership Limitation
1. Distributorships (other than pharmaceutical) 100% 33%
2. Offshore oil & gas drilling 95% 75%
3. Offshore oil & gas pipeline construction 100% 49%
4. Geological and oil & gas survey services
5. Small-scale power plants producing 1-10 MW Partnership with domestic partner 49%
6. Geothermal survey services 100% 95%
7. Cold storage and warehousing 100% 33% (67% in Kalimantan, Sulawesi, NT, Maluku & Papua)
8. Horticulture. horticulture service, cultivation & research 95%/100% 30%
9. Plantation cultivation ( above 25 Ha) 100% 95%
10. Management & disposal of non hazardous waste 100% 95%
11. Future brokers  100% 95%
12. Call centers & other telephone services Partnership with domestic partner 49%
13. Communication data system 95% 49%
14. Fixed & multimedia integrated 100% 65%

Some business fields which are now totally closed to foreign investment

No. Business Field  Previous Foreign Ownership Limitation Current Foreign Ownership Limitation
1. Online retail shopping no exact regulation Closed
2. Oil & gas operation and maintenance services 95% Closed
3. Onshore oil & gas upstream production 95% Closed
4. Onshore oil & gas drilling 95% Closed
5. Onshore oil & gas pipeline construction 100% Closed
6. Electrical power installation services 95% Closed
7. Electrical installation testing and maintenance 100% Closed

The above limitation of ownership for foreign ownership will not be a matter as long as foreign investor appoints their local shareholder properly.


2. Additional Requirements to Fulfill Investment Realization

Another latest update regulation for foreign investors who decide to go ahead with PMA company registration is about the obligation to fulfill investment realization. Generally known that the minimum investment plan for PMA is above USD 1 million with the paid-in capital above USD 250,000. Started from April 2015, foreign investor is not only required to breakdown in details of their planned investment capital but also to get the permanent license, foreign investor firstly need to fulfill the investment realization above USD 1 million based on their investment plan. This investment realization should be proven through financial statement since Indonesian government would like ensure that all foreign investors who invest in Indonesia have sufficient capital to run their business.


3. New Regulations under Ministry of Trade

Regarding the authority to issue trade business license, from December 2014 through Ministry of Trade Regulation No 96/M-DAG/PER/12/2014, Ministry of Trade has been delegated its authority to issue related trade business license to the Head Capital Investment Coordinating Board (BKPM). This licenses such as Business License for Foreign Representative Trading Company, Business License for Direct Selling, Approval to Organize an International Trade Exhibition, Convention or Seminar and General Importer Identification Number and Producer Importer Identification Number and Producer Importer Identification for investment companies.

Another new regulation from Ministry of Trade through Ministry of Trade Regulation No 90/M-DAG/PER/12/2014 on December 2014, regulate details of classification of warehouses, requirements for company which have warehouses to obtain Warehouse Registration certificate called Tanda Daftar Gudang (TDG) and obligation to report the warehouses administration records to Director General of Trade. This latest regulations will impose to both local and PMA wit business activities on export/import and distribution.


4. Mandatory Use of IDR in Transactions

From the end of March 2015, Bank Indonesia issued regulation about the obligation to use IDR in the territory of Indonesia through its regulation Number 17/3/PBI/2015. This regulation as the response due to usage of foreign currency in transaction downward continuation to the IDR exchange rate and it can be great affect to the IDR’s stability in the market. The mandatory of using IDR can be occurred in the specific conditions such as for payment purposes, for obligation that should be done using money and deposit money to bank account. However, some conditions are allowed for both local and foreign to use IDR e.g. for international transaction.


5. Update on Taxes Law

Under normal circumstances, the tax audit  should be conducted five years from the date of a tax return. Any discrepancy found within an audit will be charged the applicable penalties plus 2% interest penalty, per month. In the most recent development however, the director general of tax will reconsider an every lost appeal result. This reconsideration process creates huge uncertainty in the tax dispute resolution process in Indonesia, as the timing for a decision from the Supreme Court is vague.
Income tax decreased from 28 percent to 25 percent. Indonesia also has made several other tax facilities, namely the reduction of corporate income tax for listed companies to 20%, tax holidays, investment allowances and other reductions. In total there are 45 tax facilities available:

Name of tax facility Key Requirements The Facility
Tax holiday Pioneer industries i.e: basic metal industries, oil refinery and/or oil and gas sourced basic organic chemical, machinery, renewable resources industries, and/or communication equipment Corporate income tax exemption (tax holiday) for 5 up to 10 years, started from initial commercial production
Minimum investment of 1 trillion IDR (approxim. US$ 87 million) 50% corporate income tax reduction for 2 years after tax holiday period ended
Deposits 10% of the investment plan in Indonesia banks The Minister of Finance many grant extension of the facilities under certain conditions
Tax allowance for investment in certain business sectors and certain regions

Tax payer who invest in:

52 business sectors or

77 business sectors in certain regions

Investment allowance at 30% of the total investment, allocated for 6 years for 5% annually
Accelerated depreciation and amortization
10% withholding tax on profit-repatriation or as per tax treaty
Extended tax loss compensation for 5 years up to 10 years, under certain conditions
Facilities for renewable energy resource utilization Taxpayer who conducts activities on energy resource utilization Investment allowance at 30% of the total investment, allocated for 6 years for annually
Accelerated depreciation on amortization
10% withholding tax on profit-repatriation or as per tax treaty
Extended tax loss compensation
Exemption of withholding income tax Article 22 for import of machinery and equipment

Rules and regulations, however, are not always in line. It is advisable to secure tax reduction for foreigner investors. Indonesia has the Double Tax Avoidance Agreement (DTA). A foreign company receiving specific income from an Indonesia resident company should carefully consider its structure and DTA position. A proven payroll processing company can help you successfully claim a DTA benefit.


6. Enforcements of claims in Indonesia

Signing agreements should be always be secured by following the law in case the agreement is not being fulfilled. There are 2 main arbitration clauses in use and the Civil Code gives parties the freedom to agree on one of them.

1. SIAC – Indonesian Parties Singapore
2. BANI – Indonesian National board of Arbitration

SIAC is considered for international arbitration awards. BANI is a national award and therefore it will be considered more by companies because SIAC is not automatically accepted in Indonesia and can therefore be time consuming. Lawyers should always handle these proceedings.


7. Intellectual Property

Since 2011, Intellectual property rights (IPR) have been in force in Indonesia through the BAM HKI (Arbitration and Mediation Board for Intellectual Property Rights) is. Before BAM HKI was established, IPR disputes could be settled through Commercial Court or BANI.

BAM HKI is authorized to receive, examine and decide disputes relating to:

• Patents
• Trademarks
• Geographic indications
• Copyrights
• Industrial designs
• Layout-designs of integrated circuits
• Trade secrets
• Plant varieties
• other fields related to IPR

Even though the current climate is very challenging, there are some positive trends and a more level playing field may be on the horizon. To deal with this some change in regulations which relate to investment in Indonesia, we are on your disposal to assist you provide the details information and consultancy for you to successfully penetrate Indonesian market amidst to tighter business regulations.

Check the latest regulation on Indonesia 2018 Negative Investment List.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

Lead Form

Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.