Understanding The Restricted Sectors for Foreign Investment in Indonesia
Indonesia has been maintaining positive growth for direct investment inflows within these past four years.
As in 2014, Indonesia had successfully attracted 78.7 trillion rupiah (USD 6.3 billion) of direct foreign investment based on Indonesia Investment Coordinating Board (BKPM). The most attracting business sectors were mining, food, warehouse, transportation and telecommunication.Meanwhile, some business sectors are now closed to foreign investment or conditional for foreign limits only.
Based on the revised Negative Investment List in 2014, the sectors include the following:
#1 Sectors closed to all investors: businesses which generate, process, or develop any of the following: marijuana, sponges, harmful chemical products, weapons, alcoholic drinks, casinos, air traffic systems.
forest concessions; lumbering contractors; taxi/bus transport and small-scale water transport services; print media, TV, radio, film and cinema, including distribution and exhibition; small-scale retail trade.
#3 Industries with restricted ownership limits for foreigners: airport/seaport construction and operation; electricity production, transmission and distribution; atomic power plants; shipping; drinking water; railway service; certain medical services.
#4 Other sectors which are reserved for domestic small-scale enterprises, or large or medium-scale foreign companies.
Through Investment Coordinating Board, Indonesian government revises the Negative Investment List every three years. It outlines the sectors that are closed to foreign investment and those that have restrictions on foreign investment. All the fields not specifically noted in the Negative Investment List are usually open to investment along with 100% overseas control.
The latest revision of Negative Investment List was strategically intended to support the realization of national development and ASEAN Economic Community. Although some crucial sectors are generally prohibited, several industries that are opened foreign companies have been relaxed in terms of ownership limits and flexibility. For instance, the foreign ownership limit for pharmaceutical companies which manufacture drugs, raw pharmaceutical materials and finished drugs has been increased from 75% to 85%. ASEAN investors now also have greater flexibility to expand their investment in sub-specialized hospital services, medical clinics, dental clinics and nursing treatment services.
Foreign investors should be alert to the changes of Negative Investment List as it affects to the new percentage for foreign ownership. In case a certain business field is completely close to foreign investment, foreign investors still have alternative option by establishing a special purpose vehicle in form of local limited liability (i.e. Perseroan Terbatas) with 100% local shareholders. If the business field is conditionally open for foreign investment, foreign investors should acknowledge about the shareholding regulation. In the meantime, starting from the beginning of 2015, foreign companies which has not obtained business license must submit financial audit to BKPM.
To have further details about changes on each business fields both open and conditionally open to foreign investors, investors may have consultation to BKPM and local market entry consultant or the revised Negative Investment List.
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