Indonesia

Presidential Regulation No. 44 of 2016 regarding the List of Business Fields That Are Closed and Business Fields That Are Conditionally Open for Investment (the 2016 Negative Investment List or 2016 DNI) replaces the 2014 Negative Investment List or 2014 DNI, and was made public on May 24, 2016. The 2016 Negative Investment List refers to business lines and code numbers set forth in the Indonesian Standard Industrial Classification of 2015 (the KBLI).The 2016 Negative Investment List liberalises some areas of foreign investment in Indonesia, including foreign investment from ASEAN countries. However, it is also true that the 2016 DNI does not contain the dramatic changes that had been anticipated by some members of the foreign investment community.

Fundamental principle of the DNI

Pursuant to Article 3 and Article 1(2) of the 2016 Negative Investment List, business lines that are not listed in the attachments to the 2016 DNI are deemed 100 percent open for foreign investment. There is no change in this basic concept. The 2016 Investment Negative List sets out that if a KBLI code number includes more than one business line, then a capital investment limitation stated in the 2016 Negative Investment List is applicable only to the business line that is expressly mentioned. For example, KBLI Code No. 70209 covers “other management consultancy businesses”. The 2016 DNI specifically refers to this KBLI code number and horticulture development consulting, which is limited to a maximum of 30 percent foreign investment. That foreign capital investment limitation applies only to horticulture development consulting and not to other types of consulting businesses.

Grandfather provisions
Similar to the 2014 Negative Investment List, the 2016 DNI provides grandfather protection for businesses whose capital investments were approved prior to the enactment of the 2016 Negative Investment List on May 18, 2016. The 2016 DNI is silent on what is meant by an approved capital investment. Thus, if an application has been filed and received a principle approval but no permanent licence has been issued, which DNI will apply? The approach of the Indonesian Capital Investment Coordinating Board (BKPM) to this issue in the past was to apply a prior DNI to any application for which a principle approval had been given, which will also then be applicable to the later application for a permanent business licence. If no principle approval had been issued, however, then the new DNI would be applied to a pending application. However, this approach does not necessarily mean that an investor that received a principle approval under the 2014 DNI cannot apply for more liberal treatment under the 2016 DNI. These and other issues are not explicitly addressed in the 2016 DNI and a different policy could be adopted by the BKPM.

Policies established by the 2016 DNI
Expansion to a new area Article 7(3) allows a PMA company located in one area to expand to another area without establishing a new business entity, provided it continues to comply with the government’s spatial layout and environmental requirements. However, there was no legal requirement to establish a new company if the investors wanted to create an additional location for their existing business. BKPM approval is required to add an additional location and this does not appear to be changed by Article 7(3).

Mergers, acquisitions and consolidations Article 9 of the 2016 DNI lays out special requirements for mergers, acquisitions and consolidations: in the case of a merger, the limitation on foreign ownership is that which is contained in the surviving company’s principle licence or business licence; in the case of an acquisition, the relevant limit on foreign ownership is that in the principle license or business license of the acquired company; and for a consolidation, the foreign capital limit is that which the 2016 DNI specifies for a new company. The result of these rules is that the only company that needs to be concerned about 2016 DNI limits on foreign capital is the consolidated company, which is a new company. In the case of a merger or acquisition, the 2016 DNI will have no adverse effects on the foreign capital limits, but if the 2016 DNI is more advantageous than the limits contained in their business licence, the foreign investor can apply for an increase. This provision is identical to the 2014 DNI, except in the case of acquisitions. In the 2014 DNI, the foreign capital limit was that of the acquiring company. We believe such change was necessary to clarify that when an acquisition occurs, neither the acquiring company nor the acquired company needs to change their capital ownership.

Advantageous provisions Article 13 provides that if the 2016 DNI has provisions that are more advantageous to the foreign investor than those it now has, it is entitled to the more advantageous provisions and can apply to the BKPM to obtain them.

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SSEK
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Tel: (62) 21 521 2038 / Fax: (62) 21 521 2039
E: dyahsoewito@ssek.com
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