Indonesian Government Finally Introduces Positive Investment List
As a follow-up to the passing of Law No. 11 of 2020 on Job Creation (“Job Creation Law”), the government has finally issued the mandated implementing regulations to said law, one of which is Regulation of the President No. 10 of 2021 on Investment Business Fields (“Regulation 10/2021”). This law is commonly referred to as the positive investment list/act
In essence, this Regulation 10/2021 states that all business fields are set to become open to foreign investment, hence the name, “positive investment list”. However, there are still a number of exceptions and requirements to set against this so-called “positive” approach, how ever in general this list is limited to business classified as national interest and/or national security. Also a few falls under the compulsory need for a local, Indonesian partner having a small or medium sized business.
It should be also be noted that, as an updated regulatory framework that addresses the scope of the various business fields that are open to investment within Indonesia and the various related investment requirements, Regulation 10/2021 repeals and replaces two previous regulatory frameworks which also addressed similar matters, specifically:
- Regulation of the President No. 44 of 2016 on the List of Business Fields That Are Closed and Conditionally Open to Investment, and
- Regulation of the President No. 76 of 2007 on the Criteria and Requirements for the Categorization of Closed Business Fields and Open Business Fields with Requirements Within the Field of Investment.
The updates that have now been introduced under this new Regulation 10/2021 includes a relaxation of investment in business fields that relate to the alcoholic-beverages industry. These fields were strictly closed to new investment under the previous framework of Regulation 44/2016 but became conditionally open to new investment activities under the framework of Regulation 10/2021 However, this particular update has proved controversial with the Indonesian public and, and pressure emerged from religious organizations, as a result, President Joko Widodo decided to revoke the relevant appendix to Regulation 10/2021, which set out the requirements for new investments within this particular field The official regulation that addresses this revocation have now been issued by the government.
New Investment Rules in General
In line with the above overview, Regulation 10/2021 has now opened up all business fields to investment, with the exception of the following:
- Business fields which are specifically closed to investment, as addressed under Law No. 25 of 2007on Investment, which has now been revised by the Job Creation Law, specifically:
- Class-I narcotics cultivation and industries;
- All forms of gambling and/or casino-related activities;
- Illegal fishing of endangered fish species;
- Utilization of coral or natural reefs for certain uses;
- Chemical weapons manufacturing industries; and
- Industrial chemicals and industrial ozone-depleting substance industries; and
- Activities that may only be conducted by the central government, specifically activities that are service-based in nature or that relate to strategic defence and security and that are not permitted to be carried out in cooperation with any third parties what so ever.
By way of a simple comparison, the previous framework of Regulation 44/2016 set three specific categories of investment business fields, as elaborated bellow:
|Business fields closed to investment||Regulation 44/2016 listed 20 business fields under this category, including alcoholic-beverage industries, as mentioned above.|
|Business fields conditionally open to investment||This category included the following: Business fields that were reserved for or that required partnerships with cooperatives and SME; and Business fields that were defined by certain ownership requirements (i.e. foreign, domestic, ASEAN countries), locations and/or special licensing types.|
|Business fields open to investment||All business fields that were not listed in the first and second categories.|
Business Fields Open to Investment
In addition to the exceptions outlined above, Regulation 10/2021 also sets various requirements regarding business fields that are open to investment, in relation to these requirements, Regulation 10/2021 sets four categories of business fields, which are summarized below:
|Priority business fields||Priority business fields are to be based on the following criteria: Must be included as a part of nationally strategic programs/projects; Must be capital and/or labor-intensive; Must utilize advanced technologies; Must be categorized as pioneering industries; Must be oriented towards export/import substitutions; and/or Must be oriented towards research, development and other innovative activities. In addition , parties looking to invest in priority business fields will receive the following benefits: Fiscal incentives (i.e. tax holidays, tax allowances, investment allowances and import-duty exemptions); and/or Non-fiscal incentives, which encompass ease of business licensing, provision of supporting infrastructure, energy, guaranteed availability of raw materials, immigration, employment and others.|
|Business fields that are allocated to or that require partnerships with cooperatives and micro-, small- and medium-scale enterprises “MSME”||This category includes the following business fields: Business fields that are allocated to cooperatives and MSMEs, as determined based on the following criteria: Must not utilize any advanced technologies or must only utilize simple technologies; Must involve specific processes, must be labor-intensive and must be characterized by special and hereditary cultural heritage; and Must involve business capital of IDR 10 billion at the most in relation to the relevant activities (excluding any land and buildings used for places of business); and Business fields that involve large-scale businesses working in mandatory partnerships with cooperatives and MSME, as determined based on the following criteria: Must be commonly occupied by cooperatives and MSMEs; and/or Must be aiming to scale-up operations in order to enter the supply chains of large-scale businesses. It should be noted that cooperatives and MSMEs which subsequently become large-scale businesses are required to enter into partnerships with other businesses categorized as cooperatives and MSMEs within the reserved business fields discussed herein.|
|Business fields with certain requirements||This category includes business fields that are open to all investors (including MSME) but that are subject to the following requirements: Investment requirements for domestic investors; Investment requirements regarding foreign ownership, which exempt the following: Investments that are carried out within certain business fields that were approved prior to the issuance of the Regulation 10/2021 (as specified under the relevant investors’ business licensing documents), unless the new limitations set out hereunder are more beneficial to the investors in question; or Investors who have secured special rights based on agreements between their countries and Indonesia, unless the new limitations set out the Draft Regulation are more beneficial to the investors in question; or Investment requirements that involve special licensing.|
|Business fields that do not fall into any of the above categories||Business fields that fall into this category are open to all investors without any additional requirements.|
It should be further noted that the requirements for the “business fields with certain requirements” category in the table above do not apply to the following business set ups:
- Investment activities which are located in special economic zones; and
- Non-direct investments that are undertaken through the Indonesian Stock Exchange.
Regulation 10/2021 also specifies that fiscal and/or non-fiscal incentives may be granted to other business fields which are not categorized as priority business fields, provided that the granting of said incentives is set out under other laws and regulations which address the business fields in question.
In comparison with Regulation 10/2021, Regulation 44/2016 did not recognize the “priority business fields” category nor the various investment criteria and facilities that fall into this category.
Requirements for Foreign Investors and Investments
In terms of foreign investors and their investments, Regulation 10/2021 proposes that the following requirements should be incorporated into the latest regulatory framework:
- Foreign investments must take the form of limited-liability companies that are established and located within Indonesian jurisdiction;
- Foreign investors are only allowed to engage in large-scale business activities with investment values that exceed IDR 10 billion (excluding the values of the relevant land and buildings used for places of business); and/or
- The value of foreign investments in technology-based start-ups may amount to IDR 10 billion or lower if said investments are undertaken within special economic zones.
It should be noted that the investment requirements for foreign investors outlined in points (1) and (2) above are currently stipulated under the following:
- The Investment Law; and
- Regulation of the Indonesian Investment Coordinating Board No. 6 of 2018 on Guidelines and Procedures for Investment Licensing and Facilities, which was subsequently amended through the issuance of Regulation of the Indonesian Investment Coordinating Board No. 5 0f 2019
Regulation 10/2021 came into force on 4 March 2021