Foreign investment law in Indonesia when you plan to incorporate a company in Indonesia as a foreigner, you’ll need to be aware of the foreign investment law in Indonesia, company law under Regulation No. 40 of the Year 2007 for Limited Liability Companies. Another regulation that crucial is Regulation No. 25 of the Year 2007 which focuses on Capital Investment (Investment Law) in Indonesia. In this article, we will discover the pros and cons of the foreign investment law in Indonesia.
These are the key regulations that every foreign investor must know, and we’ll share the information in this article in compliance with the foreign investment law in Indonesia.
General Provisions
Article 1
In this Law,
- Investment shall be any kind of investing activity by both domestic and foreign investors for running a business within the territory of the Republic of Indonesia.
- Domestic Investment shall be any investing activity for running a business within the territory of the Republic of Indonesia, made by any domestic investor using domestic capital.
- Foreign Investment shall be any investing activity for running a business within the territory of the Republic of Indonesia, made by any foreign investor using either foreign capital entirely or joint capital with domestic capital.
- Investor shall be any individual or corporation that invests in the form of either domestic or foreign investors.
- Domestic Investors shall be any individual of an Indonesian citizen, an Indonesian corporation, the state of the Republic of Indonesia, or any region investing within the territory of the Republic of Indonesia.
- Foreign Investors shall be any individual foreign citizen, foreign corporation, or foreign state investing within the territory of the Republic of Indonesia.
- Capital shall be an asset in the form of money or any form other than money possessing economic value owned by any investor.
- Foreign Capital shall be any capital owned by any foreign country, individual foreign citizen, foreign corporation, foreign legal entity, and/or Indonesian legal entity, whose capital is owned partially or entirely by the foreign party.
- Domestic Capital shall be any owned by the state of the Republic of Indonesia, individual Indonesian citizens, or corporation or non-corporation.
- One-Stop Integrated Service shall be any licensing or non-licensing activity delegated or authorised by any institutions or agencies possessing licensing or non-licensing authority, whose issuance process shall begin with the application stage up to the document issuance stage conducted in a single place.
Article 2
Provisions in this law shall apply to any investments in any sector within the territory of the Republic of Indonesia.
Principles and Objectives
Article 3
Investment shall be organised based on the principle of:
- legal certainty;
- openness;
- accountability;
- the equal treatment without discriminating against the country of origin;
- togetherness;
- impartial efficiency;
- sustainability;
- environmental friendly;
- independency;
- balance of progress and national economic unity.
Basic Policy of Investment
Article 4
The government stipulates the basic policy of investment for:
- Encouraging the creation of a conductive national business climate for investment to strengthen the competitiveness of the national economy; and
- Accelerating the increase of investment.
Form of Corporation and Domicile
Article 5
Domestic investment may be in the form of a corporation, non-corporation, or individual business, by the rules of law.
Treatment to Investment
Article 6
The Government shall provide the same treatment to any investors originating from any country investing in Indonesia under the rules of law.
The treatment set forth above shall not apply to investors of certain countries that have received privilege by an agreement with Indonesia.
Article 7
The government shall neither nationalise nor take over the ownership rights of any investors, except through the law.
If the Government either nationalises or takes over the ownership right of any investors set forth above, the Government needs to pay compensation whose amount is stipulated based on market price.
Article 8
The investors may transfer their assets to another party they choose under the rules of law.
Any assets other than those outlined in paragraph (1) above shall constitute assets owned by the state as stipulated by the law.
Also, investors shall have the right to transfer or repatriate foreign currency to, among others:
- Capital;
- Profit, bank interest, dividend, and any other revenue;
- Funds required for:
- Purchasing raw materials and support materials, intermediate products, or final products;
- Reimbursement of capital goods to secure the investment.
- Additional funds required for financing investment
Manpower
Article 9
Any investment company shall prioritise recruiting workers of Indonesian citizens, shall be entitled to use experts of foreign citizens on certain positions and expertise by the rules of law and be required to improve the competence of workers of Indonesian citizens through work training under the rules of law.
Article 10
Efforts shall be devoted to settling any industrial-related dispute with deliberation between any investment company and the workers and if such effort fails to materialise, the settlement shall be made through a three-party mechanism.
The above-stated points are essentially the key points that are required to be taken into consideration by foreign investors regarding capital investment in Indonesia as stated in Regulation 25 of the Year 2007.
Positive Investment List
The Positive Investment List provides guidance on which sectors foreign investors can invest in. This list was issued to replace the negative investment list, resulting in the number of restricted sectors from 350-46. Therefore, there are still certain sectors that foreign entrepreneurs cannot incorporate a company in.