The government of Indonesia has instituted a number of laws and policies which have been designed to increase the level of foreign investment in the country. It has done so because an increased level of foreign investment will have very positive effects on the country’s economy.
Every country which receives foreign investment benefits from this influx of money which comes from abroad. Money which is received by a country through foreign investment can be used by a government for various purposes. Infrastructural upgrades, projects which serve the public, and improvements of standard of living and citizen welfare can all be driven through injections of money which find their sources from investments which have arrived from other countries. For this reason, the government of Indonesia has put forth much effort to attract foreign investment from various countries around the world.
How the Indonesian Government Has Encouraged Foreign Investment
For many years, the Indonesian government has taken steps to encourage foreign investment in the country. One of the earliest laws which is related to foreign investment in Indonesia is Law No. 1 of 1967, which was subsequently amended by Law No. 11 of 1970. The purpose of this law was to attract foreign investors to invest in the Indonesian economy with a particular emphasis on the industrial sector. The Indonesian government of that era intended to promote investment in areas without sufficient domestic development, in particular managerial areas and technological infrastructure. Law No. 1 of 1967 would go on to be replaced by Law No. 25 of 2007. It did even more to attract foreign investment in Indonesia by removing all duration limits on foreign investment permits issued in the country. The government’s introduction of this law was meant to usher in an investment environment which would be among the most efficient, transparent, legally and fundamentally sound, and impartial in the entire Asia-Pacific region; these positive attributes would thus be expected to draw investors from all over the world and begin to invest in Indonesia.
In June 2019, GR 45/2019 was issued by the Indonesian government. GR 45/2019 was created in order to encourage investment in industries which were classified as labor-intensive as well as pioneer industries. The Indonesian government defines a labor-intensive industry as one which employs a minimum of 200 workers and has labor costs of 15% or less of its total production costs. The government also specifies the official definition of a pioneer industry. A pioneer industry is any industry which provides positive economic contributions to any surrounding areas.
There have also been various other policy reforms, deregulations, and incentives which have been formulated by the government of Indonesia which have been intended to promote foreign investment in Indonesia.
Statistics on Investment in Indonesia
The Indonesian government’s efforts to increase investment in the country have begun to generate tangible positive results. According to the latest statistics, Indonesia received approximately 185.3 trillion rupiah’s worth of investment over a recent three-month period. Of this amount, a total of 108.9 trillion rupiah came from foreign sources. The total amount of investment in Indonesia increased by around 11.8% over the past year, while the amount of foreign investment in the country increased by 12.4% over the same period.
Most of the foreign investment in Indonesia comes from other countries in the Asia-Pacific region. According to the same set of statistics, the four countries which contributed the largest amounts of foreign investment in Indonesia were Singapore, Japan, South Korea, and China. These four countries accounted for 67.2% of all of the foreign investment which had entered Indonesia over the studied period.
The five provinces of Indonesia which receive the most investment are West Java, the Special Capital Region of Jakarta, Central Java, Banten, and Riau. These five provinces cumulatively receive approximately 57.5% of all the investment in Indonesia; this figure includes local and foreign investment alike.
The sectors which receive the most investment in Indonesia are housing, electronics, electricity, food, and telecommunications. These sectors receive a total of 55.1% of all the investment, including local and foreign investment, in Indonesia.
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