Foreign Investment Restrictions in Indonesia

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SSEK Indonesian Legal Consultants founding partner Ira A. Eddymurthy and partner Denny Rahmansyah have contributed the Indonesia chapter of the new Practical Law global guide to Establishing a Business in …

SSEK Legal Consultants is one of the top corporate and commercial law firms in Indonesia. It works with leading international and domestic companies on all aspects of their business in Indonesia. SSEK is widely experienced in the establishment of businesses in Indonesia and their ongoing operation.

The following is an extract from Establishing a Business in Indonesia.

Restrictions on foreign shareholders in Indonesia are set out in the Negative Investment List contained in Presidential Regulation No. 39 of 2014 outlining the list of business fields that are closed and business fields that are open with requirements for investment (PR 39). PR 39 lists those areas in which investment by both Indonesians and foreigners is prohibited or restricted.

In addition to PR 39, the laws and regulations governing the conduct of a certain line of business must be reviewed to determine whether that line of business is open to foreign investment and, if so, whether a limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA) established to conduct that line of business can be wholly foreign owned or only partially foreign owned. If a particular line of business is not listed in PR 39, then it is open to 100% foreign investment without condition.

The Negative Investment List also stipulates any foreign ownership restrictions, for instance, the maximum foreign shareholding, the requirement to partner with a small or medium­scale enterprise and so on. In practice, investors still need to confirm with the Capital Investment Coordinating Board whether a certain line of business is open for 100% foreign investment without any condition. The Negative Investment List is organized by reference to the business activities described in the Indonesian business fields classification issued by Indonesia’s central statistics body. A PT PMA may have more than one business fields classification number as its line of business unless the relevant laws and regulations provide otherwise.

Exchange control or currency regulations

There are no foreign exchange controls in Indonesia. The Indonesian rupiah is freely convertible into any currency and vice versa. However, Bank Indonesia Regulation No. 16/26/PBI/2014 regarding foreign currency transactions against the rupiah by banks with local parties prohibits the purchase of foreign exchange against the rupiah from the commercial banking system in Indonesia by any person in an amount in excess of US$100,000 per month in the absence of an underlying transaction. This regulation provides that Indonesian nationals and legal entities purchasing foreign currencies in excess of US$100,000 or the equivalent in the Indonesian banking system must provide certain documents to Bank Indonesia including the underlying transaction documentation.

Bank Indonesia Regulation No. 17/3/PBI/2015 regarding Mandatory Use of Rupiah within the Republic of Indonesia (BI Reg 17) stipulates the mandatory use of rupiah for:

  • Transactions in Indonesia that are for the purpose of payment.
  • Transactions in Indonesia that are for the settlement of other obligations that must be fulfilled with money. Other financial transactions in Indonesia.

The obligation to use rupiah for the foregoing applies to cash transaction made as of 31 March 2015 and non­cash transaction made as of 1 July 2015. Certain transactions are exempted from the mandatory use of rupiah as set out under BI Reg 17.

Restrictions on foreign ownership or occupation of real estate

Under Law No. 5 of 1960 regarding land, there are two categories of land title comprising a total of nine rights. The first broad category of land titles encompasses five primary titles derived directly from the state. These are:

  • The right of ownership.
  • The right to cultivate.
  • The right to build.
  • The right to use.
  • The right to manage.

The second broad category of land titles encompasses secondary titles, which are titles granted by holders of primary titles on the basis of private agreements, which consist of:

  • The right to lease.
  • The right of share cropping.
  • The right to pledge land.
  • The right of lodging.

A secondary title is obtained by an investor based on an agreement whereby a primary titleholder grants a legal interest or secondary title to another party.

An Indonesian individual is entitled to all primary titles as listed above. A limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA) is entitled to a right to build or a right of use title. An individual foreigner is only entitled to a right of use title as long as he is a resident of Indonesia.

To read the full guide to Establishing a Business in Indonesia, click here.

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