New Procedures on Direct Investment in Indonesia 

The Investment Coordinating Board (“BKPM”), through its BKPM Regulation No. 5 of 2013 (the “New Investment Procedures”), has set new rules on investment licensing and other procedures on the foreign and domestic direct investment companies. A foreign direct investment company set up in Indonesia is commonly called as  a "PMA company" or "Perusahaan Penanaman Modal Asing", and domestic direct investment company is called as  a "PMDN company" or "Perusahaan Penanaman Modal Dalam Negeri" which enjoy certain investment facilities under the BKPM regulations. The New Investment Procedures entered into effect 30 working days after it was promulgated on 12 April 2013.

Some significant features of the New Investment Procedures that may concern foreign investor interest are as follows:

  1. BKPM makes it now clear on the question of what would be the minimum amount of investment for a start up PMA Company. This issue was unclear in the past, and any amount of investment could be deemed feasible based on the reasonable business plan of the proposed business field to be entered by the PMA company. The minimum investment now required is more than Rp 10 billion, or the equivalent thereof in United States dollars. At least the company must have a minimum issued share capital of over Rp 2.5 billion. Under this scheme, it would categorise a PMA Company as a big scale enterprise and not a small scale or medium scale enterprise.
  2. A public company will now be deemed as a PMA under the BKPM procedures in the event a foreign shareholder holds majority shares or in control of that company. The definition of a “controlling shareholder” is a shareholder that owns more than 50% of the issued share capital or has de facto control of the company. In consequence that company is expected to apply for investment license to BKPM. However, the New Investment Procedures fails to answer the question of what would happened if those public company that become PMA company or treated as direct investment could continue run the business which has been a restricted business sector for foreign investment under the Negative List (list of business sectors that are fully or partially off-limits to foreign investment).
  3. Any existing company which is converted into a PMA company, any of its subsidiaries must also convert to a PMA status within a maximum period of one year.
  4. An investment project must be completed within 3 (three) years since its initial principle license is granted, extendable by a maximum of a further 3 (three) years. Should the project not be completed within a total of 6 (six) years but the company still wishes to continue, subject to BKPM inspection a new license may have to be obtained based on the regulations prevailing at that time.
  5. Venture capital companies are prohibited from holding shares in both PMAs and PMDNs. In the case of existing venture capital shareholdings, these must be divested within not more than 10 years.

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