The Risks of Investment in Indonesia
Indonesia is the largest economy in South East Asia. Its estimated gross domestic product, as of 2017, is US$1.020 trillion while GDP in PPP terms is US$$3.257 trillion. It is the 16th largest economy in the world by nominal GDP and is the 7th largest in terms of GDP (PPP). As of 2017, per capita GDP in PPP is US$12,432 (international dollars) while nominal per capita GDP is US$3,895. The debt ratio to GDP is 26%.The services is the economy’s largest and accounts for 43.3% of GDP (2016), this is followed by manufacturing sector (42.9%) and agriculture (13.7%).Since 2012, the service sector has employed more people than other sectors. In 2014 accounting for 44.8% of the total labour force was employed on service sector, this has been followed by agriculture (34.3%) and industry (20.9%).Agriculture, however, had been the country’s largest employer for centuries. Indonesia is the 5th most populated country in the world with population of 240 million people. 28 million of which belongs to the country’s fast growing middle class. Euromoney International data shows that Indonesia currently has 19.6 million of middle class households, which is expected to rise to 23.9 million in 2030, making this group a prominent consumer force in the country and potential export market for any consumer product manufacturers. Investment in Indonesia was recorded at Rp 165.8 trillion (US$12.5 billion) in the first quarter of the year, or 24.4 percent of the 2017 investment target of Rp 678.8 trillion. This figure is a 13.2 percent increase from the Rp 146.5 trillion in investment in the same quarter last year. Investment from local investors progressed significantly by 36.4 percent year-on-year (yoy) to Rp 68.8 trillion, while investment from foreign investors only grew by 0.94 percent to Rp 97 trillion. A majority, or 80 percent of total local and foreign investment in the quarter, was fresh investment, while 20 percent was expansion. The top investment sectors are mining, food, transportation, warehouses and telecommunications. The top three investment destinations are West Java, Jakarta and East Java. Singapore, Japan and China remain the top three investors – just like they were in the first quarter of 2016 – with $2.1 billion, $1.4 billion and $600 million in investment, respectively. Interesting to note that, the number of middle class consumer does not attract more foreign invetsment. The seemingly stagnant growth in foreign investment is because of the stronger rupiah although the main reason is more nuanced than a weaker dollar. Indonesia is ranked 72 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Indonesia improved to 72 in 2017 from 91 in 2016. Ease of Doing Business in Indonesia averaged 113.10 from 2008 until 2017, reaching an all time low of 129 in 2008 and a record high of 72 in 2017. Legal and bureaucratic reforms contributed to the improvement in the ranking but implementation of these reforms are often different in practice. Here are some of the key issues and risks that foreign investor must understand before doing any business in Indonesia. 1. LENGTHY BUREAUCRACY In January 2015, Indonesia Investment Coordinating Agency (“BKPM”) announced the release of an online database and one stop system for foreign investment licensing and establishment. However, it is important to note that some investment sectors would require additional licensing from a ministry of its corresponding field or the local government. Generally the establishment of foreign investment company (“PT PMA”) and the corresponding business permit would take around 5 weeks with the following breakdown: No Activities Product Issuing Authority Expected Timeline (working days) 1 Request of PT PMA name PT PMA Name The Ministry of Law and Human Rights 1 2 Submission for Principal License Principal License BKPM 7 3 Deed of Establishment Deed of Establishment & Article of Association The Public Notary 3 4 Legalization of Article of Association SK KEMENHUHAM The Ministry of Law and Human Rights 3 5 Domicile of Company Letter of Domicile Kelurahan 3 6 Tax Registration Tax Identification Number (“NPWP”) AND Tax Registration Certificate Tax Office 5 7 Company License Company Registration (“TDP”) Local Government 7 8 Permanent Business License Permanent Business License (“IUT”) BKPM 7-10 2. DECENTRALIZATION and REGULATION INCONSISTENCY Law No 23 of 2014 regarding Regional Government sets out the framework for regional autonomy, which consists of two levels, provinces and districts/cities. The differentiated roles between the central and regional government creates regulatory problems in the form of conflicting laws from different authorities. Furthermore, regional officials are granted significant discretionary powers relevant to the industrial sectors. Without a central repository, this system births legal uncertainty. The following are some permits granted by regional authorities: GENERAL PERMIT FOR CONSTRUCTION Location Permit (Izin Lokasi) A certificate confirming the general planning designation of the area where a parcel of land is located Advice Planning Permit/Land Use Certificate (“IPPT”) A certificate issued to confirm the planning parameters applicable to a parcel of property (building height coefficient, lot coverage coefficient, setbacks) Building Permit (“IMB”) Issued by the city government to authorize the construction of a specific location on a specific parcel of land in the city or regency. At the moment, there are 17 procedures – including obtaining all necessary clearances, licenses, permits and certificates – required to build a warehouse. The total number of days required to complete a procedure in practice is 191 days. In addition to the 39 days stated in chart 1, investor must wait another 191 days before it can undertake the actual business operation. Please be reminded that the timeline varies between sector. PERMITS FOR MINING AND INDUSTRY Environmental Review (“UKL/UPL”) Required for projects or activities that do not yet require an Environmental Impact Analysis (“AMDAL”) Distrubance Permit (“HO Permit/Hinderordonnantie”) Issued to authorize activities that have economic, social, environmental or community psychology impacts, often granted after exacting some form of compensation or offset for those impacts. The same decentralization process has also destabilized the regulatory environment for many foreign investors in Indonesia. Local governments in Indonesia now have the independent authority
A step-by-step introduction to Roo Casino administration
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Change of Paradigm in Indonesia’s Foreign Investment Policy
Indonesia Investment Coordinating Board or Badan Koordinasi Penanaman Modal (BKPM) is in the process of revising the Investment Negative List or Daftar Negative Investasi (DNI). The decision to revise the list is mainly to reduce Indonesia’s dependency toward import goods. Indonesia is known to have an investment policy that heavily protects domestic entrepreneur and small medium enterprise; hence DNI only allows small percentage of foreign ownership in certain sectors. The government has finally recognized that the current foreign investment policy has benefited importers and is not creating production activities in the country. In 2014 DNI, sectors such as film industry, pharmacy and tourism are some of the sectors that impose limitation in foreign ownership. Current revision will include these three sectors to be more lenient toward foreign investors. In addition to that, e-commerce as well as processing in fishery that are closed for foreign investment will be open for foreign investment in the near future. This change of paradigm is a pleasant thing for business and foreign investors looking to invest in these particular sectors. By attracting more foreign investors to build production facilities in the country, it is hoped to open more employment for Indonesians and in the end will improve the economy. However, it is worth noting that the employment regulation especially regarding foreign workers has been stricter than ever and the government does not seem to amend the labor regulation which is known to be pro labor, at any time soon. This means, although the foreign investment policy will change towards the better, it will not get the support it needs from the other sector. Author: Marini Sulaeman Managing Partner – [email protected]
Shareholders Liability on Employees’ Compensation upon Termination and Company’s Dissolution
Under Indonesian laws, obligation to pay severance, reward for services, compensation payment, detachment money or any other similar payment with respect to the dismissals of the employees shall be borne by the company and not the shareholders of the company. Pursuant to Law number 13 of 2003 on Manpower, employment relationship is created from the existence of employment contract between the employer and employee consisting of the element of work, wage and order. This contract may or may not be made in writing, so long as the three elements are satisfied and more, the employment contract must be produced based on agreement between parties, signed by capable person, agreed to perform certain work and the work performed is in accordance with laws and regulations and social norms. A service contract is not an employment contract and shall not constitute relationship other than relationship between service provider and principal, therefore any claim of severance payment, reward for services, compensation payment, detachment money or any other similar payment with respect to the dismissals of the service provider’s employees must be addressed to service provider as the employer, unless it can be proven otherwise that such order to work received by service provider’s employees is initiated and arranged by the principal. In practice however, court is not always sided either with the company or the shareholders in terms of employment termination. In 2004, shareholders of PT Dirgantara Indonesia (“PTDI”) a state owned company was sued by its employees for wrongful termination. General Meeting of Shareholders (“GMS”) of PTDI decided in the meeting to lay off 6,600 employees. The decision of the class action lawsuit was ruled in favor of the employees and therefore canceled such termination decided by the GMS. Later in 2011, shareholders and management of PT Bakrie Life Insurance (“Bakrie Life”) was sued by its employees for failure in paying compensation including salaries and other benefits upon termination. The decision was ruled in favor of the employees and ordered Bakrie Life to fulfill its obligation to compensate the employees following the termination.[1] In any event, dissolution or liquidation must properly follow the requirements of prevailing regulations in order to avoid any claim that may be arising from such liquidation. Under Indonesian law dissolution or liquidation either voluntary or ordered by the authority is a process to dissolve or liquidate an entity which involving fulfillment of obligations toward its creditors and distribution of the remaining assets to its shareholders. In case of liquidation, director of the company or the appointed liquidator is responsible to fulfill the company’s obligations prior to distributing the remaining assets to the shareholders of the company. According to the Manpower Law, employees are considered as preferred creditor. Manpower Law stipulates that in the event a company is under bankruptcy or liquidation, workers salary and benefits are preferred receivables which must be paid before paying off its other creditors. Author: Marini Sulaeman Managing Partner – [email protected] Industrial Court (“Pengadilan Hubungan Industrial”) decision Number 94/PHI.G/2011/PN.Jkt.Pst, dated 18 Mei 2011
Penanaman Modal Asing di bidang e-commerce
Berdasarkan Daftar Negatif Investasi (DNI), e-commerce dideskripsikan sebagai perdagangan eceran melalui pemesanan pos atau internet. Deskripsi lebih jelas dinyatakan di dalam KBLI dengan kode 4791, yang mana perdagangan eceran melalui pemesanan pos atau internet yaitu ketika pembeli memilih barang melalui iklan, katalog, informasi di website, contoh atau sarana iklan lainnya, kemudian memesan barang-barang tersebut melalui surat, telepon atau internet (biasanya melalui sarana khusus yang disediakan oleh website). Produk yang telah dibeli dapat langsung diambil (download) dari internet atau dikirim secara fisik ke pelanggan. Termasuk di dalam kategori ini adalah perdagangan eceran berbagai produk melalui internet serta perdagangan langsung melalui televisi, radio atau telepon. Berdasarkan DNI bidang usaha tersebut tertutup untuk penanaman modal asing dan saat ini Kementerian Perdagangan tengah menyusun peraturan baru mengenai e-commerce yang akan mengatur kebijakan divestasi kepemilikan saham asing pada bidang usaha e-commerce. Nantinya berdasarkan peraturan baru ini, seluruh penanaman modal asing yang sudah ada di sektor usaha e-commerce harus melakukan divestasi saham setelah perusahaan tersebut beroperasi selama dua tahun, sehingga seluruh sahamnya dimiliki oleh perusahaan penanaman modal dalam negeri (“PMDN”) atau warganegara Indonesia. Bagaimana apabila sebuah perusahaan penanaman modal asing (“PMA”) ingin melakukan perluasan usaha ke bidang e-commerce, namun tidak ingin mengubah komposisi pemegang saham asing yang telah ada atau dengan kata lain bisakah sebuah perusahaan PMA yang ingin melakukan perluasan usaha ke bidang e-commerce tidak mengikuti ketentuan komposisi pemegang saham asing menurut DNI? Pasal 5 DNI menyatakan bahwa ketentuan penanaman modal tertutup atau terbuka dengan persyaratan sebagaimana dimaksud dalam Pasal 1 dan Pasal 2 DNI tidak berlaku bagi penanaman modal tidak langsung atau portofolio yang transaksinya dilakukan melalui pasar modal dalam negeri. Berdasarkan pasal tersebut, ketentuan pembatasan saham yang boleh dimiliki oleh pemegang saham asing hanya berlaku untuk penanaman modal langsung (Direct Investment). Sehingga apabila sebuah PMA ingin melakukan perluasan usaha ke bidang e-commerce tanpa harus tunduk kepada ketentuan Pasal 1 dan 2 DNI, perusahaan PMA dapat melakukannya setelah statusnya menjadi perusahaan publik atau terdaftar pada bursa efek Indonesia. Perusahaan publik adalah Perseroan yang sahamnya telah dimiliki sekurang-kurangnya oleh 300 (tiga ratus) pemegang saham dan memiliki modal disetor sekurang-kurangnya Rp 3.000.000.000,00 (tiga miliar rupiah) atau suatu jumlah pemegang saham dan modal disetor yang ditetapkan dengan Peraturan Pemerintah. Salah satu cara untuk menjadi perusahaan public adalah dengan IPO atau kegiatan penawaran saham atau efek lainnya oleh emiten (perusahaan yang akan go public) untuk menjual saham atau efek kepada masyarakat berdasarkan tata cara yang diatur oleh UU Pasar Modal dan peraturan Badan Pengawas Pasar Modal (“Bapepam”) sebagai otoritas yang berwenang dalam mengeluarkan peraturan pelaksananya. Author: Marini Sulaeman Managing Partner – [email protected] Fanri Tamara Junior Associate – [email protected]
Requirements on Vessel Operator in Indonesian Oil and Gas Industry
Vessel Ownership Vessel ownership under Indonesian Law is specified under Procedures for Foreign Ship Decree No 48 in which Article 1 (1) states that foreign vessel is a flagged vessel other than Indonesian flag and is not registered under Indonesian Ships Registration list. The same regulation provides the opportunity for foreign vessel to operate in Indonesia for purposes other than transporting persons or goods within Indonesian territory as long as there is insufficiency for local flagged vessel and already awarded with necessary permits from Ministry of Transport, also that this opportunity is on limited time basis of 3 (three) months which can be extended under evaluation. The purposes other than transporting persons or goods includes as follows: a. Oil and gas survey, including Seismic survey; Geophysics survey; and Geotechnical survey; b. Drilling, including Jack up rig; Semi submesible rig; Deep water drill ship; Swamp barge rig; c. Offshore construction; d. Offshore operational support; e. Excavation; f. Salvage and underwater works; Procedures for Foreign Ship Regulation strictly regulates that the above purposes can only be performed by vessels operated by national sea-transport company, meaning a company constructed under Indonesian laws having the business in sea transport within Indonesian territory and/or to and from foreign ports. The sea-transport company as intended by Procedures for Foreign Ship Decree can only be partially owned by foreign company/individual through shares ownership. From the above explanation it would seem that Indonesian law does not recognizes cabotage principles and prohibits foreign vessels in operating and supporting oil and gas industry in the territory. However, under Shipping Law and Procedures for Foreign Ship Regulation, dispensation is given for offshore oil and gas support services with certain conditions. Foreign Vessel Operating in Indonesian Territory Regarding the possibility of having foreign vessel operating within Indonesia must fulfill these conditions: 1. Administrative conditions as follows: a. Working Plan completed with schedules and work area marked with geographical coordinates; b. Charter party agreement between the company and foreign vessel owner also working contract and/or Letter of Intent (LOI) from contractor; c. Permit for Sea Transport Company (Surat Izin Usaha Perusahaan Angkutan Laut/SIUPAL); d. Ship’s Registration/Flag Certificate (Sertifikat Tanda Kebangsaan/Pendaftaran Kapal); e. Ship’s Safety and Security Certificate (Sertifikat Keselamatan dan Keamanan Kapal); f. Ship’s Radiation Prevention Certificate (Sertifikat Pencegahan Pencemaran Kapal); g. Crew List; h. Safety Management Certificate (Sertifikat Manajemen Keselamatan); 2. Evaluation condition in which the intended vessel can be categorized with the 6 categories of vessels permitted under the law and that the allocation for such local vessel is insufficient; Based on the above, as stipulated under Foreign Ship Regulation, a vessel/or foreign vessel can be operated by other company although the registration/ownership belongs to other company under the condition that there is an existing contract/agreement between the owner and user, and that the vessel already completed with all administrative certification. In regards to execution of cabotage principle and align with the prevailing laws, Ministry of Transportation sets out the time limit for foreign vessel to be able to operate within Indonesian territory complying with the administrative and evaluation conditions as follows: a. For the purpose of oil and gas survey, including Seismic survey; Geophysics survey; and Geotechnical survey; the time limit is given until end of December 2014; b. For the purpose of drilling, including Jack up rig; Semi submesible rig; Deep water drill ship; Swamp barge rig; the time limit is given until end of December 2015; c. For the purpose of offshore construction, including Derrick/crane, pipe/cable/subsea umbilical riser flexible (SURF) laying barge/vessel; Diving support vessel (DSV); the time limit is given until end of December 2013; d. For offshore operational support, including 5000 BHP with dynamic position (DP2/DP3); Platform supply vessels; Diving support vessel (DSV); the time limit is given until end of December 2012; e. For the purpose of excavation, including: Drag-head suction hopper dredger; Trailing suction hopper dredger; the time limit is given until end of December 2013; f. For the purpose of salvaging and underwater works, including: Heavy floating crane; Heavy crane barge; and Survey salvage; the time limit is given until end of December 2013. Dual Flagged vessel Shipping Law prohibits double registration of a vessel. Any vessel registered in Indonesia formerly registered elsewhere must provide confirmation of delisting from previous flag registration. Indonesian vessel can only displays Indonesian flag and any violation would resulted in administrative sanction, penalty, permits confiscation or revocation of permits, or revocation of operation permits. Registration and Ship’s Flag Regulation stipulates that should a vessel leaves Indonesia because of the below reasons: – transfer of ownership to foreign individual/company; – scrapping; – hijacked; – unusable – lose of ship. A request for delisting must be submitted by vessel owner to Ship’s Registration Authority in which one of the condition must be met is the payment on transfer of ownership duties. Author: Daniel Alfredo Partner – [email protected]
Local Content Requirement in Indonesian Oil and Gas Industry
Local content (Tingkat Komponen Dalam Negeri/TDKN) under Indonesian laws means the assessment of local product component being used on goods, services and combination of goods and services. Therefore local content can be categorized as; (i) local content of goods, (ii) local content on services and (iii) local content combination. In relation to oil and gas industry, the relevant prevailing regulations are Local Content Decree No 15, BP Migas PTK 007 Revision II and SKK Migas Decree 066 as the latest revision for BP Migas PTK 007 Revision II. These regulations also includes offshore drilling contract services as part of exploration and exploitation on oil and gas industry which must be obliged by the parties involved. Component considered as local content on goods includes the use of raw materials, construction and manufacturing, fabrication, assembling and final finishing on works originated from and conducted within the territory. Component considered as local content on services is the use of services of labor resources including experts until completion of project, expert tools, soft ware and supporting instruments originating from and conducted within the territory. Component considered as combination local content is the combination of the above contents originating from and conducted within the territory. Local Content on Goods The calculation on local content on goods is made based on comparison between the local cost of product against its the total value, in general the whole costs for production until costs of delivery to factory/workshop location. Therefore the costs includes direct material costs, direct labor costs, indirect factory overhead costs, excluding profit, company overhead costs and value added tax in regards to transfer of goods. The calculation itself for each product of goods is using the method in which the total cost (direct material costs, direct labor costs, and factory overhead) minus the foreign component costs on each aspect divided with total costs, resulting in the percentage of local content on goods. Also must be taken into consideration is that the local and foreign content of each aspect must also be known and calculated. Local Content on Services The calculation on local content on services is made based on comparison between the local services cost against the total services cost, in general the whole costs for services until costs on site. Therefore the costs includes used material costs, labor and consultant costs, tools/facilities costs and common services costs, excluding profit, company overhead costs and value added tax. The calculation itself for each product of goods is using the method in which the total cost (used material costs, labor and consultant costs, tools/facilities costs and common services costs) minus the foreign component costs on each aspect divided with total costs, resulting in the percentage of local content on services. Also must be taken into consideration is that the local and foreign content of each aspect must also be known and calculated. For calculation purposes, Local Content Regulation also specifies that for tools/working facilities costs, the local content must be evaluated as follows: a. Tools produced within Indonesia by Local Company or Indonesian nationality is valued at 100% local content; b. Tools produced within Indonesia by National Company is valued at 75% local content; c. Tools produced within Indonesia by Foreign Company or foreign nationality is valued at 50% local content; d. Tools produced outside Indonesia by Local Company or Indonesian nationality is valued at 75% local content; e. Tools produced outside Indonesia by National Company is valued at 50% local content; f. Tools produced outside Indonesia by Foreign Company or foreign nationality is valued at 0% local content. Local Content on Goods and Services The calculation on combination of local content on goods and services is made combining the calculation of goods and services up to the point of on site. Local Content Regulation sets out the target objective of local content percentage for commodities used on oil and gas industry for the next 10 years as seen below: Taxation on Local Content Value added tax is excluded to be categorized as local content. Such restriction is the consequence of sale and purchase transaction and its related transport costs including packaging, insurance and handling, profit, also other costs which are not direct component on production of goods or services. Apart from value added tax, the other duties/taxation imposed are import tax (should the product is imported from outside Indonesia) and/or income tax for labor and/or consultant and/or expert for services content. Author: Daniel Alfredo Partner – [email protected]
Foreign Investment and Restriction of Foreign Ownership in Mining Sector
Foreign investors must have an Indonesian vehicle to conduct mining business activities in the form of an Indonesian limited liability company established in the framework of foreign investment to Law No. 25 of 2007 on Investment (known as Foreign Investment Company / Perusahaan Penanaman Modal Asing or “PMA”). Although mining sector is generally open to foreign investors, its investment procedure is highly regulated. There are restrictions that foreign investors must be aware of prior to start their investment activities in Indonesian mining sector. A. Special divestment rules regarding foreign-owned companies in mining sector The Government Regulation on Mining (“Mining GR”) further draws a distinction in relation to the divestment obligation, between (i) the holders of Production Operation IUP/IUPK for metal minerals who undertakes processing and refining themselves domestically, and (ii) the holders of Production Operation IUP/IUPK for metal minerals that employs third parties to do the processing and refining domestically on their behalf. Although the Mining GR uses the word “done by”, we believe that the regulator meant that the smelting facilities have to be “owned and operated by”, not just “operated by” as the term suggests. For the holders of IUPOP and IUPKOP which conduct their own processing and/or refining : Mining GR explains that Share Divestment Obligation for the holders of IUPOP and IUPKOP which conduct their own processing and/or refining must be made after the end of the fifth year of production at least : For the holders of IUPOP and IUPKOP which do not conduct their own processing and/or refining (the processing and/or refining may be made in cooperation with other IUPOP holders and IUPKOP holders, or IUPOP holders specifically for processing and/or refining smelting) : Mining GR also explains that Share Divestment Obligation for the holders of IUPOP and IUPKOP which do not conduct their own processing and/or refining must be made after the fifth year of production at least : Minimum divestment means the number of shares owned by foreign shareholder from the total shares of the company that is mandatory to be transferred to an Indonesian entity. The divestment schedule is calculated since the date when the company started commercial production. Divestment Offering Priority The shares held by foreign shareholders must be offered to the Indonesian participant(s), within 90 calendar days since the lapse of the 5 years period (calculated from the date of commercial production), in the following sequential order: i. First, to the Central Government, and to the Provincial Government, together with the Regency/City Government. If both parties interested, then the Central Government gets the priority as the purchaser. The interested potential buyers must respond within 60 calendar days since receiving the offer; ii. Second, to the State-owned Company (“BUMN”) and the region-owned Company (“BUMD”) by way of auction. The interested potential buyers must respond within 60 calendar days since receiving the offer; and iii. Third, to the wholly Indonesian owned-companies by way of auction. The interested potential buyers must respond within 30 calendar days since receiving the offer in a sealed envelope. All the offers will be opened in front of all the interested potential buyers on the 30th calendar day. Should no sale occurs, the same process would be repeated the following year. Pricing in Divestment Obligation The divested shares are valued based cost replacement principle. That is all the cumulative costs incurred until the year of the mandatory divestment minus (i) amortization and depreciation (inflation adjusted), and (ii) liabilities due at the end of the respective year of the divestment obligation. The pricing can be determined by an independent appraiser. The determined price shall be: i. the highest price to be offered to the Central Government, and to the Provincial Government, together with the Regency/City Government; and ii. the base price for the auction to the BUMN, BUMD and the subsequent wholly Indonesian-owned companies. No Divestment Obligation for PMA Smelter Company Mining GR provides that in the event the IUP-OP holders do not undertake the activities of: (i) transportation and sale, and/or (ii) processing and refining, then the said activities may be performed by other parties that hold, respectively, the: a. IUP-OP specifically for transporting and selling (“IUP-OPK”); b. IUP-OP specifically for processing and/or refining (also “IUP-OPK”); or c. IUP-OP who also owns and operates processing and refining facility. B. The Share Divestment Obligation’s Exception Based on Mining GR there is an exception of share divestment obligation for the holders of IUPKOP specifically for processing and/or refining in the scope of foreign investment, that the holders of IUPKOP specifically for processing and/or refining in the scope of foreign investment shall not be required to divest shares. The spirit of the Mining GR is actually to promote processing and refining done domestically in Indonesia. The Government encourages PMA companies holding Production Operation IUP/IUPK to undertake the processing and refining process themselves, hence such company is allowed to hold a maximum of 60% foreign ownership as oppose to PMA companies that hold an IUP/IUPK but choose to use third parties to undertake the processing and refining on their behalf (i.e., maximum 60% foreign ownership versus maximum 49% foreign ownership). However at the same time, Mining GR confirms that there is no divestment obligation applicable to PMA companies that hold IUP-OPK for processing & refining. C. Restriction in change of ownership to foreign investor Ministry of Energy and Mineral Resources Regulation (“MEMR Reg”) provides that any change of shareholding in a mining company can only be conducted if: 1. the foreign share ownership shall not be more than 75% for a company holding an Exploration IUP (refers to Category 1 in Table 14 above); and 2. the foreign share ownership shall not be more than 49% for a company holding a IUP-OP. The change of shares ownership, including the change of control (acquisition), can only be conducted with prior approval from the respective government authority (depending who has the authority to issue the IUP). In the event of a change of status from a wholly Indonesian-owned company to PMA has
Foreign Investment in Telecommunication Tower Business
Pursuant to Regulation of Ministry of Information and Communication, construction of telecommunication tower may be performed by (i) telecommunication operator; (ii) tower provider or; (iii) tower contractor/developer. Unless it is performed by a telecommunication operator, which business is allowed to have 65% of foreign ownership, construction service provider building tower for special purpose is closed for foreign investment. Moreover, tower provider, operator or tower developer is allocated for Indonesian companies/domestic investment. Further, the Joint Ministerial Regulation between Minister of Interior, Minister of Public Work, Minister of Communication and Information and the Head of Indonesian Investment Coordinating Board also stating that telecommunication tower provider/operator/developer that is not a telecommunication operator, must be owned 100% by Indonesian entities. This is in line with the Investment Negative List which states that business of providing, operating (including leasing) and construction service provider for telecommunication tower which includes the activity of construction, maintenance and reparation the central telecommunication tower and its equipment i.e., central telephone, telegraph, BTS, micro wave receiver, satellite, fixed network for local and long distance telecommunication is closed to foreign investment and it is allocated for national companies. Joint Ministerial Regulation states that national company is an entity in a form of corporation or non corporation whereas the capital is entirely from domestic investment and incorporated in Indonesia. The Investment Law defines domestic capital as capital that is owned by the State of the Republic of Indonesia, an Indonesian national, or a business entity, whether it is formed as a legal entity or a non-legal entity. Opposite to domestic capital, foreign capital is defined as capital that is owned by a foreign state, a foreign national, a foreign business entity, a foreign legal entity, and/or an Indonesian legal entity, of which the capital is in part or in whole is owned by a foreign party (i.e., PMA). A direct investment or acquisition by PMA will be categorized as foreign investment due to the origin of the capital and PMA status as a foreign investment company. Given the foreign ownership restriction in telecommunication tower business, PMA is prohibited from directly investing in a telecommunication tower company. Nevertheless, Investment Negative List states that restrictions in foreign investment as mentioned in the regulation will not be imposed to indirect investment or portfolio transaction through the Indonesian stock exchange. A publicly listed company is not bound by requirement imposed by the Investment Negative List. By definition, a public company is a limited liability company owned by at least 300 (three hundred) shareholders and have Rp. 3.000.000.000,00 (three billion Indonesian Rupiah) as the paid up capital, unless otherwise regulated by a government regulation. One way to become a public company is through an initial public offering (“IPO”) to sell shares of stock to public according to the Capital Market Law and its supporting regulation, and under the supervision of Badan Pengawas Pasar Modal/Capital Market Supervisory Board (“Bapepam”). IPO is opted when companies need to raise capital or expand their current business, especially when there are restrictions in foreign investment regulations that limit these companies to expand their business. Based on the above explanations, there are few feasible ways to invest or acquire shares in telecommunication tower company i.e.: a. Acquiring some shares in telecommunication operator (network provider); Pursuant to Negative List, foreign ownership in telecommunication operator company (privately held) is allowed up to 65%. In the event the telecommunication company is a publicly listed company, the limitation does not apply. b. IPO; c. Acquiring shares of stock of existing listed telecommunication tower company; d. Acquiring shares of stock of existing listed company and incorporate telecommunication tower business into its license. Albeit the restriction of foreign investment in telecommunication tower business, a partnership between foreign entity and Indonesian entity; particularly in developing and construction of new tower, is allowed and supported by the government although there is no specific regulation governing it other than Investment Negative List. However this form would not favor foreign investor given they are not able to hold ownership in their Indonesian partner company. Author: Marini Sulaeman Managing Partner – [email protected] Alamo D.Laiman Partner – [email protected]
THE INVESTMENT NEGATIVE LIST 2014
The new Investment Negative List is issued to create legal certainty as well as one of the pursuits to attract investors in order to invest in Indonesia. Investment Negative List is the implementation of the transparency in order that investors can easily acknowledge the list of close business fields to foreign investment or open business fields with conditions to foreign investment. The Business Fields which is established by DNI is arranged based on Indonesian Standard Business Classification (“KBLI”) which is released by The Central Bureau of Statistics. In the effort to increase investment in Indonesia and to execute the ASEAN Economic Community (AEC), the Government of Indonesia had done amendment to the provision list of close business fields and open with certain requirements in the field of investment. The amendment of Investment Negative List is on business fields such as agriculture, forestry, industry, maritime and fisheries, transportation, energy and mineral resources, healthcare, education, communication and information, finance, banking, trading among others. In Presidential Regulations No. 39/2014 (“Investment Negative List 2014”) which revokes Presidential Regulations No. 36/2010 (“Investment Negative List 2010”) is divided into the three groups of business areas : Close business fields; Open business fields with conditions; Open business fields without conditions. I. Close Business Fields Business fields that now confirmed closed to foreign investment based on Annex 1 Investment Negative List 2014 are : Chemicals Industry which regulated in Annex 1 Law Number 9/2008 regarding The Use of Chemicals as Chemicals Weapons; Alcohol Liquor Industry (liquor, wine, malr); Performances and Operating Land Transport Passenger Terminal; Performances and Operating Motor Vehicles Weighing; Telecommunication/Voyage Supporting Services; Performances of Flight Navigating Services; Performances of Periodic Testing of Motor Vehicles; Management and Performances of Radio Frequency Monitoring Station and Satellite Orbit; Government Museum; Historical Relics and Archeological Evidence (temples, palaces, inscriptions, and ancient buildings); and Casino. Close Business Fields can be utilized for non commercial purposes such as, research and development after being approved by the government which has responsibility to such business fields. II. Capital Ownership Changes Investment Negative List 2014 has differences with Investment Negative List 2010 in relation to both foreign and domestic capital for some business fields particularly to the number/percentage of foreign ownership. The following are business fields with increasing foreign ownership: The following are business fields with decreasing foreign ownership: III. New Businesses in Investment Negative List 2014 that are open with Conditions to Foreign Investment In addition to the policy of an amendment related to increased and decreased foreign capital, there are also new business fields which were unregulated in Investment Negative List 2010 are now becoming open with conditions in Investment Negative List 2014. The New Business Fields are energy and mineral resources, public works, trading, and transportation. The following are business fields that previously not regulated in Investment Negative List 2010 which are becoming business fields open with conditions in Investment Negative List 2014: IV. IMPLEMENTATION/APPLICABILITY Article 9 of Investment Negative List 2014 stating that the Negative List is not retroactive, which means foreign investors that have been approved prior to the issuance of Investment Negative List 2014 are not required to comply with categories and/or foreign ownership limitation set out in the Annexure of Investment Negative List 2014, except if the new categories and/or limit are more beneficial in nature. However, article 6 Investment Negative List 2014 also requires that share ownership as a result of merger, acquisition and consolidation have to observe the foreign ownership limitation set out in the Annexure of DNI 2014, in the event of: 1. Merger The surviving company’s percentage of foreign shareholder must comply with the foreign shareholding limit stated in the surviving company’s investment approval; 2.Acquisition The percentage of foreign ownership in the acquired company after acquisition must comply with the investment approval of the said company; 3.Consolidation Foreign shareholder of the new company formed as a result of consolidation must be in accordance with prevailing regulations at the time the new company is formed. Author: Fanri Tamara Junior Associate – [email protected]
