Establishing a University in Indonesia with Foreign Investment

A regulation issued in 2018 - Minister of Research and Higher Education ("MRHE") Regulation No. 53 of 2018 regarding Foreign Higher Education dated October 30, 2018 ("MRHE Regulation 53/2018") - has made it possible for foreign entities to establish a university in Indonesia, subject to certain conditions and restrictions, including cooperation with a local university.

Indonesia's higher education sector under the so-called Negative Investment List, or DNI, is open to foreign investment, subject to any limitations on such investment.

Pursuant to the 2017 Indonesian Standard Classification of Business Fields (Klasifikasi Baku Lapangan Usaha Indonesia or "KBLI"), the higher education sector falls under KBLI 85321. This KBLI number covers the establishment of an institution of higher learning, managed by a private institution, to engage in the areas of research, knowledge, technology and the arts.

The KBLI is used to classify economic activities in Indonesia, dividing them into several business sectors. Referring to Presidential Regulation No. 44 of 2016 regarding the List of Business Fields that Are Closed and Business Fields that Are Open with Conditions to Investment (the "2016 DNI"), there are no restrictions on foreign investment related to KBLI 85321.

Establishing a Foreign University - Requirements and Restrictions

Law Number 12 of 2012 regarding Higher Education dated August 10, 2012 (the "Higher Education Law") and its implementing regulations govern all of the requirements and restrictions related to the establishment of an institution of higher learning in Indonesia.

The Higher Education Law requires parties intending to engage in the higher education sector to establish a college. There are two types of college, i.e. state college (perguruan tinggi negeri or "PTN") and private college (perguruan tinggi swasta or "PTS"). Under MRHE Regulation No. 51 of 2018 regarding the Establishment, Amendment and Dissolution of State College, and the Establishment, Amendment and Revocation of Permit of Private College dated October 30, 2018 ("MRHE Regulation 51/2018"), a PTN and PTS can be in the form of a (i) university; (ii) institute; (iii) vocational school (sekolah tinggi); (iv) polytechnic; (v) academy; or (vi) community academy (akademi komunitas).

Government Regulation No. 4 of 2014 regarding the Organization of Higher Education and Management of Colleges ("GR 4/2014") stipulates that a state college may only be established by the Government, and a private college can only be established by a community group in the form of a non-profit implementing agency (badan penyelenggara). An implementing agency is defined as a foundation (yayasan), association (perkumpulan) or other non-profit legal entity in accordance with the laws and regulations of Indonesia.

Opening the Higher Education Sector to Foreign Investors

With the enactment of MRHE Regulation 53/2018, the Government made it possible for foreign investors to establish a university in Indonesia without establishing yayasan, association or other non-profit legal entity.

Prior to MRHE Regulation 53/2018, universities could only be established in Indonesia by the Government (public universities) or by a yayasan, association or other non-profit legal entity (private universities). Now it is possible for a foreign entity to establish a university in Indonesia. Note, however, that the regulation only extends that possibility to foreign entities in the form of a foreign college.

MRHE Regulation 53/2018 allows colleges from overseas to establish a foreign university or other institution of higher learning (perguruan tinggi luar negeri or "PTLN") in Indonesia. Article 3 of MRHE Regulation 53/2018 requires that the establishment of the PTLN comply with the following requirements:

1. The PTLN can only be established in a special economic zone;
2. The foreign college must be accredited and/or recognized in its home country;
3. The foreign college must be a non-profit entity; and
4. The foreign college must be ranked in the top 200 universities globally. This ranking shall be assessed by the relevant ministry.

MRHE Regulation 53/2018 further requires a foreign university to cooperate with an Indonesian college, subject to the permission of the relevant minister. So, even though it is possible to establish a PTLN without first setting up a yayasan, association or other non-profit entity, such establishment must be done in cooperation with a yayasan, association or other non-profit entity in Indonesia that operates a university.

Article 8 of MRHE Regulation 53/2018 provides the following procedures for establishing a PTLN:

1. The PTLN must fulfil any commitments required by the Online Single Submission ("OSS") agency. The OSS agency is under the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or "BKPM") and operates the OSS system, which is integrated with the licensing systems of most ministries and regional governments. Since most licensing systems are integrated with the OSS system, an entity applying for licenses only needs to submit an application through the OSS system, unless specifically required otherwise;
2. Obtain a Business Identification Number ("NIB") from the OSS agency;
3. The PTLN must upload all required documents to a website stipulated by the relevant ministry;
4. The relevant ministry will verify the documents within 30 working days;
5. Following the verification of the documents, the ministry will either approve the license for the PTLN or reject the application.

We understand that a foreign university may directly apply for an NIB without first establishing a legal entity in Indonesia. However, the official said that, as required by MRHE Regulation 53/2018, before applying for a license, such foreign university must first consult with the MRHE regarding its plan to establish a PTLN in Indonesia, including its required cooperation with a local university.

We also understand from the BKPM that all of the required licensing procedures under MRHE Regulation 53/2018 can be done through the OSS system. However, to our knowledge, as of this writing no PTLN has been established in Indonesia. This could be because the regulation is relatively new and more implementing regulations and socialization may be needed to raise the awareness of both foreign and local colleges.

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