Establishing a Business in Indonesia – Foreign Investment Restrictions

Restrictions on foreign shareholders in Indonesia are set out in the Negative Investment List (DNI), as contained in Presidential Regulation (PR) 44/2016. PR 44/2016 lists areas in which investment by both Indonesians and foreign nationals is prohibited or restricted.

In addition to PR 44/2016, the laws and regulations governing certain lines of business must be reviewed to determine whether such lines of business are open to foreign investment and, if so, whether a limited liability company with foreign ownership (PT PMA) conducting such business can be wholly foreign-owned or only partially foreign-owned. Examples of lines of business closed to foreign investment include marijuana cultivation, marine salvage, administration of land, passenger terminals, and casinos.

Lines of business that are not listed in PR 44/2016 are open to 100% foreign investment without conditions.

The DNI also specifies foreign ownership restrictions, such as maximum foreign shareholding, requirement to partner with a small or medium-scale enterprise, and so on. In practice, investors still need to confirm with the Capital Investment Coordinating Board (BKPM) whether a certain line of business is open for 100% foreign investment without conditions. The DNI is organized by reference to the business activities described in the Indonesian Business Fields Classification (KBLI) issued by Indonesia's Central Statistics Body (Badan Pusat Statistik). A PT PMA can have more than one KBLI number, unless the relevant laws and regulations provide otherwise.

Foreign Exchange Controls

There are no foreign exchange controls in Indonesia. The Indonesian rupiah is freely convertible into any currency and vice versa. However, under Bank Indonesia Regulation No. 17/3/PBI/2015 regarding the Mandatory Use of Rupiah within the Territory of the Republic of Indonesia (PBI 17/2015), all transactions conducted in Indonesia must use rupiah, including payments, settlements of obligations, and other financial transactions, whether using cash or otherwise. Exemptions are available for:

• Transactions implementing the state budget.
• Sending or receiving grants to or from abroad.
• International trade transactions.
• Bank savings accounts in foreign exchange.
• International financing transactions.

Violations of currency regulations are subject to sanctions under PBI 17/2015. Sanctions include written warnings, fines, prohibition to take part in payment transactions, and/or up to one year's imprisonment. The authors are not aware of the imposition of such sanctions to date.

This first appeared in the Thomson Reuters Practical Law Q&A guide to Establishing a Business in Indonesia.

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