Investing in Indonesia – Investment Restrictions

Restrictions on foreign investment in Indonesia are regulated by the Negative Investment List. There are lists of industries for which foreign investment is open (up to a certain percentage of its capitalisation), for example:

• A construction services business is open for up to 67% foreign investment (70% if the foreign investor is from an ASEAN nation).
• A distribution business that is not affiliated with a manufacturing business is open for up to 67% foreign investment; however, the distribution business becomes open to 100% foreign investment if it is affiliated with the manufacturer.
• An insurance business is open for up to 80% foreign investment.

Before conducting business, approval must be obtained from:

• The government through the Online Single Submission (OSS) system.
• The Capital Investment Coordinating Board (for certain licences).
• Any other relevant agency for the business sector (for example, approval from the Financial Services Authority must be obtained before foreign investment can be made in finance companies, insurance companies, and banks).

The limitation on foreign investment will start to apply from the date of processing the relevant approvals.

Foreign Ownership of Real Estate

The Government recently passed a regulation allowing foreign individuals to purchase property of a certain value depending on the location. For example, foreign individuals can only purchase a house with a minimum value of IDR10 billion in DKI Jakarta, and such value will differ in other provinces. Other than value of the property, the foreign individual must meet the requirements set out in the Ministry of Agrarian regulations.

For investment purposes, foreign investors must establish a Foreign Investment Company (PMA Company) under the rules of the BKPM. Therefore, the PMA Company will hold the land title instead of the foreign investor. Different titles to land can be held by Foreign Investment Companies. These are:

• Right to build. This is the most common title for a foreign investment company to hold for its business.
• Right to use. This is commonly used for foreign investment in, for example, plantation businesses.

This first appeared in Establishing a Business in Indonesia, published by Thomson Reuters Practical Law.

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