Indonesia Foreign Investment Review – Law and Policy

By Darrell R Johnson and Greita Anggraeni

Since 1967, Indonesia has favored foreign investment as a means to realize national economic development. In that year, the Investment Law was adopted. In 2007, Law No. 25 of 2007 regarding Investment (the Investment Law) replaced the 1967 law in an effort to update and streamline capital investment.

There are various conditions to foreign direct investment in Indonesia, whether set by regulation or policy, as the government of Indonesia (GOI) has sought to balance the development of Indonesia through large-scale foreign investment and the needs of micro, small and medium-scale businesses and cooperatives.

The GOI exercises control over foreign investment through an array of methods. Such control is mainly exercised under the supervision of the Capital Investment Coordinating Board (BKPM). The registration and application for business licensing for foreign direct investment must now be submitted through a new system introduced in mid-2018 - the online single submission (OSS) system operated by the OSS Institution. The OSS system was established by Government Regulation No. 24 of 2018 (GR24/2018). GR 24/2018 provides that the OSS Institution is a non-ministerial institution that implements government affairs in the sector of capital investment coordination. At present, the OSS Institution is under the auspices of the BKPM.

Most foreign investment licensing is now conducted through the OSS. However, based on article 4(2) of BKPM Regulation 6/2018, there are some business sectors and activities the licensing of which is still administered by the BKPM.

An exemption also applies for financial services (banks, insurance companies, securities companies and the like), the foreign investment supervision of which is under the Financial Services Authority (OJK), and oil companies, the supervision of which is under the Special Task Force for Upstream Oil and Gas Business Activities and the Ministry of Energy and Mineral Resources.

Negative Investment List

The GOI also controls foreign investment through what is known as the negative investment list, or DNI. The first negative investment list was issued in 1987. The latest DNI is set forth in Presidential Regulation No. 44 of 2016 regarding the List of Business Fields that Are Closed and Business Fields that Are Conditionally Open for Investment (the 2016 DNI). The DNI sets forth restrictions on and conditions for both foreign and domestic investment. Some business sectors are closed to foreign investment altogether and others are subject to conditions, such as maximum foreign ownership and minimum capitalisation. If a business sector is not on the 2016 DNI, it is 100 per cent open for foreign investment.

Currently, the registration and licensing of foreign investment is centralised and integrated through the OSS system. Upon registration, the system will automatically refer to the General Law Online Administration (AHU), a public service platform that records all notarial deeds containing the information on the establishment of companies and any related changes. 

Additionally, there are various other ways the OSS and other government authorities regulate foreign investment activities. These may vary from laws and regulations to unwritten policies. Foreign investors need to be aware that these regulations and policies may be imposed by the OSS system and other governmental authorities regulating businesses in Indonesia.

Reproduced with permission of Law Business Research Ltd. This article was first published in Lexology Getting the Deal Through - Foreign Investment Review 2020 (Published: February 2020). For further information, please visit www.gettingthedealthrough.com.

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