Investing in Indonesia – Overview of Legal System

The key laws governing foreign investment in Indonesia are:

• Law No. 25 of 2007 regarding Investment (26 April 2007).
• Government Regulation Number 24 of 2018 on Electronically Integrated Business Licensing Services (21 June 2018).
• Presidential Regulation No. 44 of 2016 on List of Business Fields that Are Closed and Business Fields that Are Open with Requirements for Capital Investment (18 May 2014) (Negative Investment List).
• Regulations from the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal (BKPM)), including:

• • BKPM Regulation No. 6 of 2018 on Guidelines and Procedures for Capital Licensing and Investment Facilities (20 July 2018), as amended by BKPM Regulation No. 5 of 2019 (29 July 2019) (BKPM Reg. 6);
  • BKPM Regulation No. 7 of 2018 on Guidelines and Procedures for Capital Investment (20 July 2018) (BKPM Reg. 7); and
  • BKPM Regulation No. 1 of 2020 on Guidelines for the Implementation of Integrated Business Licensing Services through Electronic System (1 April 2020) (BKPM Reg. 1).

Negative Investment List

The Negative Investment List provides the areas in which investment is prohibited for foreign entities and areas that have certain investment restrictions for foreign entities. In addition to the Negative Investment List, the relevant laws and regulations governing the conduct of the particular business sector must be reviewed to determine whether the business sector is open for foreign investment, and if so, whether the foreign investment company established to conduct business in that sector may be wholly or partially foreign owned.

If a business sector is not listed within Article 4 of the Negative Investment List it should be open to 100% foreign investment without any conditions. However, in practice, investors must confirm this with the prevailing regulations relevant to the intended business, the BKPM and other technical ministries before making any investment.

The Negative Investment List is organised by reference to the characterisation of business activities described in the Indonesian Business Fields Classification issued by Indonesia\'s Central Statistics Body (Badan Pusat Statistik).

The main regulatory body for foreign investment is the BKPM. However, depending on the business, specific industry regulators may require the foreign investor to acquire an operating licence. It is always advisable for foreign investors to get a full picture of the required licences in the early stage of investment.

OSS System

It is worth noting that in mid-2018, the government introduced the Online Single Submission (OSS) system, as regulated under Government Regulation Number 24 of 2018 on Electronically Integrated Business Licensing Services (GR 24/2018), under which the issuance and supervision of a significant portion of capital investment licensing was transferred from the BKPM and several other government agencies to the OSS system supervised by the Coordinating Ministry for Economic Affairs. The BKPM was mandated to supervise the OSS system starting in 2019.

Further, under BKPM Reg. 6, not all licensing applications and approvals were transferred from the BKPM to be managed by the OSS system, so the BKPM's One-Stop Integrated Services is still processing and issuing licences in the following sectors:

• Certain energy and mineral resources.
• Customs and excise, and tax facilities.
• Other foreign investment licences (limited stay visa recommendations for shareholders, change of status from stay permit on arrival into limited stay permit, and change of status from limited stay permit into permanent stay permit).

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

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