SECTION 1: Market outlook
1.1 How would you summarise your jurisdiction's attitude
towards the influence of Japanese corporate culture in its
Over the past few years, the economic partnership between
Indonesia and Japan has strengthened and grown rapidly. Japan
has historically been a key strategic partner to Indonesia, and
is currently its largest trading partner. Indonesia is also a
major supplier of natural resources to Japan, especially
liquefied natural gas for which it is its biggest supplier.
Japan has more investments in Indonesia than any other
Southeast Asian country, and according to data from Indonesia's
Investment Coordinating Board (BKPM), foreign direct investment
from Japan to Indonesia has increased considerably, totaling
$14.9 billion, and with an average growth rate of 30% in the
five year period to 2015.
1.2 What is the outlook for Japanese investment into your
jurisdiction over the next 12 months?
Estimated infrastructure investment up to 2019 is projected
to be up to $460 billion, with 30% of this total coming from
the private sector. The transportation and power sectors are
the two areas where the Japanese have invested most heavily.
They have also made significant investments in the industrial
sector, including, among others, automotive products,
electronic goods, mineral processing, power plants, coal
gasification, petrochemicals and glass.
In 2015, the President set an ambitious goal of developing
35,000 MW of power capacity over the next five years to resolve
Indonesia's endemic electric power shortages and to propel
economic growth. Japanese investors have and are expected to
continue to play a significant role in this development. One
example is PT Bhumi Jati Power, established by Sumitomo
Corporation as lead developer, building a 2x1000 MW coal fired
power plant in Central Java with a total investment of $4
billion. Other notable projects include Itochu and J-Power's
2x1000 MW power plant development in Batang, with a total
investment of $4 billion, and Marubeni's 1000 MW power plant
expansion near Cirebon, with a total investment of $2 billion.
Japanese Prime Minister Shinzo Abe's visit to Indonesia
revealed many other potential areas for collaboration, from
railway projects, port development financing, irrigation
facility construction and deep sea ports for gas fields, among
To underline its commitment to infrastructure development,
the Indonesian government has not only reallocated over $20
billion in fuel subsidies towards infrastructure but has also
improved and simplified requirements for foreign investment,
including by increasing the allowed foreign ownership
percentage in several sectors and the convenience of the one
stop service provided by BKPM, thereby accelerating the
SECTION 2: Approving foreign investments
2.1 Explain the foreign investment approval process and
Most private foreign investment has been through the
establishment of foreign investment companies, also referred to
as PMA companies under the auspices of the BKPM, with the
exception of the banking, finance and insurance sectors, which
are governed by a separate regulatory regime under the auspices
of the Financial Services Authority (OJK).
The process of establishing a new PMA company, from
submitting the application with BKPM to completion, can take
three to six months, and consists primarily of the following
1) Reservation of name
2) Obtaining an access code for BKPM online filing purposes
and online submission of the investment application to BKPM
3) Issuance of a BKPM In-principle License
4) Execution in the presence of a local notary of the deed
of establishment containing the articles of association
5) Obtaining general corporate licences, such as a letter of
domicile, applying for a tax registration number, establishment
of a bank account and payment of capital
6) Obtaining approval of the Ministry of Law and Human
Rights (at this point full limited liability status is
7) Registration of the articles of association with the
relevant office of the Ministry of Trade and fulfilment of
other administrative formalities, including publication of the
articles of association in the official State Gazette
8) Upon commencement of commercial production/operation,
application for a business licence (IU) to the BKPM that is
valid as long as the PMA company conducts its business
For major investment projects, BKPM offers an expedited
investment approval process with a Three-Hour Investment
License. This service is open to investors with a project with
one of the following characteristics:
1) An investment plan of at least Rp100 billion ($7.5
2) Employs 1,000 or more personnel
3) Engages in certain manufacturing activities
4) Located in certain areas that enjoy an inland free trade
5) Engaged in certain manufacturing businesses that are part
of a supply chain,
6) Located in a special economy zone; and/or
7) are an infrastructure project in certain sectors.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
The business areas in which PMA companies are allowed to
operate are restricted by the so-called Negative List. The
Negative List sets out those areas in which investment by both
Indonesians and foreigners is restricted or entirely
In addition to the Negative List, the laws and regulations
governing the conduct of certain lines of business determine
whether the business area is open to foreign investment and, if
so, whether a PMA company engaging in that business area can be
wholly foreign owned or only partially foreign owned or is
subject to other restrictions or requirements.
In practice, even if a particular line of business is not
listed in the Negative List, investors should confirm with the
BKPM and the relevant technical ministry (if applicable) as to
the conditions and requirements for foreign investment.
2.3 Which authority oversees competition clearance? Please
give a brief overview of the merger clearance process.
In Indonesia, competition clearances are supervised by the
Business Competition Supervisory Commission (KPPU).
Transactions resulting in a combined asset value of more than
Rp2.5 trillion ($187 million) or a combined sales value of more
than Rp5 trillion must be reported to the KPPU. If certain
thresholds are met, transactions must be reported to the KPPU
after the transaction occurs.
Indonesia now acknowledges pre-transaction consultations,
although a written evaluation by the KPPU resulting from such
consultation does not serve as an approval for, or a rejection
of the proposed acquisition and does not eliminate the KPPU's
right to conduct an evaluation after the acquisition has been
carried out. The written evaluation is an opinion on whether
there is any indication that monopolistic practices or unfair
business competition may result from the acquisition. The
acquirer is not bound by the evaluation and may proceed to
implement their plan regardless of the outcome of the
If informing the KPPU of a reportable transaction is not
undertaken within the 30 working day time limit, the KPPU can
impose a fine of up to Rp1 billion ($75,187) for each day of
delay, up to a total of Rp25 billion. Further, if the parties
fail to submit a notification at all, the KPPU may impose the
maximum fine (Rp25 billion).
2.4 Are there further approval requirements that foreign
investors should be aware of?
Manpower related licences
A Foreign Manpower Utilization Plan (RPTKA) listing the
proposed foreign employees of the PMA company will be required
before the PMA company can employ foreign employees. In
addition to the RPTKA, a PMA company must also apply for
Expatriate Work Permits for its respective foreign employees.
The RPTKA and Work Permits are applied for at the BKPM.
Land related licences
The Location Permit is a permit granted to a company to
obtain land required for investment. It also serves as a permit
to transfer rights, and to utilise the land for business
investment purposes. The Location Permit will be necessary if
the project requires a land bank, such as for infrastructure or
manufacturing. The Location Permit will need to be obtained
before conducting any land acquisition. Construction licences
will also be important for any building operations.
Businesses or activities that may have a significant impact
on the environment (for instance if there is a fundamental
change to the environment caused by such business or activity
as required under prevailing laws and regulations) require an
Environmental Impact Analysis (AMDAL). If a business or
activity does not require an AMDAL but has an impact on the
environment, the company must prepare a report on its
Environmental Management Efforts (UKL) and Environmental
Monitoring Efforts (UPL). Companies conducting activities which
do not require an AMDAL or UKL-UPL must provide a written
statement that they will manage and monitor the
An Environmental Permit is required for any activity which
requires an AMDAL or UKL-UPL. Without an Environmental Permit,
an operating licence for the relevant business activity will
not be issued.
With the increase in regional autonomy, investments located
in Indonesia's provinces will often need regional approvals or
licences. In addition, certain technical ministries may also
have specific permits and approvals which a PMA company will
need before commencing operations. Care should be taken to
ensure that all national and local government policies,
practices and procedures are complied with as these may also
affect the operations of a PMA company. The Master List
approval requirement to be able to enjoy certain tax breaks is
mentioned in Section 6.3 below.
As well as approval requirements, investors need to be aware
of the many potential reporting requirements that accompany the
establishment of a PMA company.
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for
Japanese investment in your jurisdiction?
Foreign investment in Indonesia must generally be in the
form of a PMA company. Establishing a branch of a foreign
company is not permitted (except for banks) and representative
offices are generally only permitted to undertake marketing and
A PMA company is an Indonesian limited liability company
and, subject to any specific restrictions, may be a
joint-venture company established by a foreign investor and an
Indonesian (corporate or individual) partner or (if 100%
foreign shareholding is permitted) by foreign individuals
and/or wholly foreign-owned corporate entities. The principal
ways of structuring a foreign investment in Indonesia is either
by establishing a new PMA company or acquiring shares of (and
then converting to PMA company status if Indonesian-owned) an
As indicated, the BKPM acts as the prime regulator of
foreign investment in Indonesia and some technical ministries
have transferred certain functions to BKPM so that BKPM is
becoming more of a one-stop-shop for foreign investors seeking
to invest in Indonesia.
3.2 What are the key requirements for establishment and
operation of these legal entities?
Minimum capital requirement
The issued and paid-up capital of a PMA company must be at
least Rp2.5 billion with the participation from each
shareholder being not less than Rp10 million. BKPM may require
a higher capital investment on a case-by-case basis (for
example for capital intensive businesses like power plants,
toll roads, etc.).
Minimum capital investment value
The total capital investment value of a PMA company must be
more than Rp10 billion, consisting of equity (share) capital
and loans but excluding land and building, for each line of
Maximum foreign shareholding percentage
Please see Section 2.2 above.
SECTION 4: Dispute resolution
4.1. How effective are local courts' enforcement and
dispute resolution proceedings, and what should Japanese
investors be particularly aware of?
Litigating commercial disputes under Indonesia's judicial
system is invariably expensive, lengthy and generally
unpredictable. In Indonesia, judges are not bound by precedent
and have discretion to decide matters on grounds of fairness
and reasonableness. Each case before the Indonesian courts is
determined on the basis of its particular facts and merits. In
principle, Indonesian general courts, for example district
courts and high courts, hear civil lawsuits and criminal
claims. Nearly all decisions may be appealed to higher courts
and recovery of legal costs is generally not possible. Certain
courts of specialised jurisdiction address specific areas of
law, for example a commercial court specifically for bankruptcy
and intellectual property cases. Given the above, the
resolution of a commercial dispute is usually sought in (often
international) arbitration or alternative dispute resolution
(such as mediation), particularly by foreign companies doing
business in Indonesia.
The enforcement of foreign arbitration awards is also
recognised in Indonesia. Please see Section 4.3 below for more
4.2. Does your jurisdiction have a bilateral investment
protection treaty with Japan and is that commonly used by
Indonesia does not have any BIT with Japan.
4.3. Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Indonesia is not party to any treaty concerning reciprocal
enforcement of court judgments. In principle, foreign court
judgments are not enforceable in Indonesia; new proceedings are
required and the aggrieved party must file a new suit in the
relevant district court in Indonesia. The foreign court
judgment may be introduced as evidence in the new proceeding,
but the Indonesian court will not be bound by the findings of
the foreign court.
The Indonesian Arbitration and Alternative Dispute
Resolution Law recognises the enforcement of foreign arbitral
awards in Indonesia as Indonesia is a signatory to the New York
Convention of 1958 on the Recognition and Enforcement of
Foreign Arbitral Awards. A foreign arbitral award must be
registered with the Central Jakarta District Court which will
issue a writ of execution (exequatur) for its
SECTION 5: Forex controls and local operations
5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?
In general, there are no particular foreign currency or
exchange restrictions that might raise potential red flags in
Indonesian investment activities. The Indonesian rupiah is
freely convertible into any currency and vice versa. However,
if the foreign currency transfer exceeds $100,000 or its
equivalent, the parties must submit and provide underlying
documents to the relevant Indonesian bank which processes the
There is also a mandatory use of rupiah requirement for
transactions conducted within Indonesia. Rupiah must be used in
all payments and/or financial transactions in Indonesia, except
for certain transactions, among others International trade
transactions and financing.
SECTION 6: Tax implications
6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for Japanese
investors into the country?
Japanese investors can utilise the tax treaty between
Indonesia and Japan to reduce tax rates and double taxation.
Specifically for transfers of shares between an Indonesian and
a foreign company domiciled in a tax-heaven jurisdiction, 25%
of the transaction value will be deemed as taxable gain if such
foreign company acts merely as a special purpose vehicle.
However, this tax imposition does not apply if there is an
exclusive right of taxation provided by applicable tax treaty.
Of course, other intermediary jurisdictions can be used by
Japanese investors for tax purposes. Indonesia has recently
introduced additional restrictions on transfer pricing.
6.2 What are the applicable rates of corporate tax and
withholding tax on dividends?
The general corporate tax rate is 25%. The withholding tax
on dividends for resident corporate taxpayers is 15%. No tax is
withheld for dividends paid out of the reserve fund or if the
corporate equity participation (paid-up capital) in the
dividend paying entity is at least 25%. The withholding tax on
dividends for non-resident taxpayers is 20%, subject to
reduction under any applicable tax treaty.
6.3 Does the government have any tax incentive schemes in
Yes, a PMA Company which requires offshore capital goods
will usually submit a Master List of capital goods to BKPM for
approval for its imports of machinery, equipment, and spare
parts to obtain import duty and other facilities if certain
requirements are fulfilled. In addition, tax allowances or tax
holidays for certain types of business activities and/or
businesses in certain (particularly remote) regions. As a
general idea, a tax allowance or tax holiday may be granted to
industries which require a substantial investment, such as
infrastructure or pioneer industries (such as
telecommunications, crude oil refiners, and industrial
A recent tax amnesty programme provided an opportunity for
all taxpayers to report undisclosed assets and pay a certain
amount of compensation in return to the government until March
31 2017. All the undisclosed assets being reported in the tax
amnesty program will not be assessed further.
6.4 Are there any reciprocal tax arrangements between your
jurisdiction and Japan? If so, how can they aid investors?
Yes, there is a double tax treaty between Indonesia and
Japan which provides better tax rates for some taxable objects.
For investors, one of the benefits is double income tax
Vincent Ariesta Lie
Partner, Makarim & Taira S
T: 6221 252 1272
F: 6221 252 2750
Vincent Lie is a partner at Makarim & Taira S
who combines broad legal experience with a keen sense
for clients' business context. Lie is able to counsel
clients on their commercial objectives through
Indonesia's regulatory landscape. Besides handling
traditional corporate practice areas, he is also
familiar with fast-evolving growth sectors in Indonesia
such as energy and in the digital space. He has
represented prominent companies in a variety of
proceedings and transactions such as, but not limited
to, corporate and commercial matters including
acquisitions and project financing, bankruptcy, dispute
resolution, arbitration including enforcement of
foreign arbitral awards, natural resources and energy
(mining, oil and gas, power plants) and information
technology/startups. Lie has spoken at various seminars
and conferences on power plants, mining, energy
resources and bankruptcy arranged by In-House Congress,
the Asian Law Students' Association, Padjajaran
University and Pelita Harapan University.
Partner, Makarim & Taira S
T: 6221 252 1272
F: 6221 252 2750
Yohanes Masengi is a partner in the corporate and
commercial group with extensive experience in
investment, infrastructure, power projects, ports,
mergers and acquisitions, joint-ventures, employment
and corporate restructuring.
He has represented prominent companies in a variety
of proceedings and transactions, including land
acquisition, project financing, and natural resources
and energy. These include representing independent
power producers in the development of various
large-scale power projects in Indonesia; representing
the employer in the settlement of labour disputes and
mass terminations due to redundancy and closure
involving more than 300 employees on one occasion;
representing a state owned enterprise related to
arbitration in the Badan Arbitrase Nasional
Indonesia (BANI) in a dispute over a construction
insurance claim with one of the local insurance
companies; providing legal assistance in the
renegotiation of concessions and contracts with state
owned enterprises; providing legal assistance in the
acquisition of land with an area of approximately 85
hectares for infrastructure projects; providing legal
assistance in various joint-ventures and the
establishment of companies in Indonesia; and advising
on various matters related to concessions and business
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