This content is from: Local Insights

New Indonesian regulations on direct investment

Indonesia's Investment Coordination Board (BKPM) recently issued a new Regulation (Reg 5 2013) concerning Guidelines and Procedures for Licenses and Non-Licenses for Capital Investment, dated April 8 2013. The regulation presents new items that may impact new investment for establishing a foreign investment company as well as existing foreign investment companies (known as PMA companies:basically Indonesian incorporated companies that have one or more foreign direct shareholders).

The first key point of Reg 5 2013 is that a public company (including a domestic investment company, or PMDN companies) will now be treated by the BKPM as a PMA if the controlling shareholder of the company is a foreign investor. The term "controlling shareholder" is defined as a shareholder that holds more than 50% of the issued share capital or has de facto control of the company: "the ability to directly or indirectly, by any means, determine management and/or policy decisions in the company." It is unclear whether a mutual fund (and/or its fund holders) can be regarded as a controlling shareholder if the mutual funds owns more than 50% shares in the public company.

Secondly, for partial or entire acquisition of shares in local companies or PMDN companies, the company must obtain a principle licence as a foreign investment company.One important provision in applying the principle license is to include a list of all the PMDN company's subsidiary companies. One year after issuance of the principle license, the subsidiary companies must apply for PMA status.

Thirdly, Reg 5 2013 introduces a restriction where Indonesian venture capital companies cannot be shareholders in a large-scale local company (a PMDN company) or a PMA company. Existing shareholdings by venture capital companies must be divested within a period of 10 years. It is unclear whether the large-scale local company should also include a public company which is not a PMA or PMDN.

Finally, the minimum investment required of a new foreign direct investment company is more than Rp 10 billion, or the equivalent in United States dollars (around $1 million). In addition, the company must also have a minimum issued share capital of more than Rp 2.5 billion. This was also the subject of much uncertainty in the past, with the thresholds apparently being set by the BPKM on a case-by-case basis. While the new regulation aims to resolve this unsatisfactory state of affairs, the timeframe within which the minimum investment amount must be satisfied remains uncertain.

Oene Marseille and Freddy Karyadi

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