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Foreign Investment in Indonesia
Starting a business or legal entity in Indonesia can be a hazardous undertaking for foreigners, in particular to newcomers in Indonesia who lack profound experience with the country and do not have useful contacts or a network to rely on. Indonesia is not the world’s most business-friendly country (reflected by the weak ranking in the World Bank’s Doing Business Index) and contains specific cultural dynamics which – to an outsider – can make matters complicated.
There are two legal entities that are permitted for foreigners in Indonesia: (1) a foreign investment limited liability company (in Indonesian: Perseroan Terbatas Penanaman Modal Asing, or, PT PMA), and (2) a representative office (in Indonesian Kantor Perwakilan Perusahaan Asing, or, KPPA).
This section aims to provide you all required information about the establishment of a:
Foreign Investment Company (PT PMA)
Reasons for the Change?
The new list was announced in November 2018 as part of the 16th economic policy package by the Coordinating Ministry for Economic Affairs. This amended list is a gesture to many foreigners to make investments that will contribute to the reformative and consistent progress in the country.
Another important goal is to decrease the current national deficit as foreign direct investments in Indonesia play a significant role. The account deficit of Indonesia has hit US$8.8 billion (3.7% GDP) as of the end of 2017.
Also, foreign investments in particular sectors were much lower than expected. It is believed that the low awareness among foreign entrepreneurs was one of the major reasons for their poor development. These fields include market research services, and power plants (> 10 megawatts capacities), oil and natural gas exploration and exploitation, as well as the power grid construction in free trade zones.
However, the official announcement of the reform caused disagreement among local entrepreneurs as Indonesians fear of the global corporations entering the market and ‘devastating’ its local businesses. Therefore, it is expected that the NIL will undergo several updates until releasing its final version.
The Changes of 2018 Negative Investment List
Negative Investment List 2018
To further drive the restructuring of the market, the negative investment list will be shortened, especially in those sectors where investments have slowed down, and many industries will be further expanded.
The revised list will open 54 business activities, and full foreign ownership is going to be permitted in 25 business activities from 8 different sectors. Noticeably, not all 54 fields are suitable for a foreign company (PT PMA) as it requires capital of IDR 10 billion.
Industries Suitable for Full Ownership
The 25 business activities from 8 different sectors that are proposed for full foreign ownership include industries that were previously open to foreigners, but the number of investors was low. These fields are related to trade, tourism communications, transportation and telecommunications mainly.
The details are listed as follows (the bracket shows the current allowed foreign ownership):
- Oil and gas construction (75%)
- Ecotourism for areas of forestry (51%)
- Geothermal survey and drilling (95%)
- Oil and gas drilling (offshore) (75%)
- Geothermal facilities operation and maintenance (90%)
- High-voltage electrical installations testings (49%)
- Power plants (more than 10 megawatts capacities) (95%)
- Theatres and art galleries (67%)
- Polling services (70%)
- Land transportation (without specific tracks) (49%)
- Data communication (67%)
- Telecommunication networks and content services (fixed and mobile) (67%)
- Sea transportation of passengers (overseas and it excludes cabotage) (70% for Southeast Asians)
- Call centers and other telephone services (67%)
- Internet services for the public (67%)
- Pharmacy industry with more than US$6.8 million investment (85%)
- Job training (67%)
- Fumigation and pest control (67%)
- Acupuncture facilities (49%)
- Industries Used to be Closed to Foreigners
Other specific fields that will open up to full ownership from its current closed status:
- Construction machinery leasing
- Other machinery leasings (textile, powerplant, etc.)
- Surveyor services
- Industries for Every Size of Company
Good news for small and medium companies is that the following sectors are no more restricted based on the size of businesses:
- Fabric printing
- Lace knitting
- Tuber cleaning and stripping
- Industries with No Special Recommendations
Previously requiring special recommendations, these sectors below will not need them anymore. They are:
- Cigarette industry
- Crumb rubber
- Operation of wood processing
- Saccharin, cyclamate or artificial sweeteners
- Medical equipment
- Cell and tissue culture laboratories
The Negative Investment List significantly influences the development of the Indonesian economy and the amount of foreign direct investment pouring into the country. Even though its final version has not been approved by the Indonesian president yet, investors should be aware of its latest development.
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