Indonesian government finally enacted positive investment list under Presidential Decree Number 10 of 2021 on Investment Business Fields (“Positive Investment List”) on 2 February 2021. The issuance of Positive Investment List has been urged by government and Indonesian Investment Coordinating Board alike for the past few years with the aim of projecting Indonesian government’s commitment in enabling and supporting local and foreign investment and to boost the growth of micro, small and medium-sized enterprises (“MSMEs”). Positive Investment List serves as the legal basis on the implementation of direct investment in various business fields and effectively revokes Presidential Decree Number 44 of 2016 on List of Business Fields That are Closed to and Business Fields That are Open With Conditions to Investment, which previously was known as the Negative Investment List. Positive Investment List is not to be referred for indirect investment i.e., investment undertaken through Indonesian Stock Exchange as well as direct investment in the financial and banking sector.

 Content and Implications

Positive Investment List reaffirms Law Number 25 of 2007 on Investment as amended by Law Number 11 of 2020 on Job Creation (“Investment Law”) which stipulates that all business fields are deemed as available for investment except for those (i) declared as closed for investment; or (ii) can only be carried out by central government due to its strategic nature and cannot be carried out by or in cooperation with other parties. Business fields which are declared as closed for investment encompass:

  1. Cultivation and production of narcotics;
  2. Any kind of gambling activity and/or casinos;
  3. Fisheries of any species listed under Appendix I of Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);
  4. Exploitation of reef and exploitation of corals from the nature for the production of building materials/chalk/calcium, aquarium, and souvenir/jewelry, as well as living corals or recent-death coral from nature;
  5. Industry of chemical weapon; and
  6. Industry of industry chemical materials and industry of ozone-depleting substances.

Positive Investment List as the implementing regulation of the Investment Law mainly focuses on determining business fields available for investment as well as stipulating a set of categorizations for such business fields which can be sum up as follows:

  1. Prioritized Business Fields

Business fields deemed as prioritized business fields are those that satisfy the following qualifications:

  1. National strategic project/program;
  2. Capital-intensive;
  3. Labor-intensive;
  4. Advanced technology;
  5. Pioneering industry;
  6. Export-oriented; and/or
  7. Research, development, and innovation-oriented activities.

Appendix I of the Positive Investment List set out list of business fields which satisfy such qualifications along with details regarding corresponding Business Classification Number as well as scope of products and requirement. Business fields included in such list are categorized as prioritized business fields and therefore are eligible to receive fiscal and non-fiscal incentives. Non-fiscal incentives encompass ease of business licensing, provision of supporting infrastructure, guaranteed availability of energy, guaranteed availability of raw materials, immigration, manpower and other conveniences in accordance with the provisions of laws and regulations. Whilst fiscal incentives among others consist of:

  1. Tax incentives, encompass:
  1. Income tax facilities for investment in certain business fields and/or in certain regions (tax allowance);
  2. reduction of corporate income tax (tax holiday); or
  3. reduction of corporate income tax and net income reduction facilities for the purpose of investment and reduction of gross income for the purpose of certain activities (investment allowance), including:
  • reduction of net income for new investment or business expansion in certain business fields which are labor-intensive industries; and/or
  • reduction of gross income for organizing work practice, apprenticeship and/or learning activities in the framework of competency-based human resources guidance and development.
  1. Custom and excises incentives in the form of import duty exemption for the import of machinery as well as goods and materials for construction or development of industry for the purpose of investment.
  1. Business Fields Allocated for or Undertaken by Cooperation with Cooperatives and MSMEs

Business fields allocated for MSMEs are determined based on the criteria as follows: (i) business activities that do not utilize technology or utilize a simple technology; (ii) business activities having specific process, are labor-intensive in nature as well as having special and hereditary cultural heritages; and/or (iii) business activities with capital of not more than ten billion Rupiah (IDR10,000,000,000), excluding land and buildings. Whereas business fields which can be undertaken by way of cooperation between large-scale business and cooperatives/MSMEs are determined based on the following criteria: (i) business field which are commonly undertaken by cooperatives and MSMEs; and/or (ii) business fields promoted to be included in the supply-chain of large-scale business. Appendix II of the Positive Investment List sets out the list business fields which satisfy such criteria along with its corresponding Business Classification Number.

  1. Business Fields with Certain Investment Requirements

Business fields which are categorized as business fields with certain investment requirement, as set out in Appendix III of the Positive Investment List, are available for investment by any investors, including cooperatives and MSMEs which satisfy requirement, unless such business fields are conducted within special economic zone, as follows: (i) Investment requirement for local investors; (ii) Investment requirement with foreign capitals limitation; or (iii) Investment requirement involving special licensing.

  1. Other business fields.

Business fields which are included in any of the above category are deemed to be fully available for investment by any and all investors. It is to be noted however, aside from the Positive Investment List, investors are advised to also check the investment provisions under the relevant sectoral laws and regulations prior to undertaking an investment in Indonesia in order to determine whether any specific investment requirement or foreign capitals limitation are imposed upon such business field. For instance, whilst Positive Investment List does not address maximum foreign capitals participation for insurance companies, the prevailing laws and regulations provide the limitation on foreign participations in insurance companies under Government Regulation Number 14 of 2018 on Foreign Ownership in Insurance-Related Companies as lastly amended by Government Regulation Number 3 of 2020, which we covered in our previous publication.

Other Notable Provisions

  1. Grandfather Clause

Akin to the negative investment list as previously contemplated under Presidential Decree Number 44 of 2016, Positive Investment List also recognizes grandfather clause principle whereby the requirement regarding foreign capitals limitation shall not be imposed upon investment which has been approved prior to the enactment of the Positive Investment List, unless the foreign capitals limitation as stipulated under the Positive Investment List is more beneficial for such investment. In addition, Positive Investment List also provides that the foreign capitals limitation shall not be applied for investors obtaining special rights pursuant to treaty between Indonesia and the origin country of such investor, unless the foreign capitals limitation as stipulated under the Positive Investment List is more beneficial for said investors. 

  1. Additional Requirement for Foreign Investors

Positive Investment List provides that foreign investors undertaking investment in Indonesia shall also be subjected to additional requirement as follows:

  1. Foreign investor shall be established in the form of an Indonesian limited liability company and domiciled in Indonesia, unless specified otherwise by the prevailing laws and regulations;
  2. Foreign investors may only carry out business activities in large-scale business with investment value of more than ten billion Rupiah (IDR10,000,000,000) excluding the value of land and buildings, with the exception of foreign investment in special economic zones in technology-based startups business.

Written by Ahmad Jamal Assegaf and Caroline Ignes Tando. Please click on the download button below to read this publication.

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