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Legal Updates | New Regulation on Capital Investment Licensing and Facilities Implementation

 Regulation 13

To implement Government Regulation No. 91 of 2017 on the Acceleration of Business Implementation, on 4th December 2017, the Head of BKPM issued Regulation No. 13 of 2017 on Guidelines and Procedures for the Implementation of Capital Investment Licensing and Facilities ("Regulation 13"). On the same day, the Head of BKPM also issued Regulation No. 14 of 2017 on Guidelines and Procedures for Capital Investment Implementation Monitoring ("Regulation 14") to accommodate changes under Regulation 13. Both Regulation 13 and Regulation 14 were made available to the public in the evening of 15th December.

While it was issued in December 2017, Regulation 13 will only become effective:

  • on 2nd January 2018, for BKPM
  • at the latest on 2nd July 2018, for provincial/regional investment boards

Once Regulation 13 is effective, the following regulations will no longer be valid:

  • Head of BKPM Regulation No. 8 of 2015 on Guidelines on Income Tax Facility Application in Capital Investment at Certain Lines of Business and/or Certain Locations (as amended)
  • Head of BKPM Regulation No. 13 of 2015 on Guidelines on Corporate Income Tax Reduction Facility Application (as amended)
  • Head of BKPM Regulation No. 14 of 2015 on Guidelines and Procedures for Capital Investment Principle Licenses (as amended)
  • Head of BKPM Regulation No. 15 of 2015 on Guidelines and Procedures for Licensing and Non-Licensing Matters of Capital Investment
  • Head of BKPM Regulation No. 16 of 2015 on Guidelines and Procedures for Capital Investment Facilities

Implication for Investors

The Indonesian government intends to simplify investment licensing and investment facilities procedures in Indonesia with the issuance of Regulation 13. However, given it has around 560 pages (including the attachments), it remains to be seen whether this will be achieved. Some new provisions though may cause concern for investors (see further explanation below).

Key Changes

The following are key changes under Regulation 13.

Introducing investment registration concept as initial approval (Article 10)

Under Regulation 13, the terminology for the initial investment approval is changed to become "investment registration" or "Pendaftaran Penanaman Modal" (currently principle licenses or knowns as "Izin Prinsip"). This "investment registration" terminology was also used back in 2009, but later changed in 2013.

Investors of certain lines of business must obtain an investment registration if they want to start a business. Article 10.1 of Regulation 13 sets out activities that are classified as "starting a business" (eg, establishment of foreign/domestic investment companies, change of status to become foreign/domestic investment companies, or expansion of line of business), while Article 10.4 of Regulation 13 sets out lines of business that are classified as "certain lines of business" (eg, lines of business that need time to start construction, lines of business that need investment facilities (eg, import duty facilities), or lines of business related to infrastructure).

Allowing companies with certain lines of business to directly obtain business licenses without the need to first obtain investment registrations (Article 11)

Investors, where their lines of business do not require construction or facilities, can directly apply for a business license but first must have:

  1. obtained legal entity status with share ownership limitation in accordance with the prevailing regulations
  2. obtained a taxpayer registration number
  3. acquired an office

It remains to be seen how this provision will be implemented in practice. It is still a question whether the Ministry of Law and Human Rights is aware of this provision and is ready to support the implementation of Regulation 13 accordingly, eg, whether it will process establishment applications of foreign investment companies without initial approval from BKPM. Nevertheless, there is also a risk that BKPM may not give a business license even when the companies have been established (the investment has been made). If that occurred, it would cause complications as Regulation 13 is silent on what would be the status of the company and whether, from an administrative stand point, the shareholders may immediately dissolve the company.

Emphasising the prohibition of nominee arrangements (Article 12)

Like the current regulation (Law No. 25 of 2017 on Capital Investment), Regulation 13 prohibits any arrangement where an investor has an agreement or statement declaring that his or her share ownership in a company is for or on behalf of another party. However, Regulation 13 allows BKPM (if needed) to require the investor to make a statement letter that is legalised by a notary confirming that its share ownership in a company is not for or on behalf of another party. The requirement to provide a statement would obviously be burdensome for investors.

Allowing venture capital companies to hold shares longer (Article 15)

Regulation 13 allows venture capital companies to hold shares for at most 10 years, which can be extended twice with a maximum total extension of 10 years. It is still not clear whether each extension will be for five years, or can be for a different number of years (as requested by applicants) as long as the total extension for both is 10 years. Under the current BKPM regulation, the extension is only allowed for five years.

Allowing the non-fulfilment of divestment obligation with certain requirements (Article 16)

Under Regulation 13, a company is permitted to not fulfil the divestment obligation if there is shareholders approval confirming:

  1. for joint venture companies, that the Indonesian shareholder does not want to claim the share ownership in accordance with the divestment obligation
  2. for 100% foreign-owned companies, that all shareholders do not have any commitment with an Indonesian party to sell their shares

In the above case, the companies will then need to apply for amendment of the investment registration to cancel/remove their divestment obligation.

It is still not clear whether the above also applies to companies whose divestment obligation has already become due.

Requiring compliance with minimum investment for existing expansion principle licenses (Article 32)

Regulation 13 requires expansion principle licenses that have been approved with investment of less than 10 billion IDR (excluding investment for land and buildings) to be adjusted to become more than 10 billion IDR (excluding investment for land and buildings) for their realisation (ie, when the companies want to apply for a business license). This may cause problems with some companies that have applied for an expansion principle license with investment of less than 10 billion IDR (excluding investment for land and buildings), which is permitted under the current BKPM regulation.

Confirming different validity periods of business licenses based on the requirements fulfilled (Article 34)

A business license is valid as long as the company operates, unless the relevant regulations provide otherwise. However, Regulation 13 puts in writing the current BKPM unwritten policy under which it only allows a foreign investment company that has not yet fulfilled any of the following large-scale requirements to apply for a 1-year (temporary) business license:

  1. has net assets of more than 10 billion IDR, excluding land and buildings, based on the latest financial statements
  2. has annual revenue of more than 50 billion IDR based on the latest financial statements

Under Regulation 13, the 1-year (temporary) business license can only be extended once, for another 1-year period.

While the regulation refers to "net assets", in practice, based on its unwritten policy, BKPM interprets net assets to mean issued and paid up capital (which is different from the definition from an accounting perspective). That is, BKPM requires the issued and paid up capital to be of more than 10 billion IDR.

It remains to be seen whether BKPM will still follow its current unwritten policy, or if it will acknowledge the net assets concept from the accounting perspective (which will be favorable for investors as they would not need to inject 10 billion IDR for issued and paid up capital).

Regulating construction representative offices, and oil and gas representative offices (Article 36)

As there has been a delegation of authority from the relevant ministries, BKPM is now authorised to issue approvals for construction representative offices, and oil and gas representative offices. As such, in addition to regional representative offices and foreign trade representative offices, Regulation 13 also regulates both types of representative offices (eg, establishment procedures).

Removing the limited 5-year validity license for regional representative offices (Article 37)

Regulation 13 only provides that the term of a regional representative office license is three years (unless the appointment letter regulates a shorter period), and can be extended in accordance with the period stated in the appointment letter. The provision makes no reference to any maximum period for the extension (like what was stated in the current BKPM regulation). As such, this theoretically means that there is no limitation for the term of licenses of regional representative offices.

Confirming that branch office approvals are now processed by BKPM (Article 45)

Under Regulation 13, applications for branch offices of companies that are under BKPM authority will be processed by BKPM. Currently the approvals are processed at the provincial level, which often causes a hassle due to undeveloped systems.

Introducing prioritised services (layanan prioritas) (Article 96)

The prioritised services (layanan prioritas) under Regulation 13 will be implemented through completion of requirements set out in a checklist form. This services can be applied by investors that are located in certain areas, eg, special economic zones. The checklist will need to be registered at BKPM. BKPM will then issue a Statement Letter of Fulfilment of Licensing Requirements Registry (Register Surat Pernyataan Pemenuhan Persyaratan Perizinan). Developments of the commitments under the checklist must be reported monthly as regulated under Regulation 14.

Transitional Provisions

  1. Companies that have obtained an investment registration that has been issued based on Head of BKPM Regulation No. 12 of 2009 on Guidelines and Procedures of Capital Investment Licensing must apply for a business license within six months after the effective date of Regulation 13. Otherwise, BKPM or the relevant investment board may revoke the investment registration.
  2. Principle licenses issued before Regulation 13 that are still valid will still be valid until the expiry of their term. However, the business license application of those licenses will need to follow the provisions under Regulation 13.
  3. Principle license applications that have been accepted and deemed complete by BKPM and that are still under review when Regulation 13 becomes effective will be processed in accordance with provisions under Regulation 13.
  4. Foreign investment companies that have obtained a business license but have not yet fulfilled the large-scale requirements must, if they want to start business as set out in Article 10.1 of Regulation 13, apply for a new investment registration and comply with the large-scale requirements.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 9th January 2018

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)