Client Update: Foreign Investment · Client Update: Foreign Investment the website’s owner and consumers (see row 16 of Attachment A and row 6 of Attachment C); construction consultation

Client Update: Foreign Investment

June 2016

Wisma GKBI, Level 9, Jl. Jenderal Sudirman No.28, Jakarta 10210, Indonesia

Phone (+6221) 574 0088 ● Fax (+6221) 574 0068 ● E-mail: [email protected] ● www.soemath.com

THE LATEST NEGATIVE INVESTMENT LIST

Overview

The much-anticipated 2016 ‘Negative Investment List’ (2016 NIL)1 commenced on 18 May 2016 and replaced the 2014 NIL.2 The 2016 NIL identifies businesses open, open subject to conditions and closed to foreign direct investment (FDI).

Background

The 2016 NIL reflects President Joko Widodo’s proposals to make Indonesia a more attractive investment destination and enacts changes foreshadowed in the Tenth Economic Stimulus Package (issued on 11 February 2016 and considered in a previous Client Update).

The 2016 NIL may also assist Indonesia to meet some of its commitments under the 2009 Association of Southeast Asian Nations (ASEAN) Comprehensive Investment Agreement, which is a precursor document to the ASEAN Economic Community.

NILs

As with earlier NILs:

the 2016 NIL is implemented by the Investment Coordinating Board (BKPM);

business activities not listed in the 2016 NIL are in principle fully open to FDI

(meaning the activity can be engaged in by a 100% foreign-owned Indonesian

legal entity);

the listed business activities are all derived from Standard Business

Classifications (KBLIs), which are comprehensive government descriptions of

the range of business activities permitted in particular sectors of the Indonesian

economy, currently set out in the 2015 KBLI book;

the 2016 NIL provides only limited descriptions of business activities, which, for

example, cite the relevant industry without detailing whether the affected

business is restricted to operation, ownership or management within that

industry. This means determining the scope of the affected business activities

may require significant further analysis of the relevant KBLIs and research with

BKPM;

where the 2016 NIL does not permit 100% FDI, an Indonesian shareholder

must hold the remaining percentage; and

where the maximum FDI percentage has decreased in the 2016 NIL compared

to an earlier NIL, existing investors will benefit from grandfathering provisions.

1 Presidential Regulation 44 of 2016 on the List of Businesses Open, Open Subject to Conditions and Closed to

Investment. 2 Presidential Regulation 39 of 2014 on the List of Businesses Open, Open Subject to Conditions and Closed to

Investment.

http://www.soemath.com/advocates/public/en/article/read/313/Client.Update..Tenth.Economic.Stimulus.Package...Restrictions.on.foreign.direct.investment.are.relaxed..but.will.it.make.a.real.difference.


Changes

All FDI

The business activities for which the permitted FDI percentages have changed under

the 2016 NIL are divided up in the attachments to this Client Update (Attachments) as

follows:

Attachment A sets out business activities now open to 100% FDI;

Attachment B sets out business activities now open to up to 67% FDI (and up

to 70% ASEAN FDI). A 67% limit is significant as it may give an investor critical

voting control over amendments to the company’s articles of association. (The

Company Law3 requires that any change to the articles of association be

approved by at least a two thirds majority of shareholders, although

shareholders may agree to a higher majority); and

Attachment C sets out business activities that are now open to 49% FDI.

The Attachments are not exhaustive. They only cover businesses for which the

2016 NIL provides a more favourable FDI maximum percentage (compared to the

2014 NIL). They also exclude businesses that will likely not be of interest to our

readers. For example, they do not consider how the 2016 NIL may assist micro, small and medium-sized enterprises (SMEs) and cooperatives.

Additional ASEAN FDI

With respect to the overseas sea transport of goods and passengers under the

2016 NIL, 70% FDI is now permitted for ASEAN investors only, up 10% from the

2014 NIL, and FDI is prohibited for non-ASEAN investors.

With respect to:

certain nature tourism activities; and

public opinion surveying and market research activities,

70% FDI is now permitted for ASEAN investors, while non-ASEAN investors are still

only permitted 51% FDI.

With respect to certain film industry advertising services, 51% FDI is now permitted for

ASEAN investors only, while formerly 51% FDI was permitted for all foreign investors.

Monitoring

The 2016 NIL mandates that the Coordinating Minister of the Economic Affairs, who will be assisted by the National Team for the Enhancement of Import and Investment, will have a broad remit relating to the implementation of foreign and direct investment, including monitoring compliance with the 2016 NIL.

Key issues

Clients have already expressed particular interest in the following business activities:

eCommerce was not included in the 2014 NIL, but is included in the 2016 NIL.

100% FDI is only permitted if the investment is worth at least 100 billion IDR

(about 7.5 million USD). If the investment is worth less, FDI is restricted to

49%. Unfortunately, ‘eCommerce’ is not defined, but reference is made in the

2016 NIL to ‘marketplace platforms’, ‘daily deals’, ‘price grabbers’ and ‘classified

online advertisements’. Our preliminary research indicates that a website will

only be considered an eCommerce website if it facilitates transactions between

3 Law 40 of 2007 on Limited Liability Companies.


the website’s owner and consumers (see row 16 of Attachment A and row 6 of

Attachment C);

construction consultation services were limited to 55% FDI in the 2014 NIL,

but are now limited to 67% (or 70% for ASEAN) FDI, subject to the investment

company only entering contracts with a minimum value of 10 billion IDR (about

750,000 USD) (see row 2 of Attachment B);

construction services were limited to 67% FDI in the 2014 NIL, and are still

limited to 67% (but 70% for ASEAN) FDI, subject to the investment company

only entering contracts with a minimum value of 50 billion IDR (about 3.75

million USD) (see row 3 of Attachment B); and

‘distribution affiliated with production’ was limited to 33% FDI in the

2014 NIL, but is now open to 100% FDI, it still being unclear what level of

affiliation is required, including whether it could be satisfied by an offshore

production company having a stake in an onshore distribution company (see

row 9 of Attachment A).

Conclusion

While it was hoped the 2016 NIL would go further in liberalising Indonesia’s FDI

regime, it does mark real progress towards freer trade. It also makes special (but

minor) dispensations to ASEAN investors, in view of the start of the ASEAN Economic

Community at the end of 2015.

We will continue to monitor the implementation of the 2016 NIL and will issue further

relevant updates as more information becomes available.

Soemadipradja &

Taher

S&T is one of Indonesia’s

leading law firms with a

recognised market leading

foreign investment practice.

If you would like to discuss

any aspect of this update

or your foreign investment

needs, please feel free to

contact us.

Rahmat SS Soemadipradja

Partner [email protected]

Robert Reid Foreign Counsel

[email protected]

Bilma R Ganie Associate

[email protected]

Cameron Grant Foreign Counsel

[email protected]


June 2016

ATTACHMENT A

OPEN TO 100% FDI

# Business Responsible Ministry 2014 NIL Qualifications on 2016 NIL’s 100% limitation

1 Cultivating coral (including decorative coral) Maritime Affairs and Fisheries

Maximum 49% FDI Upon obtaining the responsible Ministry’s recommendation

2 Salting (or other drying) of fish and other seafood Maritime Affairs and Fisheries

If regulated by the:

Industry Ministry, reserved for Indonesian SMEs and cooperatives

Responsible Ministry, upon entering a partnership with an Indonesian SME or cooperative

Upon entering a partnership with an Indonesian SME or cooperative

3 Producing pellet fuels for the energy industry Energy and Mineral Resources

Upon entering a partnership with an Indonesian SME or cooperative

4 Producing white, refined or raw granulated sugar Industry Maximum 95% FDI upon meeting special licensing requirements, including:

Developing a sugar cane plantation

Upon entering a ‘Plasma’ partnership (i.e. with a local community partner who must cultivate at least 20% of the relevant



Establishing a new granulated sugar factory

land)

5 Producing crumb rubber Industry Closed to FDI Upon:

Obtaining a special licence from the responsible Ministry

Entering a ‘Plasma’ partnership, i.e. with a local community partner who:

o must cultivate at least 20% of the relevant land

o must provide between 20% and 80% of the raw rubber materials

6 Managing:

Toll roads

Non-hazardous waste (including by disposal)

Public Works Maximum 95% FDI

7 Retail selling of certain goods via the mail or internet

Trade Closed to FDI Upon entering a partnership with an Indonesian SME or cooperative



8 Direct selling

Futures brokering

Trade Maximum 95% FDI

9 ‘Distribution affiliated with production’ Trade Maximum 33% FDI

10 Providing cold storage services Trade In:

Sumatra, Java and Bali, maximum 33% FDI

Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua, maximum 67% FDI

11 Restaurants

Bars

Cafés

Swimming pools

Football grounds

Tennis courts

Fitness centers

Sports centers

Other sports facilities

Tourism and Creative Economy

Maximum:

49% FDI subject to contrary relevant regional regulations

51% upon entering a partnership with a local SME or cooperative

12 Film:

Studios

Processing laboratories

Dubbing facilities

Printing or duplicating facilities


Maximum 49% FDI

13 Sound recording studios and facilities for film: Tourism and Creative Closed to FDI



Shooting

Editing

Subtitling

Making

Screening

Film distribution

Economy

14 Providing underwater (including salvage) services Transportation Maximum 49% FDI Upon obtaining a special licence from the responsible Ministry

15 Providing telecommunications device testing services

Communications and Informatics

Maximum 49% FDI

16 eCommerce (referred to as ‘marketplace platforms’, ‘daily deals’, ‘price grabbers’ and ‘classified online advertisements’)


Not included Upon investing at least 100 billion IDR (about 7.5 million USD)

17 Manufacturing raw pharmaceuticals materials Health Maximum 85% FDI

18 Providing:

Hospital business and management consultancy services

Health support services, including by managing:

o Clinical laboratories

o Medical check-up clinics

Health Maximum 67% FDI

19 Providing healthcare support (including medical equipment rental) services

Health Maximum 49% FDI

20 Manufacturing: o Class B medical equipment (including

surgical masks, syringes, patient monitors, condoms, surgical gloves,

Health Not included Upon obtaining a special licence from the responsible Ministry



hemodialysis fluids, PACS and surgical knives)

o Class C medical equipment (including IV catheters, X-ray machines, ECG machines, patient monitors, orthopedic implants, contact lenses, oxymeters and densitometers)

o Class D medical equipment (MRI machines, CT scanners, cardiac catheters, cardiovascular stents, HIV test packs, pacemakers, dermal fillers and ablation catheters)

Donation banks (for example, blood banks)


ATTACHMENT B

OPEN TO 67% (or 70% ASEAN as indicated) FDI


1 Geothermal power plants with a capacity of ≤ 10MW

Energy and Mineral Resources

If:

< 1MW, closed to FDI

1–10MW, maximum 49% FDI

2 Providing construction consultation services Public Works Maximum 55% FDI Must be high technology and high risk and business may only enter contracts worth at least 10 billion IDR (about 750,000 USD)

Maximum 70% ASEAN FDI

3 Providing construction services Public Works Business may only enter contracts worth at least 1 billion IDR (about 75,000)

Maximum 67 FDI%

Must be high technology and high risk and business may only enter contracts worth at least 50 billion IDR (about 3.75 million USD)

Maximum 70%



ASEAN FDI

4 Department stores with selling floors of 400–2,000m2

Trade Closed to FDI for department stores with selling floors of less than 2,000m2

Upon obtaining a special licence from the responsible Ministry for a department store inside a shopping mall (with additional outlets only being permitted if the business is sufficiently profitable)

5 ‘Distribution not affiliated with production’

Warehouses

Trade Maximum 33% FDI

6 Museums Tourism and Creative Economy

Private museums only

Maximum 51% FDI

Subject to contrary regional government regulations

Private museums only

Maximum of 70% ASEAN FDI

7 Historical or archaeological heritage sites (including temples, palaces, inscriptions and tombs)


Private sites only

Maximum 51% FDI


Private sites only

8 Travel agencies Tourism and Creative Economy

Maximum 49% FDI or 51% FDI upon entering a partnership with a




local SME or cooperative


9 Providing catering services Tourism and Creative Economy

Maximum 51% FDI


Maximum of 70% ASEAN FDI

10 Unrated to two-star rated hotels Tourism and Creative Economy

Maximum 51% FDI


11 Motels Tourism and Creative Economy

Maximum:

49% FDI subject to contrary regional government regulations

51% FDI upon entering a partnership with a local SME or cooperatives

70% ASEAN FDI if located in Bali or Java and subject to contrary regional government




regulations

12 Billiard halls

Bowling alleys

Impresario services


Maximum:


51% FDI upon entering a partnership with a local SME or cooperative


13 Golf courses Tourism and Creative Economy

Maximum:



70% ASEAN FDI if located in Bali or Java and subject to contrary regional government regulations

100% ASEAN FDI if located outside Bali or Java and subject to




contrary relevant regional government regulations

14 Karaoke venues Tourism and Creative Economy

Maximum:



15 Providing meetings, incentives, conferences and exhibitions (or MICE) services


Maximum 51% FDI Maximum 70% ASEAN FDI

16 Natural tourism sites outside conservation zones Tourism and Creative Economy

Maximum 51% FDI

17 Providing:

Transportation terminal support services

Air transportation support services (including automated reservation systems, ground cargo handling and aircraft leasing)

Airport services

Transportation arrangement services

Expedition cargo aircraft services

General Sales Agent (or GSA) services for foreign airlines

Transportation Maximum 49% FDI

18 Providing maritime cargo handling services Transportation Maximum 49% FDI Maximum 70% ASEAN FDI in Bitung, Ambon,




Kupang or Sorong Ports

19 Operating fixed or mobile telecommunications networks


Maximum 65% FDI

20 Providing:

Content (including ringtone and short message) services

Call centre and other value-added telephony services

Internet access services

Data communications systems services

VOIP call services

Internet network interconnection services

Other multimedia services


Maximum 49 FDI%

21 Providing packaged telecommunications services Communications and Informatics

Maximum 65% FDI

22 Providing ‘work training’ services in, among other things, engineering, commerce, languages, tourism, management, information technology, arts and agriculture

Employment Maximum 49% FDI

23 Medical device testing facilities

Providing medical evacuation (including ambulance) services

Health 49% FDI

24 Providing pest control and fumigation services Health Closed to FDI

25 Operating a specialist medical or dental clinic

Providing specialist nursing or other hospital services (including managing mental health

Health For specialist nursing services:

o Maximum 49%

Maximum 70% ASEAN FDI in the capital cities of Indonesia’s Eastern



clinics) FDI throughout Indonesia

o Maximum 51% ASEAN FDI in Makassar or Manado

o Maximum 70% ASEAN FDI in the capital cities of Indonesia’s Eastern Provinces (excluding Makassar and Manado)

For other hospital services (including managing mental health clinics), maximum 67% FDI throughout Indonesia

Provinces (excluding Makassar and Manado)


ATTACHMENT C

OPEN TO 49% FDI


1 Construction, installation and testing of high or extra high voltage electricity facilities

Energy and Mineral Resources

Closed to FDI

2 Managing harbour facilities (including jetties) and providing services (including tug-boat services) at terminals, whether for:

Cargo containers

Liquid-bulk

Dry-bulk

Roll-on/Roll-off (RORO) vehicles or vessels

Transportation Maximum:

49% FDI

95% FDI if through a public private partnership

Upon obtaining a special licence from the responsible Ministry

3 Providing and operating ferry, river and lake ports Transportation Upon cooperating with a government-appointed company

4 Providing fixed or non-fixed route land transportation services

Transportation Closed to FDI

5 eCommerce (referred to as ‘marketplace platforms’, ‘daily deals’, ‘price grabbers’ and ‘classified online advertisements’)


Not included Upon investing less than 100 billion IDR (about 7.5 million USD)

6 Providing postal services Communications and Informatics

Maximum 49% FDI subject to contrary laws and regulations

7 Supplying medical equipment Health Closed to FDI Upon obtaining a special licence from the responsible Ministyr

8 Planting or cultivating staple crops over at least 25 hectares

Agriculture Maximum 49% FDI upon obtaining a



Researching and developing agricultural technology (including with respect to genetically modified products)

recommendation from the responsible Ministry

Documents

Client Update: Foreign Investment · Client Update: Foreign Investment the website’s owner and consumers (see row 16 of Attachment A and row 6 of Attachment C); construction consultation