What to prepare before Investing in Indonesia

The development of investment technology and ease of licensing in Indonesia has attracted a lot of Foreign Investors to invest in  Indonesia. As a result, there have been a lot of changes to Indonesia’s investment regulations and requirements over the years. Here is the list of things that Investors need to know and prepare before investing in Indonesia:

A. Form of Investment

Under Article 5 paragraph (2) of Law No. 25 of 2007 regarding Investment (“Investment Law”), foreign investment must be carried out in the form of a Limited Liability Company (“Perseroan Terbatas – PT”) in Indonesia. Further, under Article 5 paragraph (3) of the Investment Law, Foreign Investment shall be carried out through:
1) share subscription during the establishment of the Limited Liability Company;
2) purchasing existing shares in the established Limited Liability Company; or

B. Minimum Capital Requirements

Under Article 12 of Investment Coordinating Board (“Badan Koordinasi Penanaman Modal – BKPM”) Regulation No. 4 of 2021 regarding Guidelines and Procedures for Risk-Based Business Licensing and Capital Investment Facility Services (“BKPM 4/2021”), in regard of Foreign Investment, the minimum investment value and paid-up capital for foreign investment companies is IDR 10,000,000,000 (ten billion Rupiah) excluding land and buildings. Therefore, Foreign Investors cannot invest less than the amount of minimum capital requirements of the Foreign Investment Limited company.

C. Foreign Restrictions On Business Activities

In Indonesia, the company’s business activities are classified as KBLI Number (Nomor Klasifikasi Baku Lapangan Usaha Indonesia). Before investing in Indonesia, Foreign Investors must be aware of the KBLI Numbers which are restricted for foreign investment. According to Article 2 and Article 3 of Presidential Regulation No. 10 of 2021 regarding Capital Investment Business Activity as amended by Presidential Regulation No. 49 of 2021 (“PR 49/2021”), there are 4 (four) categories of KBLI Numbers in relation to Foreign Investment restriction as follows:

1) Open to foreign investment, meaning that Foreign Investors are allowed to invest 100% in this business activity;
2) Closed to foreign investment, meaning that Foreign Investors are not allowed to invest in this business activity or allowed to invest for only a certain percentage;
3) Open to foreign investment with certain conditions; or
4) Allocated for Cooperation and Small, Micro, and Medium Enterprise.

In relation to the above, Foreign Investors must ascertain that the company in which they invested only has KBLI Numbers that fall in the category suitable for their investment. These KBLI Numbers and categories can be found under the attachment of PR 49/2021.

D. Licensing

Since 2021, Indonesia has implemented a risk-based approach for business licensing based on Government Regulation No. 5 of 2021 regarding Risk-Based Licensing (“GR 5/2021”). Under this regulation, business activities are evaluated based on the scale of business, potential risk, and level of risk to determine its risks. From such evaluation, the company’s business activities are categorized into 3 (three) levels of risks as follows:

1) Low-risk business activity;
2) Medium-risk business activity; and
3) High-risk business activity.

Unlike other categories of business activities which only need a Principal Business Number (Nomor Induk Berusaha – NIB) to operate, high-risk business activity companies are required to have the following licenses:
1) NIB; and
2) Business License, in accordance with the company’s business activity.

Further, under article 15 of GR 5/2021, several business activities also require high-risk business activity companies to obtain Standard Certificates through the OSS system and relevant certificates before they can operate their business.

In this regard, since under Article 12 BKPM 4/2021, foreign investment companies are categorized as large-scale businesses, and based on the attachment of GR 5/2021 many business activities consider large-scale business as High-risk business activity, foreign investment companies must note whether their business activities are low-risk, mediumrisk, or high-risk.

Taking everything into account, there are quite a lot of things to prepare and requirements to fulfill before investing in Indonesia due to the ever-changing regulations. However, since the whole process now can be carried out remotely through online systems provided by Indonesian authorities, the investment process in Indonesia has now become more efficient and practical than ever.

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