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Indonesia’s omnibus law: A foreign investors’ guide to the positive investment list

Indonesia’s omnibus law may be the country’s biggest regulatory reform since the introduction of the Civil Code in 1847. The omnibus law seeks to strengthen Indonesia’s economy by increasing competitiveness, creating jobs and improving overall ease of doing business, particularly for foreign investors.

Indonesia’s parliament approved the omnibus law in October 2020, and the president effectively signed it into law in November.

Although the law has been enacted, specific parts of it will come into force only after relevant implementation regulations have been issued.

This article will cover one of the omnibus law’s most important regulations, Number 10/2021. Effective 4 March 2021, the regulation will transform Indonesia’s current negative investment list into a positive investment list.

The positive investment list

The positive investment list, like the negative investment list before it, governs which business lines are open or restricted to foreign investors.

The positive investment list marks a fundamental change in approach from a negative, restricted stance to a positive, permitted one. As we summarised in another article on the omnibus law, the change is consistent with President Widodo’s 2045 vision to open Indonesia’s business lines to foreign direct investment (FDI) and transform the country into one of the world’s top five economies.

Below are important highlights from the positive investment list.

  • The pharmaceuticals sector, including manufacturing and wholesale and distribution, is now open to 100 percent foreign ownership, up from 85 percent.
  • E-commerce businesses can now be 100 percent foreign-owned, with no need to inject the previously required IDR100 billion (around USD7 million). Only an IDR10 billion injection now applies, 25 percent of which must be paid upon incorporation.
  • Specialized medical clinics that provide services such as nursing, rehabilitation and dental activities are now open to 100 percent foreign ownership, up from 67 percent. (Regular medical clinics and hospitals remain 100 percent closed to FDI.)
  • The wholesale and distribution sector is now open to 100 percent foreign ownership. In 2014, foreign investment in this sector was limited to 33 percent, and in 2016 to 67 percent.
  • Independent power plant companies can now be 100 percent foreign owned, up from 49 percent for power plants with a generating capacity of up to 10 megawatts and a maximum of 95 percent for power plants with a capacity of 10 megawatts or more.
  • The plantation sector is now 100 percent open to foreign ownership, up from a maximum of 95 percent.
  • The agricultural sector is now 100 percent open to foreign investment, up from 30.

Minimum capital requirements

The standard minimum capital requirement of IDR10 billion has remained in place under the omnibus law. Generally speaking, then, each foreign investor must capitalize a company with at least that amount, paying 25 percent upon incorporation.

There are some exceptions. For example, start-ups in special economic zones have reduced minimum-capital requirements. And as the above highlights make clear, the IDR100 billion requirement has been abolished for a number of sectors. This will come as welcome news for foreign investors, many of whom were effectively barred from investing in Indonesia by the previous capital requirements.

Priority sectors

Critically, the positive investment list also introduces 245 “priority sectors.” Businesses in these sectors must be labour and capital intensive, oriented towards research and development, and involve a pioneer industry, such as metals, oil refinery, renewables and marine transportation.

Those investing in priority business sectors will be eligible to receive fiscal incentives (such as tax holidays, tax allowances and tax import-duty exemptions) and/or non-fiscal incentives, such as more easily obtained business licenses, work permits, energy, raw-materials, labour and infrastructure. (These incentives will be available only after the government issues the relevant implementation regulations.)

Other notable omnibus law implementation regulations

Indonesia’s labour laws are widely regarded as worker-friendly by the standards of the region. The omnibus law contains elements intended to make the country’s labour code more flexible and competitive. But many of the law’s employment-related details and provisions won’t go into effect until additional implementing regulations are issued.

The government has also issued a regulation (Number 5 of 2021) introducing risk-based licensing, part of its wider effort to simplify bureaucratic processes and improve ease of doing business for foreign investors.

For more on Indonesia’s omnibus law — including the implications for the country’s legal investment ecosystem, man-power provisions and taxes — watch our webinar.

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