• Indonesia’s New Negative Investment List
  • June 2, 2014 | Authors: Ira A. Eddymurthy; Christina Natalia Soela
  • Law Firm: SSEK - Jakarta Office
  • The Indonesian Government has issued a New Negative List that determines which business fields are open, partially or fully, to capital investment, including foreign capital investment. The New Negative List, issued under Presidential Regulation No. 39 of 2014 regarding List of Business Fields that Are Closed and Conditionally Open for Investment, revokes Presidential Regulation No. 36 of 2010 (“Previous Negative List”). Applications submitted to the Indonesia Capital Investment Coordinating Board (“BKPM”) on or after April 24, 2014, to engage in a certain line of business in Indonesia are subject to the provisions of the New Negative List.

    What Does the Negative List Cover?

    The New Negative List covers business fields that are:

    • closed for capital investment, meaning closed for both domestic and foreign capital investment, as set forth in Attachment I; and
    • open for capital investment, both domestic and foreign capital investment, with certain conditions, as set forth in Attachment II. These business fields that are open to capital investment are further divided as follows: (a) reserved for micro-scale, small-scale, and mid-scale businesses and cooperatives; (b) open for partnerships; (c) open for foreign investment; (d) open in certain geographic locations; (e) requiring special license; (f) open for 100% domestic investment; (g) open for foreign investment in certain geographic locations; (h) requiring special license and open for foreign investment; (i) open for 100% domestic investment and requiring special license; and (j) open for foreign investment and/or in certain geographic locations only for investors from Association of Southeast Asian Nations (ASEAN) member countries.
    The New Negative List expressly states that business fields that are not listed in Attachments I and II are open to capital investment with no conditions. This was not expressly stated in the Previous Negative List though it was generally understood to be the case. In practice, in certain situations, it was still necessary to submit a Letter of Intent to the BKPM to confirm whether a business field not set out in the Negative List was open for 100% foreign investment without any conditions and it appears that this will still be the case under the New Negative List, despite the express statement.

    Investment in Publicly Listed Companies

    The New Negative List provisions on business fields that are closed for capital investment and open for capital investment with certain conditions do not apply to indirect investments or portfolio investments made through the Indonesian Stock Exchange. This provision was also stated in the Previous Negative List.

    Foreign Investment Restrictions on Mergers, Acquisition, and Consolidations

    When companies in the same line of business merge, the foreign ownership restriction that will apply is the one stated in the BKPM approval letter of the surviving company.
    In the case of an acquisition, the foreign ownership restriction that will apply is the one stated in the BKPM approval letter of the company whose shares are acquired. For consolidations, the foreign ownership restriction that will apply is based on the Negative List effective at the time the new company resulting from the consolidation is formed.

    Grandfather Clause

    As with the Previous Negative List, the New Negative List does not apply retroactively. Companies that have been duly established and have obtained an approval letter from the BKPM to engage in their business activities before the effective date of the New Negative List need not adjust their shareholding composition to be in line with the New Negative List. However, according to the BKPM, established companies will need to comply with the requirements in the New Negative List if they expand their current business or undertake certain corporate actions that will affect their current shareholding composition.