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Foreign investment in the wake of the Job Creation Law

Investment & Business
Foreign investment in the wake of the Job Creation Law

At Seven Stones Indonesia, we believe in the power of a positive mindset. We believe in helping our clients, partners, and communities create a better world by adapting to change and focussing on what matters most to them.

We deliver solutions, peace of mind, and we help businesses grow. That’s why we recently partnered with Budidjaja International Lawyers (BIL), a dynamic, full-service, and independent Indonesian law firm who have forged a reputation as one of the leading legal practices in Indonesia by offering extensive expertise in all aspects of legal practice across a broad range of industries and transactions.

The BIL team includes specialists across many areas of the law and has a deep understanding of Indonesia’s legal and business operating environments together with extensive experience in cross-border or international legal work. They are an independent, customer-centric law firm with a no-nonsense approach that helps them deliver professional services and value for money. Here’s what BIL has to say about the much-debated Omnibus Law on Job Creation (called Law No. 11 of 2020), which was passed in October 2020 and was an essential component of the government’s plan to increase Indonesia’s competitiveness and to adapt to the demands of the global economy. The hope was to improve the country’s investment ecosystem, both foreign and domestic by, among other things, simplifying business licensing, the prerequisites for investment, and the overall ease of doing business.

So, is it working?
The bottom line is yes, but it’s too early to predict how this plays out long-term, and most observers would agree bureaucratic red-tape is being removed, processes are being simplified, and generally moving in the right direction. One area in particular where progress is being made is the replacement of regulations related to those business fields that have been traditionally closed to foreign investment. Most commonly referred to as The Negative Investment List, the focus has always been on restrictions but now this has changed; now the emphasis is much more encouraging because now we have what’s being called the Positive Investment List highlighting those businesses fields that are open for investment rather than those that aren’t.

It’s worth noting, however, that every country has its own list of industries and business sectors that are off-limits to foreign investment in attempts to balance the benefits of foreign investment with national security and defense as well as economic concerns.

Indonesia is no exception. Even though the list of restricted business fields has been greatly reduced with the Omnibus Law, there are still some reserved for the central government, including:

  • The cultivation and industry of Class I Narcotics;
  • Any form of gambling and/ or casinos;
  • Fishing for specific species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);
  • Utilization or collection of coral;
  • Chemical weapons manufacturing industry, and;
  • Chemical industries and ozone layer depleting industries.

This leaves a lot of areas that are now open for foreign investment. These can be classified into four general categories; Priority Businesses; Partnerships with Cooperatives and MSMEs (Micro, Small and Medium Enterprises); those businesses that are open for foreign investment but with specific requirements and other businesses that are not included in other categories but are open for investments.

Priority Business Fields
Presidential Regulation 10/2021 lists 245-priority business fields that are fully open to investors in its Appendix I. It also regulates priority business fields that meet the following criteria:

  • national strategic programs/ projects; 
  • capital intensive businesses; 
  • labor-intensive businesses; 
  • businesses utilizing advanced technology; 
  • pioneering industries; 
  • export-oriented businesses; and/ or 
  • businesses oriented in research, development, and innovative activities.

Priority business fields are eligible to receive fiscal incentives such as tax allowances, tax holidays, investment allowances, and import-duty exemptions. There are also some non-fiscal incentives including the ease of business licensing, the provision of supporting infrastructure, guaranteed access to energy, raw materials, immigration, employment, and other conveniences now available under applicable laws and regulations.

Partnerships with Cooperatives and MSMEs
Certain business fields are allocated specifically for Cooperatives and MSMEs, these are businesses of the following that meet the following criteria:

  1. do not use technology or use simple technology; 
  2. would involve specific processes, are labor-intensive, and have a special cultural heritage and are hereditary; and/or 
  3. require less capital than Rp10 billion excluding the value of the land and building. 

Meanwhile, other business fields require Large-Scale Businesses to partner with Cooperatives and MSMEs. These are fields that meet the following criteria:

  1. mostly engaged in by cooperatives and MSMEs; and/or 
  2. encouraged to be included in the supply chains of Large-Scale Businesses.

 A full list of these can be found in Appendix II of PR 10/2021.  

Business Fields with Certain Requirements
All investors, both foreign and local, can engage with all businesses, including Cooperatives and MSMEs so long as they; (a) abide by investment requirements for local investors; (b) abide by investment requirements with restrictions on foreign capital ownership; or (c) abide by investment requirements that require special permits.

Other business fields that are not included in the above are considered as being open for investment.

To sum things up, Presidential Regulation 10/2021 has significantly increased the number of business opportunities that were previously off-limits for foreign investors. Combine this with other policies aimed at improving the ease of doing business and the indications are that Indonesia is well and truly open for business.

If you’d like to learn more about the positive impact of the Job Creation Law, get in touch with Budidjaja International Lawyers who are headquartered on the 49th floor of the Sahid Sudirman Centre on Jalan Sudirman 86 in Jakarta. Check out their website here https://budidjaja.law/ and you can email them at [email protected] Or, you can get in touch with us at Seven Stones Indonesia through [email protected].

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