In general, forms of investment In Indonesia consist of Direct Investment and Indirect Investment. Direct investment is an activity where the investor directly invest the capital they have by way subscribe for shares at the time the company is established or purchase shares from existing Company. While, Indirect Investment (portfolio investment) is an activity where the investors invest their capital through capital markets by way purchase of securities such as promissory notes, commercial paper, shares, bonds, etc.

In Indonesia, Investment is specifically regulated by Law No. 25 of the Year 2007 concerning Investment (“Investment Law”). The legal term of investment in that Investment Law refers to the said Direct Investment. On the other hand, Indirect Investment is regulated by Law No 8 of the Year 1995 concerning Capital Market.

According to the Article 1 paragraph (1) of the Investment Law, Investment shall mean any form of investing activity by both domestic investors and foreign investors to do business in the territory of the Republic of Indonesia.

From such definition, Investment is distinguished between domestic investment and foreign investment. Domestic investment shall mean any investing activity to do business in the territory of the Republic of Indonesia that is carried out by a domestic investor by use of domestic capital (PMDN). In contrast, foreign investment shall mean any investing activity for running business within the territory of the Republic of Indonesia, made by any foreign investor using either foreign capital entirely or joint capital with domestic capital (PMA). So, in order to classify under which investment your investment is going to fall, first you have to identify from where the source of the capital that is going to be invested Indonesia comes from.

Article 5 paragraph (2) of the Investment Law stipulated that, unless otherwise stipulated by the law, foreign investments must take the form of a limited liability company (known as a Perseroan Terbatas or simply “PT”) and have a domicile within the territory of the Republic of Indonesia. Therefore, the Law No. 40 of the Year 2007 and the other provisions concerning Limited Liability Company are also going to be applied for Foreign Investment.
Before starting their operation in Indonesia, foreign investment must get approval from the Indonesia Investment Coordinating Board (BKPM). There are several requirements that need to be fulfilled by foreign investor in order to get BKPM approval. Under BKPM Regulation No. 14 of 2015 on Guidelines and Procedures for Capital Investment Principle Permits (“BKPM Regulation No 14/2015”) such requirements among others are: (i) fulfill the requirements as stipulated in Presidential Regulation 39/2014 regarding the composition of shareholder or certain conditions for foreign Investor; (ii) the investment value is more than IDR.10.000.000.000,00 (ten billion Rupiah) excluding land and buildings; (iii) Issued capital equal to the paid-up, i.e. minimum IDR. 2.500.000.000,00 (two billion five hundred million rupiah), (iv) The participation of capital, for each shareholders minimum IDR. 10.000.000 (ten million Rupiah) and percentage of ownership is calculated based on the nominal value of shares; (v) Entering into any agreement and/or making a statement asserting that the share ownership in a limited liability company is for and on behalf of another person (nominee agreement) is prohibited.

Nevertheless, there are several sectors where BKPM is not authorized to approve foreign investment. Such sectors are (i) banking and financial services sector (where approval is granted by Indonesia’s Financial Service Authority or OJK); (ii) upstream oil and gas sector (which is regulated through production sharing contracts with the oil and gas contracting agency Satuan Kerja Khusus Kegiatan Usaha Hulu Minyak dan Gas Bumi or SKK Migas; and (iii) a portfolio investment through the purchase of securities in the capital markets. Once foreign investment is approved by BKPM, they must submit to BKPM periodic reports of their activity containing their investment progress and any obstacle encountered.

However not all business fields are open to foreign investment. Therefore, before engaging their business in Indonesia, foreign investor must firstly check Investment Negative List (DNI). Such Investment Negative List is regulated by Presidential Regulation of The Republic of Indonesia Number 39 of the Year 2014 concerning List of Business Fields Closed to Investment and Business Fields Open, With Condition to Investment (“Presidential Regulation 39/2014”).

Under the said Presidential Regulation 39/2014, business sectors are either completely closed to investment or conditionally open. The Presidential Regulation 39/2014 is classified businesses into (i) business fields closed to Investment, and (ii) business fields open, with conditions to investment. Closed business fields are certain business fields that are prohibited from conducting any investment activities. Business fields open, with conditions, are certain business fields that may conduct investment activities under certain conditions, that is, licensed businesses reserved for Micro, Small and Medium Enterprises and Cooperatives, licensed businesses requiring establishment under a partnership, licensed businesses requiring certain capital ownership, licensed businesses requiring special permits.

Having said the above, business sectors that are not contained in Investment Negative List (Appendix I and II of Presidential Regulation No 39/2014) are declared open without condition for foreign investments. But, in practice, it’s necessary for foreign Investors to firstly re-confirm to the BKPM (Indonesia investment coordinating agency) as the government institution that supervise and issue permits and licenses for foreign Investment activity in Indonesia.

Below are the examples of Business Field Closed and Open with the condition to Investment:

List Of Business Fields Closed To Investment
NoSectorBusiness FieldKBLI
1.AgriculturalCultivation OF Marijuana (Cannabis Sativa)01289
2.Education and Culture1. Public Museums
2. Historical and Ancient Heritage.
91021
91023
3.Tourism and creative EconomyGambling/Casinos92000
List Of Business Fields Open, With Conditions, To Investment
SectorBusiness FieldsKBLI
Oil and gas construction services:
  • Platform

Foreign Capital Ownership maximum 75%

09100
  • Spherical Tank

Foreign Capital Ownership maximum 49%

09100
  • Offshore pipeline installation

Foreign Capital Ownership maximum 49%

42219
Tourism and Creative Economy Sector
  • Restaurant

Foreign Capital Ownership and location maximum 51%

56101
  • Bar

Foreign Capital Ownership and location maximum 49 % or Max 51% if partnering with UMKMK

56301
  • Cafe

Foreign Capital Ownership and location maximum 49 % or Max 51% if partnering with UMKMK

56303
  • For the further information, kindly refer to appendix I and II of President Regulation No.39/2014.

By Adhiguna A. Herwindha & Tarsisius Agusto Naur