Indonesia Improves Foreign Investment Landscape with A Positive Investment List

Following the enactment of Indonesia’s Omnibus Bill, its Government has released an update of business sectors and lines (also commonly referred to as KBLI) that are now open to foreign investment in Indonesia. Although the revised Negative Investment List was drafted to attract more foreign investors and has been dubbed the “Positive Investment List”, this long-awaited list may not carry the weight of its namesake. 

A further dive into the Presidential Regulation (Perpres) 10/2021 presented both business opportunities, benefits, and challenges in different areas of doing business in Indonesia. In this article, we hope to simplify and provide you with a broad and better understanding of Indonesia’s Positive Investment List. 

Understanding The Four Categories of Indonesia’s Positive Investment List

A key thing investors should note is the creation of a new category in the latest Positive Investment List. 

Indonesia’s Priority Sectors – 100% Foreign Company Ownership in Indonesia

Under Presidential Regulation (Perpres) 10/2021, foreign companies (commonly referred to as PT PMA) interested in these business lines will need to meet a set of criteria including but not limited to; national projects, export-oriented, use of advanced technology, labor intensive and high capital investment. 

According to BKPM, the following table illustrates Indonesia’s Priority Sectors.

While the new regulation did not clearly define labor intensive, according to the Ministry of Industry, labor-intensive is defined as businesses that employ at least 200 workers with a labor cost that accounts for 15% of total production costs. 

The government has set up ambitious criteria for its priority sectors, but foreign companies that find themselves in this category are set up for a range of fiscal and non-fiscal incentives, including tax holidays. Capital-intensive businesses over IDR 500 billion receive a 100% cut in Corporate Income Tax for up to 20 years. Investments worth IDR 100 – 500 billion will be granted a 50% reduction in Corporate Income Tax, based on Peraturan Menteri Keuangan Nomor: 130/2020 which regulates Indonesia’s tax holiday policy. In comparison, foreign companies that relocate their operations to Malaysia benefit from an income tax rate of 0 – 10% for a period of up to 10 years. 

In total, there are 245 business lines included under the priority sector. 183 business lines are eligible to get tax allowances, while 18 can get tax holidays, and 44 can get investment allowances.

Partnerships with Indonesia Cooperatives and MSME (Micro Small Medium Enterprise)

As the Indonesian government continues to transform and respond to the changes brought on by COVID-19, it is necessary for its Positive Investment List to consider how MSME, digitalization, and new consumer demands will look in a post-pandemic investment landscape.

There are 51 business lines under this category, the notable sectors are:

Foreign investors or foreign companies looking to enter these businesses will require a form of local business partnership arrangement, under the following forms of partnerships with Indonesian companies. 

Asides from the four listed arrangements (above), the Ministry of Cooperatives and SMEs have created a climate that encourages medium-sized enterprises to list on Indonesia’s Stock Exchange in an attempt to aid its financing capabilities. 

Business Fields With Specific Requirements Or Limitations

The amendments to this category left a smaller mark, as they affected a handful of business sectors, namely media, broadcasting, aviation, sea transport, wood, and coffee sectors.

There are a total of 46 business lines included in this category. Here are some of them:

Indonesia Closed Sectors From Foreign Investment

A total of six sectors remain closed or restricted for investments from both domestic and foreign companies.

• Class-I narcotics and cultivation;
• All forms of gambling activities;
• Fishing of endangered species;
• Utilization of corals found in nature for the production of jewelry, souvenirs, building materials, etc.;
• Chemical weapons production; and
• Industrial ozone-depleting substances industries and industrial chemicals.

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