Corporate/Commercial

Jakarta

Indonesia Foreign Investment - New Negative

Client Alert List
New Negative List
The Government has enacted a new Negative List under Presidential
Regulation No. 39 of 2014, which became effective on 24 April 2014 (“New
Negative List”), although the New Negative List became publicly available
only on 2 May 2014. The New Negative List revokes the previous Negative
May 2014 List stipulated under Presidential Regulation No. 36 of 2010.

As required under Law No. 25 of 2007 on Capital Investment (“Investment

Law”), the Government is required to determine the lines of business that are
closed to all investment (foreign and domestic), and the lines of business that
are open for investment (foreign and domestic) subject to the fulfillment of
certain requirements. In principle, but not necessarily in practice, all lines of
business are open to foreign investment, except for those sectors specifically
mentioned in a “negative list” and other laws and regulations. This is now
specifically recognized in article 3 of the New Negative List (and is one reason
why the list is now longer).

Summary of Key Features of and Issues in the New

Negative List
Liberalization of Certain Sectors
There is no significant liberalization introduced by the Government under the
New Negative List. However, the Government has liberalized certain sectors
including:

 Opening up new sectors:

No Sector Lines of Business Change

1 Marine Affairs Capture fisheries with a Open foreign

and Fisheries fishing ships of 100 GT ownership but subject
and/or more in capture to special
areas in high seas. licenses/permits from
the Minister of Marine
Affairs and Fisheries
(previously closed).

2 Industry Other (non-handicraft) The requirement for a

manufacturing that is partnership with
not classified Indonesians has been
elsewhere. removed.
 Corporate/Commercial

No Sector Lines of Business Change

3 Public works Treatment and disposal Open 95% foreign

of non-hazardous ownership (previously
waste. closed - under the
"private cleaning
management").

4 Transportation Terminal construction Open 49% foreign

(land passenger ownership (previously
transport terminal and closed, and managed
general cargo terminal), by Government).
but not management.

Operation of periodic Open 49% foreign

testing of vehicles ownership (previously
closed, and managed
by Government)

 Increasing the permitted foreign shareholding in certain sectors:

No Sector Lines of Business Change

1 Energy and Technology Open 100% foreign

Mineral development for ownership (previously
Resources electric power supply 95%).
equipment.

2 Mineral radioactive Open 100% foreign

mining. ownership (and
removing a special
license requirement),
but subject to
divestment
requirements under
the applicable mining
regulations.

3 Healthcare Pharmaceutical Open 85% foreign

industry, i.e. ownership (previously
manufacture of drugs 75%).
raw materials, and
manufacture of
finished drugs.

4 Financial Venture capital. Open 85% foreign

ownership (previously
80%).

2 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

No Sector Lines of Business Change

5 Communication Fixed Open 65% foreign

and Informatics telecommunication ownership (previously
network. 49%).

Telecommunication Open 65% foreign

network provider ownership (previously
integrated with 49% or 65%
telecommunication depending on the type
services. of network).

Certain sectors are no longer stipulated under the New Negative List, for
example Engineering Procurement (EPC) Services, and geothermal and
nuclear power businesses. However, this is not necessarily liberalization
as these areas may fall under other areas that have a foreign ownership
limitation, i.e. EPC Services may fall under construction services (67%)
or construction consultancy services (55%), and geothermal and nuclear
power business may fall under power (foreign ownership will be subject
to the size of the production capacity).

 Higher foreign ownership under Public-Private-Partnerships ("PPP"):

A new feature is introduced for certain power and infrastructure sectors.

The maximum foreign ownership permitted for this sector will depend on
whether the relevant activity is in the framework of a PPP or non-PPP.
For example, 100% foreign investment is allowed for >10 MW power
generation in the framework of a PPP, while for a non-PPP the 95%
restriction still applies.

The new PPP or non-PPP feature only applies to these sectors:

No Sector Lines of Business Change

1 Energy and Power generation of > Open 100% foreign

Mineral 10 MW, power ownership with a
Resources transmission, and power public private
distribution. partnership
arrangement (see
below) (otherwise
remain 95%).

2 Transportation Port facilities (jetty, Open 95% foreign

building, cargo, ownership with a
handling terminal, public private
liquid and dry bulk partnership
terminals, Ro-Ro arrangement (see
terminal). below) (otherwise
remain 49%).

The New Negative List has not included the PPP arrangement for other
infrastructure businesses such as highway toll roads and drinking water.

3 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

 Opening foreign ownership or allowing higher foreign ownership for

investors from ASEAN member States:

The Government has continued to recognize its obligations under the

ASEAN Comprehensive Investment Agreement (ACIA) of 2009 under
which investors that are natural persons or juridical persons of ASEAN
member States ("ASEAN Investor") can enjoy a higher foreign
ownership percentage in certain sectors.

A non-ASEAN company which owns or controls an ASEAN company may

be able to avail itself of national treatment and investment market access
privileges in an ASEAN company. However, a member State (such as
Indonesia) may deny the benefits of the ACIA to an ASEAN investor
company ("ASEAN Investor") if, inter alia,

a) the non-ASEAN investor owns or controls that ASEAN Investor and

the ASEAN Investor has no substantive business operation in the
territory of the host ASEAN member State;

b) the ASEAN Investor is owned by an investor of the denying ASEAN

member State and the ASEAN Investor has no substantive
operations in the territory of the host ASEAN member State; or

c) the ASEAN Investor is owned by a non-ASEAN investor and the

denying ASEAN member State has no diplomatic relations with the
country of the non-ASEAN investor.

Indonesia has limited experience in applying these criteria and it remains

to be seen if the Capital Investment Coordination Board ("BKPM") will
look through and seek to deny an application by ASEAN Investor on the
above grounds.

In the immediate term, subject to tax planning and specific advice, it

would be appropriate for ASEAN Investor (i) to be owned or controlled by
ASEAN based investors (control is defined as the power to name a
majority of directors of the ASEAN Investor or legally direct the
actions of the ASEAN Investor), and (ii) the ASEAN Investor should have
substantive business operations in its ASEAN country of origin. Sectors
with higher foreign ownership limitations under the ASEAN Investor
scheme are:

No Sector Lines of Business Change

1 Trade Public opinion polling Open 51% foreign

and market research. ownership for ASEAN
Investors (previously
closed). However, still
closed for Non ASEAN
Investors.

2 Tourism and Production of film Open 51% foreign

creative promotion facilities ownership for ASEAN
economy (including but not Investors (previously
limited to closed). However, still
advertisements, closed for Non ASEAN
posters, stills, photos, Investors.
slides, negatives,
banners, pamphlets
and billboard).

4 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

No Sector Lines of Business Change

3 Tourism and Motel and lodging • Open 70% foreign

creative services. ownership for
economy ASEAN Investors, in
certain regions of
Indonesia.
• For other regions,
open 49% foreign
ownership for
ASEAN Investors
and Non ASEAN
Investors, or can be
51% with an
Indonesian small
scale business
partnership.

4 Golf courses. • Open 100% foreign

ownership for
ASEAN Investors,
outside Java and
Bali.
• Open 70% foreign
ownership for
ASEAN Investors, in
Java and Bali.
• For other regions,
open 49% foreign
ownership for
ASEAN Investors
and Non ASEAN
Investors, and can
be 51% foreign
ownership with an
Indonesian small
scale business
partnership.

5 Healthcare • Specialist • Open 70% foreign

/subspecialist ownership for
hospital services ASEAN Investors,
in certain regions of
• Medical specialist Indonesia.
clinics, and dental
clinics • For other regions,
open 67% foreign
ownership for
ASEAN Investors
and 67% foreign
ownership for Non
ASEAN Investors.
For hospital services,
the 200 beds
requirement has been
removed.

5 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

No Sector Lines of Business Change

6 Healthcare Specialist nursing • Open 51% and

treatment services 70% foreign
(nursing services under ownership for
CPC93191). ASEAN Investors,
in certain regions of
Indonesia.
• Non- ASEAN
Investors remains at
49%

Regressive Measures
Unfortunately, there are some regressive measures where permitted foreign
investment has been reduced, specific recommendations from the relevant
technical ministries are required or sectors are now specifically closed. These
measures include:

 Specifically closing investment in the following lines of business:

No Sector Lines of Business Change

1 Energy and Testing and analysis of Previously not

Mineral electrical installations. stipulated.
Resources
2 Electrical utilities Previously 95% foreign
construction and ownership.
installation.

3 Oil and gas Previously not

construction services: stipulated.
a. oil and gas
upstream
production
b. conduit installation
on land
c. horizontal/vertical
tanks
d. oil and gas storage
installation and
marketing on land.

4 Oil and gas drilling Previously 95%

services on land. foreign ownership.

5 Oil and gas supporting Previously not stipulated.

services:
a. Well operation and
maintenance
services

6 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

No Sector Lines of Business Change

b. Oil and gas design
and engineering
services
c. Technical
inspection
services.

6 Industry Manufacture of crumb Previously 95%

rubber. foreign ownership
(under Agriculture
sector) and subject to
special
licenses/permits from
the Ministry of
Agriculture.

7 Trade Retail of motorcycles Previously not

and commercial stipulated (but in
vehicles. practice closed).

8 Retail trade, namely Previously not

retail sales in non- stipulated (but
minimarkets, non- generally in practice
department stores, closed). These
textiles, games and provisions make it very
toys in stores, cosmetic clear that apart from
articles, footwear, certain large scale
electronics, mail order retailing formats retail
houses or via internet is closed.
(consequently will
restrict e-retailing for
foreign ownership), and
food and beverages.

9 Alternative trading, Previously not

namely alternative stipulated. This
trading systems and appears to be a broad-
alternative trading brush approach to
system parties. address new retail
business models that
may arise. No specific
industry code is given.

10 Transportation Passenger land Previously not

transport on scheduled stipulated.
routes (cross border
transport) and
unscheduled routes
(tourism transport,
specific destination
transport, specific area
transport).

7 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

 Reducing the permitted foreign investment in the following lines of business:

No Sector Lines of Business Change

1 Agriculture Horticulture (including Now 30% foreign

cultivation, industry, ownership (previously
research and 95%). This now
development, agro conforms with the
tourism). Horticultural Law
which requires
divestment by
November 2014.

2 Energy and Small-scale power Now 49% foreign

Mineral generation (of 1 – 10 ownership (previously
Resources MW). 100% with
Indonesian
partnership
cooperation).

3 Offshore oil and gas Now 75% foreign

drilling services outside ownership (previously
eastern Indonesia 95%).
region.

4 Communication Data communication Now 49% foreign

and Informatics system service. ownership (previously
95%).

5 Network access point. Now 49% foreign

ownership (previously
65%).

6 Content services (ring Now 49% foreign

tone, premium short ownership (previously
messages services). 100% with an
Indonesian
partnership
cooperation).

7 Energy and Geology and Now 49% foreign

Mineral geophysics survey ownership (previously
Resources services. 95%).

 Introducing new foreign ownership limitations in certain sectors that were

not regulated in the past (i.e. previously open 100% foreign ownership):

No Sector Lines of Business Change

1 Defense and Security services, Limited to 49% foreign

Security namely security ownership and subject
consulting, provision of to an operating permit

8 Indonesia Foreign Investment - New Negative List May 2014

 Corporate/Commercial

No Sector Lines of Business Change

security guards, cash from the state police.
and valuables escort,
provision of security
services with animals,
security system
devices, and security
education and training.

2 Energy and Manufacture of Open 100% foreign

Mineral biomass pellets for ownership but must be
Resources energy. conducted with an
Indonesian
partnership
cooperation.

3 Electrical Limited to 95% foreign

power supply ownership.
construction.

4 Oil and gas

construction services:
a. platform Limited to 75% foreign
ownership.
b. spherical tanks Limited to 49% foreign
ownership.
c. conduit installation Limited to 49% foreign
on sea. ownership.

5 Offshore oil and gas Limited to 75% foreign

drilling services. ownership.

6 Survey services: Limited to 49% foreign

a. oil and gas ownership.
b. geology and
geophysics.

7 Public Works Treatment and disposal Limited to 95% foreign

of non-hazardous ownership.
waste.

8 Trade Distribution. Limited to 33% foreign

ownership.

9 Warehousing. Limited to 33% foreign

ownership.

10 Cold Storage. Limited to 33% foreign

ownership for
Sumatra, Java and
Bali and 67% foreign
ownership for
9 Indonesia Foreign Investment - New Negative List May 2014
 Corporate/Commercial

www.hhp.co.id
No Sector Lines of Business Change

For further information please contact

Kalimantan, Sulawesi,
Nusa Tenggara,
Wimbanu Widyatmoko Maluku and Papua.
Managing Partner
+62 21 2960 8694 11 Trade Futures brokers. Limited to 95% foreign
wimbanu.widyatmoko@bakernet.com
ownership.
Mochamad Fachri
Partner 12 Transportation Multimode Limited to 49% foreign
+62 21 2960 8547 transportation. ownership.
mochamad.fachri@bakernet.com

Mark Innis
Foreign Legal Consultant For the distribution sector, there is some uncertainty given the absence of an
+62 21 2960 8618 industry code (which would provide further elaboration). However, we
mark.innis@bakernet.com
understand that the Government's apparent intent is to reduce foreign
Hadiputranto, Hadinoto & Partners ownership in onshore distribution conducted by foreign investment companies
The Indonesia Stock Exchange in Indonesia and not import and wholesale activities. It is not yet clear how the
st
Building, Tower II, 21 Floor Government (in this case BKPM) will differentiate between "distribution - with a
Sudirman Central Business District 33% foreign investment limitation" and "import and wholesale - open up to
Jl. Jenderal Sudirman Kav. 52-53 100% foreign investment " in the investment approval process.
Jakarta 12190
Indonesia
Grandfathering/Restructurings
Tel: +62 21 2960 8888
Fax: +62 21 2960 8999
The prior grandfathering provisions remain, thereby protecting prior approved
investment if there has been a reduction in the permitted level of foreign
investment in the New Negative List.

However, the grandfathering protection does not allow further expansion in

sectors where the permitted foreign investment has been reduced.

Applicability of the Negative List to Public Listed Companies

The position remains unchanged. The New Negative List does not apply to
“indirect or portfolio” investment, (being a restatement of the elucidation under
article 2 of the Investment Law). There are no provisions in the New Negative
List removing the ambiguity of this phrase and how in practice the list is
applied. Consequently, the current market practice will prevail.

©2014 Hadiputranto, Hadinoto & Partners. All rights reserved. Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In
accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office”
means an office of any such law firm.

This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

10 Indonesia Foreign Investment - New Negative List May 2014