How much of the shares can you own in a company in Indonesia? This is one of the key aspects to understand before starting setting up a foreign owned company in Indonesia.
All foreign ownership restrictions are regulated by Law of Investment (25/2007) and presidential decree (36/2010) called the Negative Investment List (DNI). This decree is a successor of the previous decree from 2007 and any foreign direct investment companies (PT PMA) registered after May 2010 have to comply with that. This article explains how to use Negative Investment List and what are the key aspects to understand as a foreign investor.
Form of corporation
According to Law of Investment (Article 5/2), foreign citizens are only allowed to have shares in limited liability companies (PT PMA). All other legal entities, such as non-corporate or individual businesses, are reserved to domestic investors.
Business activity classification
Foreign ownership restrictions are regulated based on their Standard Classification of Indonesian Business Sectors (KBLI) and/or International Standard for Industrial Classifications (ISIC). Any sector is open to foreign investors as long as it is not included to the Negative Investment List (DNI).
The sectors included to the Negative Investment List are either closed or open with certain conditions to foreign investors. Therefore before you start planning your business activities, make sure to check the DNI to see whether you need to involve a local partner or whether adjusting your activities can allow you to have a bigger foreign ownership.
Foreign investors are often concerned about the legal certainty in Indonesia – what if my industry will fall under stricter regulation in the future?
When it comes to Negative Investment List, a “grandfathering” principle applies. Foreign companies that were approved under the previous DNI will not have to comply with the future DNIs and therefore won’t have to divest or sell their shares. This is an important principle to understand as it gives you the certainty as a foreign investor.
Nominee arrangements to comply with Negative Investment List
Sometimes foreign investors see nominee arrangements as a way around DNI. While it is quite commonly used, be sure to understand the risks you are undertaking. There are plenty of stories of ex-wives or business partners who through nominee arrangement obtained complete control over the company and foreign investor had to leave the country empty-handed.
Be especially careful about nominee arrangement involving people you don’t know or trust. Remember that by the law you have no rights over the nominee shares.
Negative Investment List 2013
During a meeting in November 2012 between Indosight and BKPM, the BKPM confirmed that a new presidential decree is on its way and will be legislated in 2013. The good news for the foreign investors is that the trend is going to be openness. An increasing number of sectors will be having higher allowed foreign ownership and couple of industries currently closed for foreign investors will become partly opened. We don’t know yet the specifics but will definitely keep our readers updated.
photo credit: Adam Foster | Codefor