Client Update 12 February 2016



Government moves to loosen foreign direct investment restrictions

1. Introduction

As part of its 10th economic reform package (and possibly the most significant to date), the Government has announced that it will revise the Negative Investment List (Daftar Investasi Negatif / “DNI”) so as to permit foreign direct investment (“FDI”) for the first time in a number of sectors and increase FDI limits in others. The proposed changes are clearly influenced by the need to attract greater FDI inflows so as to counter the current economic slowdown and to boost the country’s competitiveness in the Asean Economic Community (“AEC”). No doubt the Government also has its eye on the prospect of stiff competition from Trans-Pacific Partnership (“TPP”) countries such as Vietnam.

In an official release issued on Thursday (Feb 11), the Coordinating Ministry for the Economy outlined the various changes that will be instituted, and explained the necessity for these changes. The Ministry said that they were required to, among other things, break up economic concentrations that only served to benefit vested interests, reduce the cost of such things as medicines and medical equipment, effectively respond to greater competition as a member of the AEC and enhance the competitiveness of domestic industry, both at home and overseas.

As a Presidential Regulation implementing the changes has yet to be issued, we need to stress that it is not yet clear whether they are definitive or whether there continues to be room for further revisions.

2. Highlights

According to the ministerial release, the following sectors will be completely removed from the DNI, meaning that ventures in these sectors will be 100% open to FDI:

  • Crumb rubber (foreign ownership currently restricted to 49%)
  • Cold storage (currently 33%)
  • Tourism, including restaurants, cafes, recreation, arts and entertainment and sports facilities (currently 51%)
  • Film industry, including film distribution (currently totally off-limits to FDI).
  • E-commerce, subject to the provision that should a foreign investor wish to acquire an Indonesian e-commerce company, such company must be valued at more than Rp 100 billion (currently completely closed to FDI);
  • Film processing laboratories (currently 49%)
  • Telecommunications equipment testing (currently 95%);
  • Tolled expressways (currently 95%);
  • Processing and disposal of non-hazardous waste (currently 95%). It is not clear why hazardous waste should be excluded. As the country’s industrial sector continues to develop, it will generate increasing volumes of such waste. The big question is whether domestic players have sufficient technical and financial capacity to tackle it?
  • Pharmaceutical raw materials (currently 85%). This marks a significant change as the current local-partner requirement could be off-putting to international players given the importance of intellectual property in the pharmaceutical industry. Unfortunately, Indonesia’s domestic pharmaceutical industry has failed to develop and deepen its supply chain so that, according to some estimates, up to 90% of the raw materials used in the production of even the most basic drugs continues to be imported, thereby making drug prices dependent on foreign exchange fluctuations, to the obvious detriment of consumers.

It is further proposed that the maximum foreign ownership limit in the following sectors be increased:

  • Distribution and warehousing (67% compared with 33% currently);
  • Vocational training, travel agencies, golf courses, aviation support services (67% versus 49% currently);
  • Construction services (67% from 55% currently);
  • Telecommunications networks integrated with telecommunications services (67% from 65% currently)

In addition, the following sectors, which are at present completely off-limits to FDI (100% closed), will be opened up:

  • High- and extra-high tension electricity installations (up to 49% foreign ownership to be permitted);
  • Land-based public transportation (49%)
  • Healthcare support services (67%)

Besides increases in FDI limits and the opening up of new sectors to FDI, the Government also plans to further streamline the investment process. For example, recommendations from the relevant governmental authorities will no longer be required for FDI in the hotel sector (for non-starred and one- and two-star hotels). In addition, a number of classifications in the DNI have been combined so as to make it more manageable and comprehensible, including the consolidation of building construction, building development and building repair as “Construction Services.”

3. What exactly is the DNI?

The DNI sets out a long list of business sectors that are either completely closed, completely open or conditionally open to foreign investment. This list of business sectors is based on the comprehensive classification of sectors set out in the 2009 Indonesian Business Sector Classifications (“KBLI”), drawn up by the Central Statistics Bureau. However, the classifications are very general in nature, with no definitions being given. The current DNI is incorporated in Presidential Regulation No. 39 of 2014.

4. Caveat

Despite the relaxations outlined above, there continue to be various other restrictions on FDI in practice. For example, the Investment Coordinating Board (“BKPM”) requires a minimum investment of USD 300 thousand, rising to USD 1 million within one year (depending on what is stated in the BKPM’s preliminary approval), for the setting up of a foreign direct investment company, which is a prerequisite for an overseas investor wishing to establish a venture in Indonesia (although portfolio investments by foreign investors in Indonesian listed companies are not subject to restriction). Consequently, there is no question of foreigners flooding into Bali, for example, to snap up small-scale restaurants and hotels.

Further, the BKPM has a great deal of discretion in interpreting which precise business activities come within the ambit of each business line listed in the DNI. Even if a particular business is not specifically mentioned in the DNI (which one would therefore expect to be 100% open to foreign investment), the BKPM may still decide that that business in question comes within the scope of another sector. For example, engineering procurement (EPC) services are not referred to in the current DNI, and should therefore, at first sight, be 100% open to FDI. However, this is not necessarily the case as there is nothing to stop the BKPM from determining that they come within the ambit of, say, construction consultancy services (currently capped at 55%). Such discretion is possible due to the lack of definition of business sectors in the KBLI, as mentioned in section 3 above. Thus, potential investors need to test the waters first by consulting with the BKPM before taking the plunge.

In addition, various sectors are reserved to Indonesia SMEs, or minimum investment thresholds are imposed below which FDI is not permitted. As a developing nation, Indonesia obviously has a strong interest in nurturing its SME sector, something that the Government has stressed it will continue to do.

5. Conclusion

The changes announced by the Coordinating Ministry of the Economy are to be welcomed, not least the simplification of business lines in the DNI, which has traditionally been difficult to get to grips with due to its complexity.

The Coordinating Ministry for the Economy stressed in its release that it remains committed to protecting and nurturing SMEs. This is also to be welcomed as the country’s small enterprises have long faced significant hurdles in attempting to develop their businesses, such as lack of access to financing, and underdeveloped management and marketing skills. However, while this sector needs protection, it is also incumbent on government to do more to ensure that real assistance and mentoring is provided on the ground.

On a final note, it is to be hoped that the current changes will be permanent in nature and that Indonesia’s FDI rules will continue to be relaxed going ahead. In particular, it is to be hoped that the present changes will not be rolled back after the economy enters recovery mode, as it inevitably will.



AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of  AHP  Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.



  • Pic Mgmt

    Capital Markets

    As a full-service firm, we do a broad range of transactions covering the entire spectrum. Many are high profile and cement our position as a top-tier firm, including global equity offerings in reliance on Reg. S/Rule 144A, private placements, rights issues and other share-related offerings, such as convertible and exchangeable bonds. We also frequently advise on foreign offerings by issuers having significant interests in Indonesia, bond issuances under global offering rules, mergers, acquisitions, combinations of acquisitions and IPOs, consent solicitations and exchange offers of debt instruments listed on the Indonesia Stock Exchange or offshore. more »

  • Pic Mgmt

    Banking & Finance

    We are a leading force in the Indonesian banking & finance sector, advising on all manner of structured financing transactions, from simple secured or unsecured bilateral lending to multifaceted and complex credit facilities. We handle syndicated, club and bilateral loan documentation; project finance; property finance; acquisition finance; securitization and structured finance; regulatory and compliance issues; banking documentation and legal due diligence reporting. more »

  • Pic Mgmt

    General Corporate/M&A

    Our General Corporate/M&A practice provides advice on corporate governance, compliance, negotiating and drafting agreements, transaction structure, management and succession, legal due diligence reporting, formation of new entities, preparation of internal corporate documents and approvals, and completion of regulatory filings. With a wealth of experience amassed over the years in a wide variety of industries, we are strategically placed to provide you with everything you need to satisfy your corporate or M&A needs. more »

  • Pic Mgmt

    Debt & Corporate Restructuring

    We offer a full range of services in the debt & corporate restructuring arena, including advice on capital reduction, recapitalization and rescue schemes, financial sector takeovers, global asset recovery measures, mergers, creation of new entities, compromise schemes, demergers, buyouts, preparing documents and agreements, and ensuring statutory and regulatory compliance. As an AHP client, you will benefit from the unparalleled expertise gained by many of our senior lawyers as advisors or counsel to the Indonesian Bank Restructuring Agency (IBRA), which restored the country’s banking sector to health in the wake of the Asian financial crisis of 1997/98. more »

  • Pic Mgmt

    Foreign Direct Investment

    As an Indonesian law firm, we are obviously very much at home in our own jurisdiction, and so are able to make you feel at home as well. We know how things work in Indonesia, and have excellent relations with all the relevant government and regulatory agencies. We advise on the establishment of foreign investment companies, permanent business establishments, subsidiaries and joint ventures under the Indonesian FDI regime, merger & acquisition issues, foreign ownership caps, manpower issues, regulatory and environmental compliance, land acquisition, taxation matters -- in fact, everything you will need to get your venture off the ground and to keep it running smoothly throughout the investment lifecycle. more »

  • Pic Mgmt

    Competition Law

    We are widely recognized as being at the forefront of competition law in Indonesia, a rapidly developing field in which we have been instrumental in securing a number of ground-breaking judicial precedents in recent years. We consistently focus on the practicality and commerciality aspects, and combine legal expertise with in-depth experience across a wide range of industries so as to support the achievement of your strategic goals. more »

  • Pic Mgmt

    Dispute Resolution

    AHP has a very strong litigation team made up of one partner and 15 associates, all of whom are licensed advocates. We regularly represent clients in tort, contract, employment, internal corporate fraud, real estate, trademark and intellectual property disputes, to name but a few, with our primary focus being on commercial disputes. In the arbitration field, we have developed a formidable reputation for expertise and successful outcomes with the result that AHP advocates regularly appear before the Indonesian National Arbitration Board (BANI), as well as overseas arbitration bodies, such as the Singapore International Arbitration Centre. more »

  • Pic Mgmt

    Energy, Oil and Gas

    Our Energy, Oil and Gas practice provides top-quality legal advice and transactional support to domestic and international companies operating in the oil and gas, geothermal and renewable energy sectors. As a relatively compact firm, we are able to offer advice across the entire range of practice areas, thereby allowing us to deliver outstanding legal and commercial results for our clients in a practical and cost effective way. more »

  • Pic Mgmt

    Projects & Natural Resources

    As an Indonesian law firm, we know our country, our regulatory environment and our governmental system. Armed with this knowledge, we have garnered a wealth of experience down the years guiding both domestic and international companies through areas that are often fraught with competing interests and controversy. This experience provides us with the expertise and breadth of vision needed to ensure successful outcomes for your business objectives. In doing so, we offer a comprehensive suite of services, all of which dovetail seamlessly one with the other so as to provide holistic solutions to all your legal needs. more »

  • Pic Mgmt

    Telecommunications & Media

    Indonesia has seen exponential growth over the last decade in both the telecommunications and media sectors -- both areas in which AHP is in the vanguard of legal development. Besides having a professional interest in the two sectors, all of our lawyers in the T&M practice share a genuine passion for what they do and are therefore able to offer a combination of solid technical legal knowhow and an excellent understanding of the industries, the technical aspects, the principal factors at work, and the key players in Indonesia. more »

  • Pic Mgmt

    Real Property

    We offer a full range of real property services, including assisting with purchase and sale agreements, leasing agreements, title searches and registrations, conveyancing, and real property dispositions and bequests,.We also provide effective and reliable advice on the complex rules governing property ownership by non-nationals in Indonesia, an area of the law that is set for liberalization in the near future. more »

  • Pic Mgmt

    Intellectual Property

    Our IP practice offers trademark, copyright, patent and design searches and registration, and regularly mounts successful challenges on behalf of clients against decisions of the trademark authorities. Our IP associates are all members of key associations and are frequently engaged to speak at international events as recognized leaders in the field. Combing cutting-edge expertise and a high level of commercial acumen, we take pride in our results and a high level of customer satisfaction, and do our utmost to help ensure the protection of your rights and your peace of mind. more »

  • Pic Mgmt

    Islamic Finance

    At AHP, we understand Islamic finance and have been in the vanguard of the sector’s rapid expansion and development in Indonesia. With an in-depth understanding of the religious and conventional legal principles that underpin the Shariah sector, we believe we are uniquely well-positioned to offer expert and innovative advice on how to conduct any transaction in a Shariah-compliant manner, and to provide the kind of end-to-end solutions that you need. more »

  • Pic Mgmt

    Shipping & Aviation

    As an archipelagic nation, the shipping and aviation industries are of the utmost importance to the Indonesian economy. To accommodate the needs of ship owners, charterers, and marine insurers, we provide advice on all aspects of shipping law, including ship finance & security, sale and purchase, disputes arising out of charter parties, bills of lading, insurance, and collisions, and all other admiralty matters, while in the aviation sector, we assist with aircraft financing, sale and purchase, statutory obligations related to aviation, aviation safety and the aftermath of aviation accidents. more »

  • Pic Mgmt

    Labor Law

    We have a outstanding record in representing both individuals and corporations in employment matters, and in general advisory work on the complex rules governing the employment of expatriates in Indonesia. On the litigation front, we are frequently called upon to advise in cases involving internal fraud and embezzlement, and on the remedies available to employers. We also offer expert advice on employee compensation and incentive schemes (stock options, benefits, allowances), the employment implications of mergers, acquisitions and amalgamations, and the rights and benefits available to employees upon termination. more »

Assegaf Hamzah & Partners