Indonesia - Divestment Rules And New Investment Requirements Alert - Major Amendments To BKPM Investment And Divestment Requirements.
Legal News & Analysis - Asia Pacific - Indonesia - FDI
6 September, 2019
The Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) recently issued Regulation No. 5 of 2019 (“Reg 5/2019”), amending the previous Regulation No. 6 of 2018 on the Guidelines and Procedures for Licensing and Investment Facilities (“Reg 6/2018”).
Reg 5/2019 introduces several important changes to the previous regulation, especially on matters relating to (i) divestment requirement for PT PMA; (ii) licensing procedure and minimum investment value by PT PMA in the property construction and development sector (“Real Property Companies”); and (iii) immigration facilities for foreign individual shareholders.
- Divestment Requirement
Historically, the former Indonesian Investment Law No. 1/1967 (“Investment Law 1967”) as further implemented by Government Regulation No. 20/1994 required foreign shareholders of PT PMAs to sell a part of their foreign participation to Indonesian citizen(s) or local company(ies) (“Divestment Requirement”) 15 years after commercial operation.
In 2007, the Government of Indonesia enacted the new Investment Law No. 25/2007 (“Investment Law 2007”), repealing Investment Law 1967. The Investment Law 2007 is silent on the Divestment Requirement and has led to confusions as to whether the Divestment Requirement remains applicable. To clarify the issue, BKPM then issued a Circular Letter in February 2008 stating that the Divestment Requirement would apply only to the extent that such requirement is explicitly stated in the relevant PT PMA’s investment approval (with certain exceptions to the mining sector).
In 2017, BKPM issued Regulation No. 13 of 2017 (“Reg 13/2017”) allowing PT PMA to request an exemption from the Divestment Requirement, but this policy lasted only for approximately 6 months because BKPM later revoked Reg 13/2017 in July 2018 by issuing Reg 6/2018. Between the period of Reg 6/2018 and the issuance of Reg 5/2019, there was yet another confusion as to the applicability of the Divestment Requirement and the right to request such exemption.
Now, the new Reg 5/2019 has cleared up the confusion by expressly stipulating that the Divestment Requirement applies to PT PMA only to the extent that:
(i) the Divestment Requirement is explicitly stated in the PT PMA’s existing investment approval and/or
(ii) PT PMA engages in certain sectors, such as mining. Reg No 5/2019 also expressly provides that PT PMA may be exempted from the Divestment Requirement if the PT PMA’s shareholders submit a deed of statement to BKPM stating that:
- no Indonesian shareholder in the relevant PT PMA has the intention of acquiring the shares owned by the foreign shareholders; or
- no foreign shareholder in the relevant PT PMA has any commitment/agreement with an Indonesian party to sell its shares.
One issue remains unclear is whether the above deed of statement requires a consent from BKPM, as previously required by Reg 13/2017.
- Real Property Companies
Under Reg 5/2019, the licensing procedure for Real Property Companies is now integrated into the OSS (Online Single Submission) system (in contrast to the previous Reg 6/2018, which required the submission through BKPM’s system).
In addition, Reg 5/2019 revokes the previous special treatment given to Real Property Companies, requiring a minimum investment value of more than IDR 10 billion (approximately USD 700,000) including land and building, and as such the minimum investment value generally required for PT PMA also applies to Real Property Companies, i.e., more than IDR 10 billion (approximately USD 700,000) excluding land and building.
- Requirements for Limited Stay Visa
Through Reg 5/2019, BKPM now imposes stricter requirements on the minimum share ownership by a foreign individual shareholder to obtain BKPM’s recommendation for the limited stay visa (visa tinggal terbatas):
- for a foreign individual shareholder who also serves as a foreign director or commissioner of PT PMA: at least IDR 1 billion (approximately USD 70,000); or
- for a foreign individual shareholder who does not serve as a foreign director or commissioner of PT PMA: at least IDR 125 billion (approximately USD 79,000).
If the foreign individual shareholder concurrently serving as a foreign director or commissioner of PT PMA does not meet the above minimum share ownership requirement, the relevant PT PMA must first obtain a foreign employee utilization permit from the Minister of Manpower.
For more information, please contact:
Rainer Faustine Jonathan, Walalangi & Partners (W&P)