Following the enactment of Job Creation Law, The Government finally issued an update to Indonesia Positive Investment List (DPI). It is expected to attract more foreign and domestic investors to support the Government’s ambition in creating a significant amount of new jobs in the country.
Since DPI contains the list of business sectors that are open for foreign investment in Indonesia, it’s very important to keep up with its changes from time to time. The recent update even said to include 86% of sectors that were previously restricted for foreign involvement, something that never happened in history.
Nevertheless, while the recent DPI sounds good news at first glance, the authorities still include some strict rules and criteria’s that you need to follow. This article will break it down and guide you how to start your own investment in Indonesia in accordance with this new regulation.
Understanding Categories in Recent Indonesia Positive Investment List
The highlight of the recent DPI is that the Government divided sectors that are currently open or closed for foreign investment into four main categories, instead of three as in previous regulation. Each category has its own criteria’s and we will discuss all four of them below.
1) Priority sectors
Presidential Regulation (Perpres) 10/2021 listed set of criteria for businesses to be considered priority. They are:
● Labor Intensive
The new regulation didn’t clearly specify this term, but in some cases, Indonesian Government usually considers businesses that employ at least 200 workers and whose labor costs account for 15% of total production costs as labor intensive.
● Capital Intensive
Again, the authorities didn’t say much about this. However, there is a way to determine the size of the business. First make sure that the paid-up capital reaches 25% of authorized capital. Then if the result is around IDR 51 – 500 million, the business is considered small, while IDR 500 – 10 million is medium, and IDR 10 billion or above is considered large.
● Part of the national project
The Committee for the Acceleration of Priority Infrastructure Provision (KPPI) defined this term as a strategic project that has great urgency to be realized within a short period of time, such as roads, bridges, airport and other that related to infrastructure and inter connectivity to boost national economy.
● Pioneer Industry
According to the Ministry of Finance Regulation (PMK) 130/2020, any business which has broad linkages, provides added value and high externalizations, or introduces new technology as well as has strategic value for the national economy is considered a pioneer. Most of them are related to mining, chemistry, electronic manufacturing, transportation, agriculture, and digital economy.
● Export Oriented
● Implement Advance Technology and Research
There are 245 business lines included as priority. Although those criteria’s seem hard to fulfill, the new regulation mentions that businesses fit in this category will be eligible for ranges of fiscal and non-fiscal incentives, including tax holiday.
Then, PMK 130/2020 which also regulate tax holiday policy, said that investment worth IDR 100-500 billion will be granted 50% reduction of Corporate Income Tax (CIT) for five years, while investment over IDR 500 billion will enjoy 100% cut for five up to 20 years, depending on how much money you invested in.
Such tax incentives imposed by Indonesian Government are actually quite competitive compared to its neighboring countries. For your figure, Malaysia only gives 0-10% cut for a period of up to 10 years for new companies, while Thailand policy of CIT incentives only applied for maximum 10 years only.
2) Business fields with specific requirements or limitations
Although Indonesian Government decided to lift restrictions in bunch of sectors, you have to keep in mind that several businesses are not subject to 100% Foreign Direct Investment yet. So local-foreign shares arrangements still apply.
In total, there are 46 business lines including in this category, you can find the detail some of them in the table below:
Old Regulation (Perpres 44/2016) vs Old Regulation (Perpres 44/2016)
Business Line | New Arrangement | Old Arrangement |
Publishing for newspapers and magazines | Maximum foreign investment at 49% | 100% for local investment only |
Domestic line for public service | Maximum foreign investment at 49% | 100% for local investment only |
Overseas Liner and Tramper Freight | Maximum foreign investment at 49% | Maximum 70% for ASEAN Countries investment |
Inter-Provinces' Pioneer Line | Maximum foreign investment at 49% | Maximum foreign investment at 19% |
Beside shares arrangement, some business lines in this category also have special requirements. For example, foreign investment in publishing newspapers and magazines can only be done through the capital market.
Furthermore, some sectors especially related to tourism, also require to be conducted in special economic zones (KEK). In fact, new capital investments in KEK will enjoy wide and comprehensive tax facilities; covering Income Tax, VAT, Luxury-goods Sales Tax (LST), import duty, and excise facilities.
3) Corporations with local MSMEs
MSME still plays a major role in Indonesia’s economy. According to related government bodies, they contribute up to 60% to national Gross Domestic Product (GDP) and 97% of domestic workforce. So to make the economy more robust, the authorities of course want some business lines requiring foreign investors to have a compulsory partnership agreement with an MSME.
For foreign investors there are several ways to be incorporated with local small businesses, such as operational cooperation, profit sharing, subcontracting, outsourcing, distribution, or you can also just go to the Indonesian stock market and buy some MSME’s shares.
However, you have to be aware that there are also some business lines which are solely reserved for MSME, thus closed for any foreign investment. They include businesses with capital value less than IDR 10 billion, no use of advanced technologies, or related to cultural heritage.
There are 51 business line in this category, some of them are include:
Old Regulation (Perpres 44/2016) vs Old Regulation (Perpres 44/2016)
Business Line | New Arrangement | Old Arrangement |
Agriculture products including corn, rice, and peanuts | MSME’s partnership | Reserved for MSME only |
Courier and Expedition | MSME’s partnership | Maximum foreign investment at 49% |
Processed soy products (Exclude Tempeh, Tofu and Soy Sauce) | MSME’s partnership | Reserved for MSME only |
Timber products with production capacity less than 2000 M³/year | MSME’s partnership | Reserved for MSME only |
Clinic and medical laboratory | MSME’s partnership | Maximum foreign investment at 49% |
4) Close Sectors
In the new regulation, there’s not much business left for the closed category. In fact, there’s only six sectors that are currently restricted for investments from both domestic and foreign companies, they are:
● 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.
How We Can Assist
We are aware that understanding a new regulation can be tedious and time consuming. That’s why our team is always ready to assist you.
With an extensive range of support, services and access to communities, The Meraki Concept wants to help you incorporate a company in the country so that you can start your business activities quickly and efficiently.
