law of investment in indonesia - an introduction

Law of Investment in Indonesia: An Introduction

Mariske Myeke Tampi

Why Indonesia?

The total of

open labor:

6,25% from

the total of

118.19

millions

labor force

Source: http://www.bps.go.id, http://www.kemenpar.go.id/, http://www.indonesia.travel and related website

The total of

islands:

17.504

Tropical

climate

Strategically located

on international

trade route between

Pacific Ocean and

Indian Ocean

Strategically located

between

international central

trade in Asia and

Australia

One of the countries

with the largest amount

of tribe: 1.128 tribes (for

socio-anthropological

research purpose

–- research investment)

One of the

countries with

the largest

amount of

tourist:

6.322.592

tourists

January-

August 2015

http://www.bps.go.id/

http://www.kemenpar.go.id/

http://www.indonesia.travel/

Background of Investment in Indonesia

• Industrial revolution in Europe

• Marshall Plan of United States

• Multinational corporation appearance

• Free Trade

History of Investment Law

• Pra-independence day (> 1945): VOC domination

• Post Independence day:1) Before the issuance of Law Number 1 of 1967 concerning Foreign

Investment:

Political instability, economically stagnant (1945-1950)

Nationalisation foreign corporate (1950-1957)

Centralised economy policy (1959-1966)

2) After the issuance of Law Number 1 of 1967 concerning Foreign Investment:

Trickle Down Effect policy

Bilaterally minded

ASEAN and multilateral minded

Internationally minded

International Agreement of Law of Investment

Genewa Conference on Investment:1. Policy of investment: overall not partial policy

2. Period of investment: 30 years of intensive labor and capital such as mining and manufacturing

3. Tax: maximum 20%, attract investors

4. Regulation: fair, protect labor rights

5. Investor Treatment: non-discrimination

6. Land rights: operational rights that can be extended

7. Infrastructure: need to be provided

8. Business climate: investment matter should be favorably talked

9. Company regulation: must be relevant

International Agreement of Law of Investment

Annual international agreement on investment can be accessed on:

United Nations Conference on Trade and Development (est. 1964)

(http://unctad-worldinvestmentforum.org/)

Upcoming event:

Foundation of Law of Investment

• TAP MPRS (Decree of Citizen Consultative Assembly) Number XXIII/MPRS/1966:“The means of economic development is mainly about managing economic potentials into the real economic power through investment, the use of technology, increasing knowledge, improving skills, organisational and managerial skills.”

• Law Number 11 of 1970 concerning Amendment and Supplement to the Law Number 1 of 1967 Concerning Foreign Investment

• Law Number 6 of 1968 concerning Domestic Investment

• Law Number 12 of 1970 concerning Amendment and Supplement to the Law Number 6 of 1968 concerning Domestic Investment

Related Prevailing Law and Regulation on Investment in Indonesia

Here are the related prevailing law and regulation on Investment in Indonesia:• Law Number 25 of 2007 concerning Investment

• Law Number 40 of 2007 concerning Limited Liability

• Law Number 37 of 2004 concerning Bankruptcy

• Law Number 8 of 1999 concerning Consumer Protection

• Law Number 5 of 1999 concerning Prohibition of Monopoly

• Law Number 30 of 1999 concerning Arbitration

• Law Number 8 of 1995 concerning Capital Market

• Law Number 10 of 2008 concerning Banking

• Law Number 5 of 1960 concerning Agrarian Affairs

• Law Number 10 of 2011 concerning Amendment and Supplement to Law Number 32 of 1997 concerning Futures Trading

Scope of Investment in Indonesia

Investment shall be any kinds of investingactivity by both domestic and foreigninvestors for running business within theterritory of the Republic of Indonesia.

What is domestic investment?

Domestic investment shall be any investingactivity for running business within theterritory of the Republic of Indonesia, madeby any domestic investor using domesticcapital.

What is Foreign Investment?

Foreign investment shall be any investingactivity for running business within theterritory of the Republic of Indonesia, madeby any foreign investor using either foreigncapital entirely or joint capital with domesticcapital.

Who shall be the investor(s)?

• Investor(s) shall be any individual or corporation thatmakes investment in form of either domestic or foreigninvestor(s):1) Domestic investor shall be any individual of Indonesian

citizen, Indonesian corporation, the state of the Republicof Indonesia or any region making investment within theterritory of the Republic of Indonesia.

2) Foreign investor shall be any individual foreign citizen,foreign corporation or foreign state making investmentwithin the territory of the Republic of Indonesia.

What kind of capital shall be invested?

Capital shall be any asset in form of money or any formsother than money possessing economic value owned by anyinvestor. There are 2 (two) kinds of capital:

1) Foreign capital shall be any capital owned by any foreigncountry, individual foreign citizen, foreign corporation,foreign legal entity and/or Indonesian legal entity, whosecapital is owned partially or entirely by foreign party.

2) Domestic capital shall be any owned by the state of theRepublic of Indonesia, individual Indonesian citizen orcorporation or non-corporation.

Principles of Investment in Indonesia

Investment shall be organised based on the principle of:1) Legal certainty;

2) Openness;

3) Accountability;

4) The equal treatment without discriminating the country of origin;

5) Togetherness;

6) Impartial efficiency;

7) Sustainability;

8) Environmental friendly;

9) Independency; and

10) Balance of progress and national economic unity.

The Objetives of Investment in Indonesia

The objectives of investment organisation shall be for,among others:1) Increasing national economic growth;

2) Creating job opportunity;

3) Improving sustainable economic development;

4) Improving competitiveness of national business sphere;

5) Increasing the capacity and the capability of national technology;

6) Encouraging people economic development;

7) Processing economic potential into the real economic strength by usingfund coming from both domestic and foreign countries; and

8) Improving the prosperity of the community.

Basic Policy of Investment in Indonesia

Government stipulates the basic policy of investmentfor:1) Encouraging the creation of conducive national business climate

for investment in order to strengthen the competitiveness ofnational economy; and

2) Accelerating the increase of investment.

Basic Policy of Investment in Indonesia

In making the basic policy set forth, government is:1) To provide the same treatment to any domestic and foreign

investors, by continuously considering the national interest;

2) To warrant legal certainty, business certainty and business securityto any investors since the licensing process up to the end ofinvestment activity pursuant to the rules of law; and

3) To give opportunity for development and to give protection tomicro, small and medium-sized enterprises and cooperatives.

Those basic policy shall be realised in form of GeneralPlan of Investment.

Form of Corporation and Domicile

• Domestic investment may be in form of corporation,non-corporation or individual business in accordancewith the rules of law.

• Unless otherwise stipulated by the law, any foreigninvestment shall be in form of limited liabilitycompany based on the law of the Republic ofIndonesia (There will be futher explanation about how to establish

company in Indonesia according to Law No. 40 Year 2007 RegardingLimited Liability).

Form of Corporation and Domicile

• Both domestic and foreign investors making aninvestment in form of limited liability company shallbe carried out by:a. Having shares when such company is established;

b. Purchasing the shares; and

c. Executing any other way pursuant to the rules of law.

Treatment to Invesment

• The government shall provide the same treatment toany investors originating from any countries makinginvestment in Indonesia pursuant to the rules of law.

• Such treatment shall not apply to investor of certaincountries that have received privilage by virtue of anagreement with Indonesia.

• The government shall neither nationalise nor takeover the ownership right of any investors, exceptthrough the law.


• In the event that government either nationalises ortakes over the ownership right of any investors setforth before, the government is required to paycompensation whose amount is stipulated based onmarket price.

• If any of the parties fails to reach agreement on thecompensation or indemnity, set forth before, it shallbe settled through arbitration.


• Any investors may transfer their assets to anotherparty choose in accordance with the rules of the law.

• Any assets other than those set forth before shallconstitutes assets owned by the state as stipulatedby the law.


• Any investors shall have the right to make transfer orrepatriation in foreign currency to, among others:a. Capital;b. Profit, bank interest, dividend and any other revenue;c. Funds required for:

1. Purchasing raw materials and support materials, intermediate products orfinal product;

2. Reimbursement of capital goods in order to secure the investment.d. Additional fund required for financing investment;e. Fund for loan repayment;f. Payable royalty or interest;g. Income of any foreign individuals working in any investment company;h. The proceeds of any sale or liquidation of investment;i. Compensation for any loss;j. Compensation for any takeover;k. Payment made for tehcnical aid, payable costs for technical services and

management, payment made under project contract and payment for intellectualproperty right; and

l. Proceeds of asset sale set forth before;


• The right to make transfer and repatriation set forthbefore shall be conducted in accordance with therules of law.

• Provisions set forth before not prejudice to:a. Government aouthority to apply the rules of law requiring the

reporting of any fund transfer;

b. Govenment’s right to collect tax and/or royalty and/or any othergovernment’s revenues from investment pursuant to the rules of law;

c. The implementation of the law that protects creditor’s rights; and

d. The implementation of the law that prevents the state from any loss.


• Any investors may transfer their assets to anotherparty choose in accordance with the rules of the law.

• Any assets other than those set forth before shallconstitutes assets owned by the state as stipulatedby the law.

Manpower

• Any investment companies shall prioritise in recruitingworkers those of Indonesian citizen.

• Any investment companies shall be entitled to useexperts of foreign citizen or certain position andexpertise in accordance with the rules of law.

• Any investment companies are required to improve thecompetence of workers of Indonesian citizen throughwork trainings pursuant to the rules of law.

• Any invesment companies employing foreign experts arerequired to provide trainings and transfer of technologyto workers of Indonesian citizen pursuant to the rules oflaw.

Business Fields

• Any business fields or types are open to investmentactivity, except for those declared as being close andopen with a certain condition.

• Business fields closed to foreign investment are:a. Production of weapons, ammunition, explosive equipment and

warfare equipment; and

b. Any business sectors explicitly declared closed based on the law.

Business Fields

• Government by virtue of Presidential Regulation is to specifybusiness fields closed to both foreign and domestic investmentsbased on the criteria of health, moral, culture, environment,national defence and security and other national interests.

• Both criteria and requirements for business fields declared as beingclosed and being open with certain conditions will be arranged inPresidential Regulation.

• Government is to specify business fields open with certainconditions based on the criteria of national interest, namely theprotection of natural resources, protection of micro, small andmedium-sized entreprises, as well as cooperative of production anddistribution, increase of technological capacity, participation ofdomestic capital and joint venture with companies appointed bythe government.

Investment Development to Micro, Small and Medium-Sized Enterprises and Cooperatives

• Government is required to specify business fieldsreserved for micro, small and medium-sized enterprisesand cooperatives as well as business fields opened tolarge enterprise with conditions it has to work togetherwith micro, small and medium-sized enterprises andcooperatives.

• Government is to cultivate and develop micro, small andmedium-sized enterprise and cooperatives throughpartnership program, competitiveness improvementprogram, innovation encouragement and marketdevelopment as well as information distribution tofarthest extent.

The Rights, Obligation and Liability of Investor

Every investor shall be entitled to obtain:a. Right certainty, legal certainty and protection certainty;

b. Open information about business fields it is running;

c. Service; and

d. Various forms of facility according to the rules of law.


Every investor is required to:

a. Apply the principles of good company management;

b. Implement the company social liability;

c. Make a report in investment activity and submit it to theInvestment Coordinating Board;

d. Respect cultural tradition of communities around thelocation of investment business activity;

e. Comply with all of the rules of law.


Every investor is liable to:a. Secure capital originating from any sources not in violation with

the rules of law;b. Bear and settle any obligations and losses if such investor halt or

leave or abandon its business activity unilaterally in accordancewith the rules of law;

c. Create healthy competitive business climate, refrain frommonopoly practice and any other matters that inflict damage tothe state;

d. Preserve the environment;e. Provide safety, health, convenience and prosperity to workers;

andf. Comply with all the rules of law.

Exploiting Non-Renewable Resources

Any investors exploiting non-renewable naturalresources are required to allocate fund in stages for therecovery of location that fulfils the standard ofennvironmental worthiness, whose implementationshall be in accordance with the rules of law.

Investment Coordinating Board(Badan Koordinasi Penanaman Modal - BKPM)

http://www.bkpm.go.id

Ilmar, Aminuddin. Hukum Penanaman Modal di Indonesia. Jakarta: Kencana, 2007.

Law Number 25 of 2007 concerning Investmenthttp://www.bps.go.idhttp://www.kemenpar.go.id/http://www.indonesia.travelhttp://unctad-worldinvestmentforum.org/http://www.bkpm.go.id

Source

http://www.bps.go.id/

http://www.kemenpar.go.id/

http://www.indonesia.travel/

http://unctad-worldinvestmentforum.org/

http://www.bkpm.go.id/