FOREIGN DIRECT INVESTMENT OF INDONESIA
1. Setting up a Foreign Direct Investment Company
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A foreign direct investment company in Indonesia can have two ways of setting its business in Indonesia.
a) Full (100%) foreign owned limited liability company
b) Joint venture (partnership) with Indonesian partners.
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There must be at least two shareholders in the company.
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The shareholders can be more than one individuals, company or mixture of both.
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Thus, in the case of company having100% foreign ownership,
a) Must invite another foreign party to join in shareholding of the company in Indonesia.
b) Must let go part of its share to Indonesians within 15 years from the starting of its commercial operation.
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When company wants to start its commercial operation
a) It must apply for permanent business license which is valid only for 30 years.
b) After expiration, it can be
extended another 30 years through application of approvals, permits and licenses
required by different government agencies.
2. Lines of Business Closed to Foreign Direct Investment
Businesses that are set forth in the Presidential Decree as “Negative List of Investment” regulations and those businesses which hold a vital role in the national defense and security, such as the production of ammunition, etc will not be accepted.
The “Negative List of Investment” are as follows:
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production, transmission and distribution of electric power for the public
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shipping
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aviation
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drinking water
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public railways
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development of atomic energy
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mass media
3. Business Field Open to
Foreign Investment on Condition of Joint Venture between Foreign and
Domestic
Capital
a) Building and operation of seaports
b) Electricity production, transmission, and distribution
c) Shipping
d)
Processing and provision of clear water for public purpose
e) Public railway service
f) Atomic power plants
g) Medical services
h) Telecommunications
i) Regular/non-regular/chartered commercial airliners
4. Law Enforcement on Foreign Direct Investment in Indonesia
- The Letter of Agreement of Foreign Investment in compliance with and through an authorized institution by the Indonesian government is the official license for the foreign investors to carry out business in Indonesia.
- The context of the letter consists of
a) Managing the enforcement of foreign investment
b) Business location, production and marketing plan
c) Use of foreign employment and land, investment plan, source of funds and capital.
In enforcing foreign investment, the company, which is registered in
Indonesia, must comply with the regulation no. 1 of 1995.
This regulation highlights subjects
about business establishment and statutes, capital, share and stockholders
meeting and everything about the company.
- To settle investment dispute, foreign investors may bring this matter to the court in the nearest country or through the ICID (International Center for the Settlement of Investment Dispute in Washington DC). They can also use arbitration and alternative.
- The case of dispute between a foreign investor and the Indonesian government is regulated in a special agreement between the Indonesian government and the government of the origin country of the contracting company concerned. In accord, the Indonesian government has already signed a bilateral agreement with 55 countries.
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