A Summary of Indonesia's Negative Investment List

Here’s your ultimate guide to the Indonesia Negative Investment List.

Any investor planning to enter Indonesia should first get to know the Indonesia Negative Investment List or – in Bahasa – Daftar Negatif Investasi. This regulation tells you what business fields are closed or restricted to foreign investment.

The Indonesian government approved the most recent version of the list on May 12, 2016. This new list updates, streamlines, and simplifies the previous version released in 2014.

Because of the 2016 Negative Investment List, more business fields are now available for full or limited foreign ownership compared to 2014. However, some business areas also have new restrictions.

You can read the official document in Bahasa on the Indonesian Investment Coordinating Board’s website. Below, you’ll find our summary and analysis.

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What fields are open for 100% foreign ownership?

With the 2016 Indonesia Negative Investment List, many foreign businesses can now be 100% foreign-owned. According to the Indonesian government, these fields are now open because they already face enough domestic competition or need more support through technology or funding.

For example, in the trade, energy, and industry sectors, foreign investors can now entirely own:

  • Cold storage businesses,
  • Distribution affiliated with production,
  • Direct selling through marketing networks,
  • Brokers,
  • Crumb rubber processing, and
  • Biomass pellets for renewable energy.
Foreign companies or PT PMA in Indonesia must plan to invest at least IDR 10 billion (about USD 700,000) in Indonesia, excluding land. This means that investing directly in SMEs, for example, is out of the question.

Indonesia is also pushing for more investments in healthcare, where foreign entities can now entirely own:

  • Hospital management and consultancy,
  • Hospital services,
  • Medical equipment rentals,
  • Clinic laboratories,
  • Check-up clinics, and
  • Manufacture of raw materials for pharmaceuticals.

In the tourism and creative economy sectors, foreign entities can now own:

  • Bars, cafés, restaurants,
  • Sports facilities,
  • Film studios, and
  • Most aspects of film production and distribution, including cinemas, dubbing, subtitling, and editing.

Also, foreign entities can now fully own e-commerce businesses (marketplaces, daily deals, product and price aggregators or online classified ads). However, this only applies if you plan to invest more than IDR 100 billion (about USD 7 million).

What fields are open for partial foreign ownership?

The 2016 Indonesia Negative Investment List also allows higher foreign ownership in several fields that used to be either prohibited, restricted, or not explicitly discussed.

Foreign entities can now be majority shareholders (max. 67% ownership) in several fields where it wasn’t previously possible. These include:

  • Internet service providers and call centers,
  • Professional training courses,
  • Distribution and warehousing,
  • Department stores with retail space of 400 to 2,000 square meters,
  • Airport services and air transport supporting services,
  • General sales agencies for foreign airlines.

Meanwhile, foreign entities can also be minority shareholders (max. 49% ownership) in several fields. These include:

  • E-commerce businesses (marketplaces, daily deals, product and price aggregators or online classified ads) for investments below IDR 100 billion (about USD 7 million),
  • Examination and testing of high voltage electrical installations,
  • Passenger land transportation, and
  • Taxis, charter vehicles, and other unscheduled land transport.

What about foreign investments from ASEAN countries?

The Indonesia Negative Investment List also takes into account the ASEAN Economic Community (AEC) program, which came into effect per 1 January 2016. The program aims to increase economic integration between ASEAN countries, including through a free flow of investment.

So, investors from ASEAN countries like Malaysia and Singapore can get a higher cap of ownership (max. 70%) in some business fields. Meanwhile, foreign investors from other regions can only have 67% ownership in those fields.

For example, these fields include (but aren’t limited to):

  • Construction consultancy services involving advanced technology, high risk, or value of more than IDR 10 billion (about USD 700,000),
  • Golf courses,
  • Travel bureaus,
  • Motels,
  • Meeting, Incentives, Conferences, and Exhibitions (MICE) operations, and
  • Maritime cargo handling services.

What fields are now exclusively for domestic SMEs?

You also need to know that there are some business fields with new limitations. The foreign Negative Investment List now reserves these fields for investment by – or partnership with – domestic SMEs.

The Indonesian government wants to focus on developing SMEs as a significant contributor to the economy. Because of that, the government designed some items in the 2016 Indonesia Negative Investment List to support SME development and protect the autonomy of SME operators.

In mid-2018, SMEs contributed to 99.9% of all business units in Indonesia, 96.9% of labor absorption, and 57.5% of the national GDP.

Fields that the government has reserved for domestic SMEs include construction consultancy services valued at less than IDR 10 billion (about USD 700,000).

However, the government also accommodates foreign entities who wish to support domestic SMEs. As such, international players can partner (not own shares) with SMEs in fields such as mail-order or internet-order FMCGs (food, beverages, tobacco, cosmetics, etc.).

What fields are unavailable for investment?

The Indonesia Negative Investment List also prohibits private investment – whether foreign or domestic – in a few business fields. These include, but aren’t limited to:

  • Management of land terminals for passenger transport,
  • Casinos,
  • Production of alcoholic beverages, and
  • Distribution of coral and marine salvage.

The government can also prohibit foreign investments that directly affect Indonesia’s national interests, such as defense or environmental grounds.

Are there any other changes from 2014?

Yes. The 2016 update removed the need to obtain specific recommendations from technical ministries or government institutions for several business fields such as agriculture.

The 2016 update also simplified the list by combining closely-related business fields into single categories. For example, the update merges numerous separate construction-related businesses into a single “construction services” business field.

What fields are still prohibited for foreign investment?

Some regulations that were in the 2014 Negative List are still effective in the 2016 update. In other words, foreign investors still aren’t allowed or restricted to invest in some areas. Here are a few examples:

  • Foreign ownership for plantations larger than 25 hectares is capped at max. 95%,
  • Ownership of telecommunications towers are still prohibited,
  • Insurance company ownership is capped at 80%, and
  • Venture capital ownership is capped at 85%.

What about prior investments?

The 2016 Indonesia Negative Investment List also includes a grandfather clause provision for investments that were already in place before the new regulations. Unless the 2016 update presents a higher foreign ownership cap, the Negative List won’t affect any prior approved investments.

You can also grandfather existing investments in the event of a merger or an acquisition (but not a consolidation of companies) where the relevant companies are in the same business line.

How does this affect public companies?

Officially, the 2016 foreign investment negative list doesn’t affect portfolio investments conducted through the Indonesian Stock Exchange.

However, the negative list doesn’t specify what constitutes a “portfolio investment,” and there’s still some uncertainty as to how the regulators will implement this exemption. You should probably expect further changes on this particular topic.

What about rights issues?

The 2016 Indonesia Negative Investment List also outlines what happens if a domestic investor can’t participate in a rights issue in an expanding business. In cases like this, a foreign investor is allowed to subscribe to the excess shares even if it exceeds the permitted foreign ownership percentage.

As long as within two years, the foreign shareholder gives up any shares above the applicable ownership limit by:

  • a sale to a domestic investor,
  • a public offering, or
  • a share buy-back.

Okay, sounds interesting. Where do I start?

You can start by considering to invest in the newly opened fields or increasing your existing investments in areas with raised ownership caps.

To make sure you get the clearest picture of whether your business is available, you should also consult professional advisors or the Indonesian Investment Coordinating Board.

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