A Summary of Indonesia’s Negative Investment List

The ultimate guide to the Indonesia Negative Investment List.

Any aspiring investor planning to move into Indonesia should be familiar with the Indonesia Negative Investment List or – in Bahasa – Daftar Negatif Investasi. This regulation outlines what business fields are closed or restricted to foreign investment.

The Indonesian government approved the most recent foreign investment negative list on May 12, 2016. This new list updates, streamlines, and simplifies the previous regulation outlined in 2014.

Foreign investments in Indonesia must have a value of at least Rp 10 billion (about US$700,000), excluding land and buildings. This means that investing directly in SMEs, for example, is out of the question.

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

What fields are open for full foreign ownership?

The 2016 Indonesia Negative Investment List removed some business fields in the 2014 version. As such, this means that those businesses can now be 100% foreign-owned. In some cases, though, there are still a few conditions which you’ll need to fulfill.

According to the Indonesian Coordinating Ministry of Economy, these fields are now open because they either already face sufficient domestic competition or require more support through technology or funding.

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

  • Cold storage businesses,
  • Distribution affiliated with production,
  • Direct selling through marketing networks,
  • Brokers,
  • Crumb rubber processing, and
  • Biomass pellets for renewable energy.

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.

In addition, foreign entities can now fully own e-commerce businesses (marketplaces, daily deals, product and price aggregators and/or online classified ads) if they invest more than Rp 100 billion (about US$7 million).

What fields are open for partial foreign ownership?

The 2016 Indonesia Negative Investment List also allows an increased percentage of 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 a number of 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 and/or online classified ads) for investments below Rp 100 billion (about US $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.

As such, entities from ASEAN countries can get a higher cap of ownership (max. 70%) in selected 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, and/or value of more than Rp 10 billion (about US $700,000),
  • Golf courses,
  • Travel bureaus,
  • Motels,
  • Meeting, Incentives, Conferences, and Exhibitions (MICE) operations, and
  • Maritime cargo handling services.

What fields are now reserved 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 currently focuses on developing SMEs as a major contributor to the economy. As such, the government has 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 which have been reserved for domestic SMEs include construction consultancy services valued at less than Rp 10 billion (about US$700,000).

However, the government also accommodates foreign entities who wish to support domestic SMEs. As such, foreign entities 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. To streamline the process, 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 hasn’t changed?

Some regulations outlined in the 2014 Negative List are still effective in the 2016 update. 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.

Existing investments are also grandfathered 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, exactly what constitutes a “portfolio investment” isn’t specified and there’s still some uncertainty as to how this exemption will be implemented by the regulators. We’d advise you to expect further changes in this particular topic.

What about rights issues?

According to the 2016 Indonesia Negative Investment List, if a domestic investor is unable to participate in a rights issue in an expanding business, then a foreign investor is allowed to subscribe to the excess unallocated 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 relevant 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 opportunities to invest in the newly opened fields or increasing your existing investments in fields with raised ownership caps.

To make sure there aren’t any problems like varying interpretations of categories, we’d also advise you to consult the Indonesian Investment Coordinating Board – or BKPM in Bahasa – as well as other professional advisors.

If you’d like to connect with experienced consultants with a proven track record in helping foreign investors set up shop and incorporate, Greenhouse is always happy to help.

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