Professional Documents
Culture Documents
DOING BUSINESS IN
INDONESIA
15 November 2012
Julian Kwek
Head, Indonesia Desk
1
DISCLAIMER
The information and views set out herein are not intended to constitute legal
advice and should not be relied on as legal advice. You should obtain legal
advice from suitably qualified Singapore and Indonesian counsel, as the
case may be, to address the specific circumstances of your case and the
purpose for which the legal advice is sought.
See Disclaimer 2
TABLE OF CONTENTS THOUGHT
PROCESS FOR AN INVESTMENT
1. Is the industry open to foreign investment?
2. What are the applicable national and local laws and regulations for this industry?
3. What are the permits required?
4. Which business vehicle?
5. Foreign Investment Company
6. What is the most suitable structure for the investment from tax perspective?
7. What is the most suitable structure for the investment from enforcement
perspective?
8. Peculiar features of Indonesian law that might affect foreign investors
9. Parting Words
10. Main Contacts
See Disclaimer 3
01
IS THE INDUSTRY OPEN TO
FOREIGN INVESTMENT?
4
IS THE INDUSTRY OPEN TO FOREIGN
INVESTMENT?
Regulated under Presidential Regulation No. 76/2007 in conjunction with
Presidential Regulation no 36 year 2010
This list sets out types of business which are closed to foreign investment or
restricted by way of conditions to invest
Examples:
Section 9 for Culture and Tourism Sector no 13, for Hotel (star 1-2), foreign
ownership is limited to 49%
Section 16 for Health Sector no 5, for Supporting Health Service, foreign
ownership is limited to 49%
Each investment sector is classified under Indonesian Standard Classification of
Business Field (KBLI)
E.g. Hotel (star 1-2) is under KBLI 55114 (Two Star Hotel) and 55115 (One
Star Hotel), Supporting Health Service is under KBLI 86903
See Disclaimer 5
IS THE INDUSTRY OPEN TO FOREIGN
INVESTMENT?
Some limitations for foreign investment according to the Negative Investment
Lists can be as follows:
1. Reserved for Micro, Small, Medium Enterprises and Cooperatives
2. Partnership with an Indonesian entity is required
3. Foreign Capital Ownership is allowed on certain Locations
Some business is allowed on all locations, but some are allowed in
certain location, e.g. Eastern Indonesia (Kalimantan, Sulawesi, NTT,
Bengkulu and Jambi)
4. Special license is required
5. Must be 100% Local Capital
6. Limitation of Foreign Capital Ownership
E.g. Acupuncture service max 49%, dental service max 67%
See Disclaimer 6
02
WHAT ARE THE
APPLICABLE NATIONAL
AND LOCAL LAWS AND
REGULATIONS FOR THIS
INDUSTRY?
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WHAT ARE THE APPLICABLE
NATIONAL AND REGIONAL LAWS AND
REGULATIONS ?
Indonesia
(Country level)
Provinces
Provinces 5 Special Regions
(Propinsi)
Aceh, Papua,
Regional Government
West Papua,
(Kabupaten)
Yogyakarta and Jakarta
Regency Government
(Bupati)
Cities or
Municipality government
(Kota)
See Disclaimer 8
WHAT ARE THE APPLICABLE
NATIONAL AND REGIONAL LAWS AND
REGULATIONS ?
Indonesia has 33 provinces and 5 provinces have special status:
Aceh, for the use of Sharia Law as the regional law
Yogyakarta Special Region, for being governed in a monarchy system
Papua, for implementation of sustainable development
West Papua, for granting implementation of sustainable development
Jakarta Special Capital Region
Regional Government and Municipal Government may pass their own law,
commonly referred as Regional Regulations (Peraturan Daerah).
But they cannot contradict State Laws or Laws that is of higher hierarchy than
Regional Regulations, such as: Laws (Undang-Undang), Presidential Regulations
and Ministerial Regulations.
See Disclaimer 9
03
WHAT SORT OF PERMITS
ARE NEEDED?
10
WHAT SORT OF PERMITS ARE
NEEDED?
Implementation Licences, such as:
See Disclaimer 11
04
WHICH BUSINESS ENTITY?
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WHICH BUSINESS ENTITY FOR
FOREIGN INVESTORS?
A. Representative Office (Rep. Office) not allowed to enter into business
transactions in Indonesia, limited to marketing and coordination, many different
types and each type is subject to different regulation or ministry.
See Disclaimer 13
05
FOREIGN INVESTMENT
COMPANY
14
FOREIGN INVESTMENT COMPANY
See Disclaimer 15
FOREIGN INVESTMENT COMPANY
Article 7 par.(1) PP 20/1994:
Companies wholly owned by foreign investors
the Company has to divest some of its shares to an Indonesian citizen and/or
Indonesian legal entity through direct ownership or the domestic capital market
Has to be carried out within 15 years as from the start of its commercial production
See Disclaimer 16
06
WHAT IS THE MOST
SUITABLE STRUCTURE FOR
THE INVESTMENT FROM
TAX PERSPECTIVE
17
STRUCTURE FROM TAX PERSPECTIVE -
Possible Structure Interplay between
Singapore and Indonesia
Indonesian
SIN Holdco
Counterpart
PMA
This structure is intended as an illustration and is not applicable to all fact scenarios. Please consult your financial, tax and
legal advisors if you need specific advice.
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See Disclaimer
STRUCTURE FROM TAX PERSPECTIVE -
Indonesian Corporate Tax of Singapore
Corporate Tax
Operational:
- Indonesia has a 25% tax rate on corporate income tax.
- Singapores top line tax rate is 17% but could be reduced subject to
qualification under various incentive schemes.
Exit Strategy
- Indonesia imposes a withholding tax of 5% on sale proceeds whenever a
foreigner sells his shares in a PMA.
- Singapore does not have equivalent taxes.
19
See Disclaimer
STRUCTURE FROM TAX PERSPECTIVE -
Indonesian Withholding Tax on Dividends
20
See Disclaimer
STRUCTURE FROM TAX PERSPECTIVE -
Indonesian Withholding Tax on Interest
21
See Disclaimer
07
WHAT IS THE MOST
SUITABLE STRUCTURE FOR
THE INVESTMENT FROM
ENFORCEMENT
PERSPECTIVE
22
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE
Possible Structure Structure it offshore?
Foreign Indonesian
Investor Counterpart
Indonesian
SIN Holdco
Counterpart
PMA
This structure is intended as an illustration and is not applicable to all fact scenarios. Please consult your financial, tax and
legal advisors if you need specific advice.
23
See Disclaimer
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE
Dispute Resolution Options
A. Foreign Courts
B. Indonesian Courts
See Disclaimer 24
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
A: Foreign Courts
Foreign Courts Singapore, Hong Kong, United Kingdom, USA, etc
May be used for joint ventures or acquisitions structured offshore
May also be used for onshore agreements
Problems:
Foreign court orders are not recognised in Indonesia.
Only relevant to assets outside of Indonesia
See Disclaimer 25
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
B: Indonesian Courts
Hierarchy of Civil Courts
Some key features of Indonesian Legal System
See Disclaimer 26
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
B: Indonesian Courts
Hierarchy of Indonesian Civil Courts
Problem:
Could be a longer process than foreign court proceedings
See Disclaimer 27
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
B: Indonesian Courts
SOME KEY FEATURES OF INDONESIAN COURTS
See Disclaimer 28
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
C: Arbitration
1. International Arbitration Centers in Singapore, Hong Kong, United Kingdom,
United States etc.
See Disclaimer 29
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
C: Arbitration
Foreign Arbitration Award
See Disclaimer 30
STRUCTURE FROM COUNTERPART
RISK MANAGEMENT AND
ENFORCEMENT PERSPECTIVE Option
C: Arbitration
LOCAL ARBITRATION AWARD FROM BANI
Within 30 days of arbitral award, arbitrator will submit and register such award with
District Court bailiff
Chairman of District Court must order enforcement of arbitral award within 30 days
of registration of request for enforcement
Prior to issuance of order of enforcement (perintah pelaksanaan), Chairman of
District Court is required to review:
Whether Arbitral award is founded upon enforceable arbitration agreement
Whether arbitral dispute is legally subject to resolution through arbitration
Whether arbitral award contradicts public order and decency/morality
See Disclaimer 31
08
PERCULIAR FEATURES OF
INDONESIAN LAW FOR
FOREIGN INVESTORS
32
PECULIAR FEATURES OF INDONESIAN
LAW FOR FOREIGN INVESTORS
See Disclaimer 33
09
PARTING WORDS
34
PARTING WORDS
1.Indonesia is not Singapore
The Laws are different
The Legal and Court Systems are different
Timing is different
2.Get the Partner, Target and Terms right
They are hard to change
3.Choose the right Advisors
Financial & Tax Advisors
Good financial advice is critical
Many structure offshore for tax and other reasons
Indonesian Lawyers
Always a must for onshore Legal Due Diligence and legal advice
Offshore Lawyers
To conduct offshore Legal Due Diligence and legal advice
Accountants
To conduct Financial Due Diligence and Financial Modelling
See Disclaimer 35
MAIN CONTACTS
Julian Kwek
Head, Indonesia Desk
Director, Corporate & Finance
Tel: +65 6531 2451
Email: julian.kwek@drewnapier.com
Aaron Kok
Associate Director, Corporate & Finance
Tel: +65 6531 2299
Email: aaron.kok@drewnapier.com
See Disclaimer 36
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