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Foreign investment in Indonesia

Foreign Investment in Indonesia

Foreign investment in Indonesia is regulated by Law no. 25 Year 2007 regarding Investment (Investment Law) which is a substitute and the old Investment Law, namely Law No.1 Year 1967 on Foreign Investment (UUPMA) and Law No.6 of 1968 concerning Domestic Investment (UUPMDN). Unlike UUPMA and UUPMDN which distinguish the regulation between foreign investment and domestic investment, it is still done the context of identifying the origin of capital, whether it is sourced from domestic or abroad or based on the party who do the investment.

The Investment Law does not include investment arrangements in banking, insurance, business, securities (securities companies), and financing institutions. The banking business sector is specifically regulated in Act No.7 of 1992 concerning banking as amended by Act no. 21 of 2008 concerning Sharia Banking and is under the authority of Bank Indonesia.

The insurance business sector is specifically regulated based on Law No.2 of 1992 concerning Insurance Business (Insurance Law) and securities business field is regulated under Law no. 8 of 1995 concerning Capital Market (Capital Market Law), [1] both of which are currently under the supervision and review of the Financial Services Authority (OJK) as set out in Law no. 21 Year 2011 on the Financial Services Authority (OJK) which is an Independent institution.

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Foreign investment arrangements under the Investment Law are further regulated in a variety of complex and complex instruments of legislation, as they include multidimensional arrangements. The following are some of the implementing regulations of the Capital Investment Law that need to be considered in the initial understanding of the position and arrangement of foreign investment in Indonesia:

  1. Government Regulation no. 45 of 2008 concerning Guidelines for Provision of Incentives and Provision of Investment Ease in the Region; [1]Under the Capital Market Law, securities business is known as a securities company defined as a party conducting business as underwriting, brokerage and/or fund management. See chapter 1 number (21) of the Capital Market Law.
  2. Presidential Regulation no. 76 Year 2007 concerning Criteria and Requirements for the Preparation of Closed Business Field and Opened Business Field with Requirements in the Field of Investment;
  3. Presidential Regulation no. 36 Year 2010 junto Presidential Regulation no. 44 of 2016 concerning the List of Closed Business Fields and Opened Business Fields with Requirements in the Field of Investment;
  4. Presidential Regulation no. 27 Year 2009 on One Stop Service in the Investment Sector;
  5. Regulation of Head of BKPM no. 6 of 2011 on Procedures for the Implementation, Development and Reporting of One-Stop Integrated Services in the Field of Investment;
  6. Regulation of Head of BKPM no. 12 of 2009 concerning Guidelines and Procedures for Investment Application;
  7. Regulation of Head of BKPM No.13 of 2009 on Guidelines and Procedures for Controlling Implementation of Capital Investment as amended by Regulation of the President. 7 of 2010;
  8. Regulation of Head of BKPM no. 14 of 2009 concerning Electronic Information and Investment Permit Service System;
  9. Head of BKPM Regulation no. 89/SK/2007 concerning Guidelines and Procedures for Application of Income Tax Facilities for Investment Companies in Certain Businesses and/or in Certain Regions;
  10. Regulation of Head of BKPM no. 12 Year 2011 on Guidelines and Procedures for Submission of Application for Exemption or Reduction of Corporate Income Tax.
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In addition to the laws and regulations directly governing the investment concerns mentioned above, other legislation in the field also needs to be addressed, such as regulations governing the issue of licensing authority in relation to investment, the environment, employment, customs taxation, land, technology (transfer of technology), fair business competition, custsomer protection, intellectual property rights, sectoral regulations such as telecommunications, transportation, industry, commerce, mining, plantation, forestry, or even regulations established by local governments.

In the context of the international aspect, the instruments of legislation that ratify international conventions or agreements relating to investment matters also need to be considered, among others:

  1. Law No.7/1994 on Ratification of Agreement Establishing The World Trade Organization which includes agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS), Trade Related Aspects of Investment Measures (TRIMS) , and the General Agreement on Trade in Services (GATS);
  2. Presidential Decree No. 31 of 1986 on the Ratification of the Convention establishing the Multilateral Investment Guarantee Agency;
  3. Presidential Decree No. 34 of 1981 on the ratification of the Convention of Recognition and Enforcement of the Foreign Arbital Awards;
  4. Law no. 32 of 1968 concerning the Agreement on the Convention on the Settlement of Disputes between States and Nationals of Other State; and
  5. International Agreements relating to Bilateral and Multilateral Investment Treaty (Asia Pacific Ecomomic Cooperation,Asean Free Trade Agreement, Asean China Free Trade Agreement).
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