Indonesia Negative Investment List
Updated: Jun 1, 2020
Have you ever wished to start your business in Indonesia? Do you know that will you eligible to conduct the business with foreign ownerships? Trust me, do not ever rush to start it before checking the Indonesian Negative Investment List.
The Negative Investment List, or Daftar Negatif Investasi in Indonesian, is a regulation that 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. However, some business areas also have new restrictions.
How To Read The Negative Investment List?
The current rules governing maximum foreign capital investment are found in Presidential Regulation No. 44 of 2016 regarding Lists of Business Fields that Are Closed and Business Fields that Are Open with Conditions to Investment (see here). In the list, business sectors are defined in a form of the Indonesia Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”). You may check the KBLI as stipulated in Chairman of Central Statistics Agency Regulation No. 19 of 2017 regarding the Amendment of Chairman of Central Statistics Agency Regulation No. 95 of 2015 regarding the Indonesia Standard Industrial Classification (see here).
The Negative Investment List consists of three different appendices.
You can find the list of business fields that are closed to investment in the first appendix. The 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 defence or environmental grounds.
Some conditions are applied for specific business fields that are open for foreign investments in the second appendix. Certain business fields can be reserved or in partnership with Micro, Small, and Medium-Scale Enterprises and Cooperatives. 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. 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.).
In the third appendix, you can find 16 business fields that are open under certain conditions. As mentioned before, 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 centres, 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.
However, 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 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 a result, 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),
Meeting, Incentives, Conferences, and Exhibitions (MICE) operations, and
Maritime cargo handling services.
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.
Any recent updates for the list?
The government is planning to revise the regulation on the negative investment list (DNI), saying that it will instead begin promoting priority industries that are open to both foreign and domestic investment. As a result, for businesses outside of the selected sectors, the government would instead draw up a priority list for them to welcome more investment. Based on the recent updates, the government will draft a presidential regulation on the priority list, or the positive investment list, particularly for industries that are import-substitution or export-oriented. The amendment of the regulation is expected to be issued in 2020. By changing the list into the priority or positive investment list, the government aims to strengthen Indonesia's value-added chains, including the coal gasification, automotive and electronics sectors, that will benefit the economic growth.
If you have any questions or would like to know more, please contact us here.
Indonesia Investment Coordinating Board (BKPM)
The Jakarta Post, https://www.thejakartapost.com/news/2019/11/12/government-to-replace-negative-investment-list-with-positive-list-for-priority-industries.html