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27 July, 2016
In conjunction with the 10th Economic Policy Package of Indonesia, on 18 May 2016, a new negative investment list in the form of the Presidential Decree No. 44 of 2016 on the List of Business Fields Closed and Business Fields Open with Conditions for Investment in the investment sector (the “2016 DNI Regulation”) was issued to take effect.
GENERAL OVERVIEW
The 2016 DNI Regulation replaces the 2014 DNI Regulation, with significant changes, chief amongst which is providing preferential treatment to ASEAN countries, whereby ASEAN investors are now able to invest in certain closed business fields and have an increased shareholding percentage of up to 70% in specified sectors.
Further, the 2016 DNI Regulation also provides a definition of partnership (kemitraan) as direct or indirect partnership in conditionally-open business fields based on the principles of mutual need, trust, and profitable purposes by and amongst micro, small, and medium business players with big business players.
NOTABLE CHANGES
We take the liberty of highlighting herein, the significant changes of the 2016 DNI regulation compared to the 2014 DNI Regulation:
Agriculture
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BUSINESS FIELDS |
CHANGES |
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Growing of staple food crops (breeding/seeding) with an area of more than 25 Ha |
Remain open for a maximum of 49% foreign investment. Removed, the requirement of a recommendation from the Ministry of Agriculture. |
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Growing of food crops with an area of more than 25 Ha |
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Growing of food crops with an area of less than 25 Ha |
Previously opened for a maximum of 49% foreign investment, now closed for foreign Investment and reserved for micro, small, medium business and cooperatives. |
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Plantation Breeding with an area of less than 25 Ha |
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Plantation with an area of less than 25 Ha Agricultural Business with certain Capacity |
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Plantation Breeding with an area of 25 ha or more |
Remain open for a maximum of 95% foreign investment. Removed, the requirement of a recommendation from the Ministry of Agriculture. |
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Plantation Breeding with an area of 25 ha or more up to a specified are size without processing unit |
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Plantation in an area of 25 Ha or more, integrating with processing unit with a capacity equivalent to or exceeding the specified capacity |
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Agricultural Business with a capacity of equivalent to or exceeding the specified capacity |
Remain open for a maximum of 95% foreign investment. Removed, the requirement of Ministry of Agriculture’s recommendation. |
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Research and development on sciences and engineering |
Remain open for a maximum of 45% foreign investment. Removed, the requirement of a recommendation from the Ministry of Agriculture. |
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Breeding and raising of swine |
Specified location regulated by the Ministry of Agriculture. |
Forestry
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BUSINESS FIELDS |
CHANGES |
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Captive breeding of wildlife and plants/growing and conservative institution (excluded plants/growing of coral) |
Open for a maximum of 49% foreign investment. |
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Operation of natural tourism through provision of ecotourism facilities, activities and services within the forestry areas, including water tours, natural adventure tours, and spelunking tours |
Remain open for a maximum of 49% foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%. |
Maritime and Fisheries
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BUSINESS FIELDS |
CHANGES |
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Coral breeding/cultivation |
Open for a maximum of 100% foreign investment. Require a recommendation from the Ministry of Environment and Foresty. |
Energy and Mineral Resources
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BUSINESS FIELDS |
CHANGES |
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Geothermal Electricity Power Plant with a capacity of ≤ 10 MW |
Open for a maximum of 67% foreign investment. |
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Manufacture of biomass pellets for energy |
Open for a maximum of 100% foreign investment. |
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Electric Power Construction and Installation For the installation of high voltage/extra high voltage application |
Open for a maximum of 49% foreign investment. |
| For the installation of middle/low voltage application |
Closed for foreign investment. |
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Testing and analysis of electrical installation on electric power provision and utilization
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Open for a maximum of 49% foreign investment. |
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Closed for foreign investment. |
Industry
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BUSINESS FIELDS |
CHANGES |
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Manufacture of case sugar (plantation white sugar, refined sugar and raw sugar) |
Previously opened for a maximum of 95% foreign investment, now closed for foreign Investment. Open for partnership in the form of 20% plasma core of the land area. |
Defense and Security
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BUSINESS FIELDS |
CHANGES |
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Manufacture of raw materials for explosives |
Remain open for a maximum of 49% foreign investment or a maximum of 51% if cooperating with State-Owned Company (BUMN). Require a recommendation from the |
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Manufacture of explosive main components and/or its supports |
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Manufacture of explosive components industry and/or supports (perbekalan) |
Public Works
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BUSINESS FIELDS |
CHANGES |
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Operation of Toll Roads |
Previously opened for a maximum of 95% foreign investment, now open for a maximum of 100% foreign investment. |
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Treatment and disposal of non-hazardous waste |
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Construction Service (Construction Implementation Service) using high technology and/or high risk and/or work value of more than Rp. 50,000,000,000 (previously value of more than Rp. 1,000,000,000) |
Remain open for a maximum of 67% foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%. |
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Construction services (construction contractors) with low-cost technology and middle and/or low risks |
Reserved for micro, small, medium business and cooperatives. |
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Construction consultancy services divided into: Services using high technology and/or high risk and/or work value of more than Rp. 10,000,000,000. |
Previously opened for a maximum of 55% foreign investment, now open for a maximum of 67% foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%. |
| Services using low-cost technology and middle and/or low risks and/or work value up to Rp. 10,000,000,000. |
Reserved for micro, small, medium |
Note: there are 58 additional business fields reserved for micro, small, medium business and cooperatives in the 2016 DNI Regulation for public works sector.
Trade
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BUSINESS FIELDS |
CHANGES |
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Direct selling through a network developed by a business partner |
Open for a maximum of 100% foreign investment. |
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Distributors affiliated with production/manufacturing |
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Cold storage |
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Futures brokers |
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Distributors that are not affiliated with manufacturing |
Previously opened for a maximum of 33% foreign investment, now open for a maximum of 67% foreign investment. |
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Department Store with retail space between 400 m2 – 2000m2 |
Open for a maximum of 67% foreign investment. Require a special permit from the Ministry of Trade with the following conditions:
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Public opinion polling and market research |
Remain closed for foreign investment except for ASEAN Investors, who are allowed to invest up to a maximum of 70%. |
Tourism and Creative Economy
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BUSINESS FIELDS |
CHANGES |
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Restaurant, Bar, Café |
Open for a maximum of 100% foreign investment.
Open for a maximum of 100% foreign investment. |
Operation of sports facilities:
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Motion Pictures:
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Filmmaking, Motion picture projection, Sound recording studios (cassettes, VCDs, DVDs, etc.), Motion picture distribution |
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Museum Management, Travel Bureaus, Catering, Motels, Billiard Houses, Bowling lanes, Golf Courses, Art impresario service, Meeting, incentive traveling, conference, and exhibition (MICE) |
Open for a maximum of 67% foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%. |
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Privately-operated historical sites and buildings in the form of temple, palace, inscriptions, ruins and ancient buildings |
Open for a maximum of 67% foreign ownership investment. |
Accommodation:
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Art Galleries, Art Theaters, Karaoke, Games |
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Operation of natural tourism objects outside conservation areas |
Transportation
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BUSINESS FIELDS |
CHANGES |
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International sea transport for passenger (excluding cabotage) |
Open for a maximum of 49% foreign ownership. ASEAN Investors are allowed to invest up to a maximum of 70%. |
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International freight sea transportation |
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Supporting transport business in terminals |
Previously opened for a maximum of 49% foreign investment, now open for a maximum of 67% foreign investment. |
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Air transport support services (computer reservation system, passenger and cargo ground handling, and aircraft leasing) |
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Service activities related to airports |
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Freight forwarding services |
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Air freight forwarding services |
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Airline general sales agents (GSA) |
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Maritime cargo handling services |
Previously opened for a maximum of 49% foreign investment, now open for a maximum of 67% foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%, but only applicable in 4 eastern Indonesian Ports, namely: Bitung, Ambon, Kupang and Sorong. |
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Provision and operation of inland water harbors/piers |
Open for a maximum of 49% foreign investment (previously under special license). |
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Provision and operation of river and lake harbors/piers |
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Provision of harbor facilities (jetties, buildings, tugs at cargo container terminals, at liquid-bulk terminals, at dry-bulk terminals, and at Roll on-Roll off (Ro-Ro) terminals |
Remain open for a maximum of 49% foreign investment. Require special license from the Ministry of Transportation related to the minimum capital requirement. |
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Salvage and/or underwater works |
Special license from Ministry of Transportation (previously opened for 49% foreign investment). |
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Performance of periodic testing of motor vehicles |
Remain open for 49% foreign investment. Removed, the requirement of a recommendation from the Ministry of Transportation. |
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Construction of passenger land transport terminals (limited public facilities and general cargo terminal) |
Communication and Informatics
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BUSINESS FIELDS |
CHANGES |
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Performance of telecommunications equipment testing (laboratory test) |
Open for a maximum of 100% foreign investment. |
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Wired telecommunication services |
Open for a maximum of 67% foreign investment.
Open for a maximum of 67% foreign investment. |
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Wireless/satellite telecommunication services |
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Wired/wireless/satellite telecommunications services integrating with telecommunications service |
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Telecommunications services:
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Trade transaction via Electronic System (platform based market place, daily deals, price grabber, online advertisements) with investment value of less than Rp. 100,000,000,000. |
Previously not regulated, now open for a maximum of 49% foreign investment. Note: if the investment is more than Rp. 100,000,000,000 it opens for a maximum of 100% foreign investments. |
Finance
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BUSINESS FIELDS |
CHANGES |
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Pension funds |
Removed, closed for investment because it is considered as not for business |
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Surety company |
Previously not regulated, now open for a maximum of 30% foreign investment. |
Manpower
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BUSINESS FIELDS |
CHANGES |
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Job training (to provide, have access to, increase, develop job competency, productivity, discipline, manner and work ethics, inter alia, technics and engineering vocation, commerce, language, tourism, management, information technology, arts and agriculture dedicated to providing workforce with knowledge to enter the working world. (this includes non-formal education, such as computer education, private language education, private beauty and personality education, other private skill education) |
Previously opened for a maximum of 49% foreign investment, now open for a maximum of 67% foreign investment. |
Health
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BUSINESS FIELDS |
CHANGES |
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Manufacture of drug raw materials |
Open for a maximum of 100% foreign investment.
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Business and management consultancy services and/or hospital management services |
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Health support services:
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Institution of medical devices testing (previously testing of maintenance and repair calibration of medical devices) |
Increased to a maximum of 67% foreign investment. |
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Pest Control/Fumigation services |
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Medical evacuation and ambulance services |
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Main clinic: clinic specialized medical services, clinic specialized dental services, specialized nursing service, other medical rehabilitation |
Open for a maximum of 67% for foreign investment. ASEAN Investors are allowed to invest up to a maximum of 70%. Applicable to all capital cities in eastern Indonesia, except Makassar and Manado. |
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Health research centers/institute |
Removed, but closed for investment as it is managed by the Government, not private. |
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Distributor of medical equipment |
New restriction, open for a maximum of 49% foreign investment. Require a special license from the Ministry of Health. |
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Medical Equipment Industry: Class A (cotton, bandages, gauze, sticks, IV pole, sanitary napkins, adult diapers, patient bed, wheelchair) |
New restriction, open for a maximum of 33% foreign investment. Require a special license from the Ministry of Health. |
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Medical Equipment Industry: Class B (Surgical masks, syringes, patient monitors, condoms, surgical gloves, hemodialysis fluids, PACS, surgical knives) |
New restriction and require special licenses from the Ministry of |
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Medical Equipment Industry: Class C (IV Catheter, ECG, Patient Monitor, Inplan Orthopedy, Contact Lens, Oxymeter, Densitometer) |
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Class D (CTScan, MRI, Heart Catheter, Heart Stent, HIV Test, Pacemaker, Dormal Filler, Ablation Catheter) |
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Bank and Laboratory of tissues and cells |
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Private practices by health personnel |
Removed, but closed for investment as it is an individual service |
Closed Business Fields – NEW
The 2016 DNI Regulation introduces one new restriction for both local and foreign investments on the business of collection of valuable objects from sunken ships.
Important notes:
It is also important to take into account that the grandfather clause continues to apply in the 2016 DNI Regulation in that the changes in the 2016 DNI Regulation cannot be applied to the investment that has been approved prior to 18 May 2016 unless the 2016 DNI Regulation provides more benefit to the relevant investment.
CONCLUSION
The 2016 DNI Regulation demonstrates delivery of the Government of Indonesia of its promise of further liberalizing Indonesia’s markets while keeping to its commitments of lowering trade barriers under the ASEAN Economic Community which took effect on 31 December 2015. While it is still early to see if the 2016 DNI Regulation will in fact drive further foreign direct investment into the country, significant changes particularly in tourism, creative economy and health sectors are seen as relevant forward steps for Indonesia in keeping its doors open.
For further information, please contact:
Hanim Hamzah, Senior Foreign Counsel, Roosdiono & Partners
hanim.hamzah@zicolaw.com
