19 December, 2017
Joint ventures with foreign parties are allowed in Indonesia. The rules relating to the validity and authorization of JVs with foreign parties are mainly set out in Law No. 25 of 2007 regarding Capital Investment (the “Investment Law”).
Additionally, specific regulations issued by the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) relate to JVs with foreign parties, including:
- Regulation of the Chairman of BKPM No. 14 of 2015 regarding Guidelines and Procedures for Capital Investment, as amended.
- Regulation of the Chairman of BKPM No. 15 of 2015 regarding Guidelines and Procedures for Investment Licensing and Non-Licensing.
Limits
Foreign parties/investors are only allowed to form a limited liability company (perseroan terbatas or “PT”), unless otherwise permitted under other regulations (the Investment Law). A PT that is formed by a foreign party is known as a foreign investment company (Perseroan Terbatas Penanaman Modal Asing or “PMA”).
The formation of a PMA is also governed by Law No. 40 of 2007 regarding Limited Liability Company (the “Company Law”). One example of a law that permits a JV with a foreign party in a form other than a PT is Law No. 2 of 2017 regarding Construction Service (the “Construction Law”). The Construction Law allows the formation of a joint operation between a foreign construction representative office and a local construction company.
Additionally, areas of business in which foreign participation is prohibited or restricted are listed in Presidential Regulation No. 44 of 2016 regarding List of the Business Fields that Are Closed and Business Fields that Are Open With Requirements for Capital Investment (Daftar Negatif Investasi or “DNI”).
In addition to the DNI, specific sectoral laws and regulations should be reviewed to determine whether a particular line of business is open for investment and, if so, whether a JV will be subject to foreign investment restrictions or other special requirements.
Authorization
The formation of a PMA must be pre-approved by the BKPM, which is evidenced by BKPM’s in-principle approval.
In the construction industry, a foreign construction representative office must be licensed by the BKPM before it can form a joint operation with a local construction company.
