Overview Of Foreign Investment Law In Indonesia

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Overview Of Foreign Investment Law In Indonesia

  1. 1. Investment LawAn Overview
  2. 2. Investment Law• Why we call it “Investment Law”?• Why we do not call it “Foreign Investment Law”?• Why we do not call it “Domestic Investment Law”? www.lekslawyer.com
  3. 3. Background• Historically, there were two laws governing the investment law in Indonesia i.e. Law Number 1 of 1967 on Foreign Investment as amended by Law Number 11 of 1970 AND Law Number 6 of 1968 on Domestic Investment• Since 26 April 2007, these two laws were revoked and replaced by the new Investment Law. www.lekslawyer.com
  4. 4. Definitions• Domestic capital investment means the activity of investing capital to do business in the territory of the Republic of Indonesia carried out by domestic investors using domestic capital• Foreign capital investment means the activity of investing capital to do business in the territory of the Republic of Indonesia carried out by foreign investors, using fully foreign capital or by joint venture with domestic investors. www.lekslawyer.com
  5. 5. Definitions – Cont’d• Who are the domestic investors?• Who are the foreign investors?• What is a domestic capital?• What is a foreign capital? www.lekslawyer.com
  6. 6. Scope of Investment Law• The investment law applies to capital investment in all sectors in the territory of the Republic of Indonesia• In the elucidation, it is explained that “capital investment in all sectors in the Republic of Indonesia’s territory” means direct capital investment and DOES NOT include indirect or portfolio capital investment.• What is the meaning of bolded and underlined words? www.lekslawyer.com
  7. 7. Forms of Business Entity• Domestic capital investment may take the form of business entities in the form of legal entities, non legal entities or sole traders• Foreign capital investment must be in the form of a limited liability company subsisting under Indonesian law and domiciled in the territory of the Republic of Indonesia unless specified otherwise by statute. www.lekslawyer.com
  8. 8. Forms – Cont’d• Domestic and foreign investors investing capital in the form a limited liability company may do so by:• A. subscribing shares at the establishment of a limited liability company;• B. buying shares; and• C. using other means according to law. www.lekslawyer.com
  9. 9. Treatment of Capital Investment• The Government shall give all investors investing capital in Indonesia the same treatment wherever they originate from• The treatment does not apply to investors from a country which has privileges under a treaty with Indonesia e.g. customs unions, free trade zones, monetary unions, treaties between the Government of Indonesia and foreign governments which are bilateral, regional or multilateral in capital investment operations www.lekslawyer.com
  10. 10. Treatment – Cont’d• The Government shall not take action to nationalise or expropriate rights of ownership over capital investment except by law• If there is a nationalisation, the Government shall give compensation in an amount determined based on market prices. Market price means a price determined in the manner used internationally by independent appraisers appointed by the parties. www.lekslawyer.com
  11. 11. Treatment – Cont’d• An investor may assign assets it holds to parties desired by the investor according to law• Investors are granted the right to transfer and repatriate in foreign currency the following amongst others:• Capital;• Profits, bank interest, dividends, and other income;• Funds necessary for…etc (see Art 8 (3))• What is the meaning of “repatriation”? www.lekslawyer.com
  12. 12. Business Sectors• All business sectors or types of business shall be open for capital investment activities except for business sectors or types of business declared to be closed or conditionally open.• Elucidation: the closed and conditionally oopen business sectors and types of business shall be declared in Presidential Regulations composed as a list based on the standard classifications of business sectors and types of business prevailing in Indonesia, viz., a classification based on the Indonesian Standard Classification of Business Fields (KBLI) and/or the International standard for Industrial Classification (ISIC) www.lekslawyer.com
  13. 13. Obligation of Investors• Apply principles of good corporate governance• Implement corporate social responsibility• Make reports concerning capital investment activities and deliver them to the Capital Investment Coordinating Board• Respect the cultural traditions of the community around the location of the capital investment business activities, and• Comply with law www.lekslawyer.com
  14. 14. Sanctions• A business entity or sole proprietor who does not meet the obligations as mentioned previously may be liable to administrative penalties in the form of:• A written warning;• Restrictions on business activities;• Suspension of business activities and/or capital investment activities; or• Revocation of business entities and/or capital investment facilities www.lekslawyer.com
  15. 15. Capital Investment Facilities• The Government shall give facilities to investors who make capital investment• The capital investment facilities may be granted to investors who:• Expand their businesses; or• Make new capital investments. www.lekslawyer.com
  16. 16. Capital – Cont’d• Only capital investments which meet at least one of the following criteria will receive the facilities as mentioned in the previous slide – please read Art 18 (3)• The form of facilities to be given is as set out in Art 18 (4), please read it www.lekslawyer.com
  17. 17. Facility on Corporate Income Tax• Exemption from or relief on corporate income tax in a certain amount for a certain period may only be granted to new capital investments which are pioneed industries i.e. industries which have wide relevance, give added value, and high externality, introduce new technology, and have strategic value for the national economy.• This facility shall be granted based on a national industry policy adopted by the Government. www.lekslawyer.com
  18. 18. Capital – Cont’d• The Government shall provide simplified services and/or licenses to investment companies to obtain:• Land titles;• Immigration service facilities; and• Import license facilities. www.lekslawyer.com
  19. 19. Land Title Facilities• See Art 55 of Agrarian Law• See Art 22 of Investment Law• See Art 25 and Art 28 of PP No. 40 of 1996• Let us have a discussion www.lekslawyer.com
  20. 20. Immigration and Import Facilities• Please read Art 23 (3)• Please read Art 24• Let us have a discussion www.lekslawyer.com
  21. 21. Directors and Commissioners• There are loads of questions whether a foreigner can sit as Director and Commissioner in the foreign investment company• What do you think? Can they sit at the BOD and BOC?• Now, in a closed private company, can a foreigner sit as a Director and Commissioner in that company? www.lekslawyer.com
  22. 22. Directors – Cont’d• Legal Basis click here www.lekslawyer.com
  23. 23. THANK YOU www.lekslawyer.com

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