In expediting equitable economic development in Indonesia, the Government has designated several regions as Special Economic Zones (SEZs). The initial steps involve identifying strategic locations and planning SEZs with a focus on economic sectors, specific regulations, and infrastructure to achieve regional development and enhance national economic competitiveness. Various facilitations are provided by the Government to regions with SEZ status to enhance optimal collaboration with the private sector and foreign investors for the development of the region. However, to date, as the SEZs have been implemented, proposals have been put forth by various parties to conduct an evaluation of the SEZ implementation to monitor its economic, social, and environmental impacts. In response to this, the Government will carry out an evaluation, particularly where investment growth is not significantly increasing. Find out more our insights about this topic in our Legal Brief publication.

1. Legal Brief
A Comprehensive Overview of The
Implementation of Special Economic Zones

2. Special Economic Zone, (“SEZ”) is an area with certain boundaries within the jurisdiction of the Unitary State of
Republik of Indonesia which is stipulated to carry out economic function and obtain certain facilities.
A H R P L e g a l B r i e f
Free Trade Zone and Free Ports
Under Law No. 3/1970, Free Trade Areas and Free Ports/Kawasan Perdagangan Bebas dan Pelabuhan Bebas (“KPBPB”) are areas within the
jurisdiction of the Unitary State of the Republic of Indonesia that are separate from customs areas, thus exempt from import duties, value-added tax,
luxury goods sales tax, and excise taxes. The development of KPBPB is designed to boost several economic sectors, such as trade, services, and
manufacturing. Additionally, the establishment of these zones aims to enhance the competitiveness of Indonesian export products in the international
market. As of now, the areas designated as KPBPB are Batam, Bintan, and Karimun.
Integrated Economic Development Zone
Under Presidential Decree No. 9/1998, Integrated Economic Development Zone/Kawasan Ekonomi Terpadu (“KAPET”) is defined as a
geographical area with specific boundaries that meets three criteria, including: having the potential for rapid growth, possessing a leading
sector that can drive the economic growth of the surrounding region, and having the potential for significant return on investment.
Currently, Indonesia has 13 KAPET located in various regions. One is situated in Nangroe Aceh Darussalam, four are in Kalimantan, four
are in Sulawesi, and one each in West Nusa Tenggara, East Nusa Tenggara, Maluku, and Papua.
Special Economic Zone
SEZ stipulated under Law No. 39/2009, while KAPET tend to emphasize regional economic equalization with a focus on utilizing local
resources, SEZ are designed to drive economic growth and enhance global competitiveness with certain sector development.
Nevertheless, in practical implementation, the distinctions between both could be bias, as the boundaries may vary depending on
regulations and government strategies in each country or region. The common goal of improving competitiveness and economic growth
often makes it challenging to clearly differentiate between KAPET and SEZ.
Historical Milestone
Based on study on Palapas KAPET, Palapas has undergone a structural shift in its economy, transitioning from an agrarian-driven sector to
a non-agrarian sector, albeit gradually, experiencing positive economic growth. The economic growth exceeded 7% in 2015. However,
despite such high economic growth, it has yet to yield significant real economic growth impact on the surrounding region. This is attributed
to the fact that the growth engine of KAPET Palapas is fueled by the substantial government expenditure and household consumption in the
area. Private sector investments remain relatively low. If the private sector invests, Palapas could enjoy economic growth exceeding 7%.
However, on the flip side, KAPET Palapas has low fiscal capacity, limiting the possibility of obtaining foreign loans. This signals that the
government and the management body of KAPET Palapas must strive for self-sufficiency, especially to attract foreign investments.
101: Special Economic Zones

3. In the first semester of 2023, the President instructed all ministries and relevant agencies to conduct a comprehensive evaluation of SEZ. Through the Secretary-
General of the National KEK Council, Susiwijono Moegiarso, the President stated that if by mid-2024 there are SEZs that do not achieve significant realization, the
government will explicitly revoke the stipulation of those SEZs.
01 SEZ of Arun Lhoksumawe
02 SEZ of Sei Mangkei
03 SEZ of Batam Aero Technic
04 SEZ of Nongsa
05 SEZ of Galang Batang
06 SEZ of Tanjung Kelayang
07 SEZ of Tanjung Lesung
08 SEZ of Lido
09 SEZ of Kendal
10 SEZ of Gresik
11 SEZ of Singhasari
12 SEZ of Sanur
13 SEZ of Kura-kura Bali
14 SEZ of Mandalika
15 SEZ of MBTK
16 SEZ of Palu
17 SEZ of Likupang
18 SEZ of Bitung
19 SEZ of Morotai
20 SEZ of Sorong
Industrial SEZ Tourism SEZ
Annotation
Main Activities
Determined by GR No.
5/2017, with main activities: (i)
industries; and (ii) logistic.
Determined by GR No.
29/2012, with main activities:
(i) industries; (ii) tourism; and
(iii) logistic.
Determined by GR No.
67/2021, with main activity:
industry.
Determined by GR No.
68/2021, with main activities:
(i) IT-digital; and (ii) tourism.
Determined by GR No.
42/2017, with main activities:
(i) industry; and (ii) logistic.
Determined by GR No.
6/2016, with main activity:
tourism.
Determined by GR No.
26/2012, with main activity:
tourism.
Determined by GR No.
69/2021, with main activities:
(i) tourism; and (ii) creative
industry.
Determined by GR No.
85/2019, with main activities:
(i) industries; and (ii) logistic.
Determined by GR No.
71/2021, with main activities:
(i) industries; and (ii) logistic.
Determined by GR No.
68/2019, with main activities:
(i) tourism; and (ii) technology.
Determined by GR No.
41/2022, with main activities:
(i) health; and (ii) tourism.
Determined by GR No.
23/2023, with main activities:
(i) tourism; and (ii) creative
industry.
Determined by GR No.
52/2014, with main activity:
tourism.
Determined by GR No.
85/2014, with main activities:
(i) industries; and (ii) logistic.
Determined by GR No.
31/2014, with main activities:
(i) industry; and (ii) logistic.
Determined by GR No.
84/2019, with main activity:
tourism.
Determined by GR No.
32/2014, with main activities:
(i) industries; and (ii) logistic.
Determined by GR No.
50/2014, with main activities:
(i) industry; (ii) tourism; and
(iii) logistic.
Determined by GR No.
31/2016, with main activities:
(i) industries; (ii) plantation
and (iii) logistic.
SEZ Distribution Map
A H R P L e g a l B r i e f

4. National Council
Council formed at the national level to
organize SEZ consist of Ministers and
Heads of Non-Ministry Government
Zone Council
Council formed at the Provincial level to
organize Administrator consist of
chairperson, namely a governor, deputy
chairperson, namely a regent/mayor,
and members, namely elements of the
Government in the province, provincial
government, and regency/city
government.
SEZ Administrator
SEZ Administrator is part of Zone Council
formed for each SEZ to assist Zone
Council in organizing SEZ.
Request for explanations
from Zone Councils and
Administrators regarding the
implementation of activities.
compiling a SEZ National Master Plan.
establishing general policies as well as strategic steps to accelerate the stipulation and development of
an SEZ.
assessing and recommending development steps in areas with undeveloped potentials.
establishing minimum infrastructure and service standards in an SEZ.
carrying out an assessment toward the proposal for an area to be made into an SEZ.
providing a recommendation for the stipulation of an SEZ.
resolving strategic problems in the implementation, management, and development of an SEZ.
monitoring and evaluating the sustainability of an SEZ, as well as recommending follow-up steps toward
the evaluation results to the President, including proposing the revocation of an SEZ status.
Duties of National Council
Delivering SEZ
management reports at
the end of every year.
Reporting incidental
strategic problems.
carrying out the general policies established by National Council to manage and develop the SEZ in its
working area.
establishing strategic steps to solve problems in the implementation of SEZ activities in its working area.
Duties of Zone Council
Request for explanations
regarding the implementation
of activities.
Delivering SEZ reports on the
operationalization periodically
and incidentally.
Reporting incidental strategic
problems.
carrying out the issuance of business license and other licenses that are needed for Business
Actors who establish, operate, and develop a business in an SEZ.
establishing strategic steps to solve problems in the implementation of SEZ activities in its working area.
Duties of SEZ Administrator
Provincial Regional
Governments.
Regency/City Regional
Governments.
Governments
Source: Art. 1 jo. Art. 51 – Art. 62 GR No. 40/2021
Business Entites
Business Actors
Business Actors
are those who
operate business
activities in SEZ.
Business Entities
are those that
organize SEZ
business
activities.
to propose SEZ
to establish SEZ
to manage SEZ
Central Governments.
1
2
3
4 5 6
Stakeholders of SEZ’ Power Play
A H R P L e g a l B r i e f

5. Source: Art. 9 GR 40/2021 jo Law No. 39/2009
Business activities
in SEZ
Business actors
in SEZ
Production and
processing
Research, digital
economy, and
technology
Development
Logistic and
distribution
Tourism
Energy development
Education
Health
SEZ infrastructure
provision
Development and
management of SEZ
Sport
Financial services
Creative industry
Incorporated
company
Unincorporated
company
Individual business
Business Activities and Actors in SEZ
A H R P L e g a l B r i e f

6. Submission of Proposal
Decoding SEZ Selection Process
1
Stipulation of SEZ
Proposals Stage
In certain circumstances, Central Government itself may stipulate an
are as SEZ, within the conditions of:
a. For the purpose of expansion and improvement of job
opportunities; and/or
b. The needs of national and regional economic growth.
The proposal of SEZ submitted to National Council, fulfilling following criteria:
Proposed map of development location of SEZ along with Spatial Plan and
Zoning Arrangement
Financing Plans and Sources
Environmental Approval within its Proof Land Tenure
Feasiblity Studies: both Economic and Financial
Period of SEZ Operation and Strategic Plan of SEZ
Noteworthiness
The proposal submitted by KPBPB essentially will transform its
status of Free Trade Areas and Free Ports into SEZ, eliminating the
documentation requirement related to land, such as Environmental
Approval within as Proof of Land Tenure and Feasibility Studies.
Essentially, SEZ is a 'spin-off' of Free Trade Areas and Free Ports,
mutatis mutandis, KPBPB obtains sort of-’conveniences’ compared
to other business subjects.
*A
*B
Upon the proposal whose documents are complete, the National Board shall review the
proposal for the establishment of SEZ within a maximum period of 30 (thirty) business
days since the written proposal and required documents are duly received.
Review of Proposal
Secretariat-General
National Council
evaluate the completeness
of the proposal documents.
instruction to complete
outstanding requirement.
Proposal Document
Accepted
Proposal Document
Rejected
President
National Board shall submit a recommendation for the
establishment of SEZ to the President and stipulated under
Government Regulation.
The rejection shall be delivered in writing to the proposer
along with the reasons and shall be delivered through a
letter from the Secretary-General of the National Board.
Stipulation of SEZ
3
Heads of Business Entities
Regents/mayors
Governors
Heads of KPBPB
*A
National Council
Central Government
*B
Proposer
as Representative of
Business Entities
as Representative of
KPBPB
as Representative of
Regional Government
as Representative of
Provincial Government
Source: Art. 12 – Art. 21 GR No. 40/2021
Source: Art. 21 – Art. 28 GR No. 40/2021
2
Proposer
A H R P L e g a l B r i e f

7. Business Entities
Central Government
Provincial Regional
Governments
Regency/City Regional
Governments
KPBPB Area Boards
The Proposer of the
SEZ Establishment
determined as the Business
Entities that establish SEZ
and simultaneously as the
managing Business Entities
Through strategic cooperation with Business Entities
(specifically for the Central Government, which Business
Entities that have met the specified requirements)
Through public-private partnerships (financed by such
partnership)
Through the procurement of government goods/services
(financed from the state/regional budget)
determined as the Business
Entities that establish SEZ
Business Entities that Establish SEZ
Note:
Public Service Agencies
may also establish SEZ.
Land procurement
which shall then be granted with right to
manage or land titles.
Lease based on an agreement
with a period of at least the same as the
SEZ’s operational period.
Land Tenure in Location of SEZ
01
02
Establishment of Infrastructure and Facilities
Within Locations of SEZ
It shall be conducted by and shall become the
responsibility of the SEZ proposing business
entities, in accordance with the types and
standards of infrastructure and facilities that are
regulated by the National Board.
Outside of SEZ
It shall be supported by the governments, inter alia
infrastructures for access to and from SEZ.
01
02
the state revenue and expenditure budget
Funding
01
the regional revenue and expenditure budget
02
Business Entities
03
other legitimate sources in accordance with
provisions of laws and regulations
04
SEZ are national strategic projects which its
establishment shall be implemented in
accordance with provisions of laws and
regulations that set the acceleration of the
implementation of national strategic projects.
National Strategic Projects
Human Resources and Infrastructures
The National Board shall prepare human
resources (state civil apparatus and non-state
civil apparatus), workspaces, work equipment,
and systems for the implementation of the
granting of licenses and relaxations in SEZ.
Time Period
SEZ establishment shall be carried out within a
period of 3 (three) years.
Evaluation of KEK Establishment
The proposer of the SEZ establishment
shall submit a progress report to the
National Board every year to be evaluated
by the National Board. Such evaluation
then shall be followed up by the proposer
of the SEZ establishment.
Source: Art. 29 – Art. 59 GR No. 40/2021
Evaluation of Operational Readiness of KEK
Completion of SEZ
establishment and
readiness to
operate by the
proposer of the
SEZ establishment
Evaluation
by the
National
Board
ready to
operate
not ready
to operate
SEZ shall be
stipulated through a
decree of the Head of
the National Board
Follow up action from
the proposer of the
SEZ establishment
towards the evaluation
result
ready to
operate
not ready
to operate
Revocation
of the SEZ
stipulation
Establishment and Operation of SEZ
A H R P L e g a l B r i e f

8. SEZ proposed by the
central and regional
governments, the
stipulation of Managing
Business Entities shall be
undertaken by the relevant
governments
Signing an agreement on the
management of SEZ between
Business Entities and relevant
governments
the agreement on the
management of SEZ is not
required
SEZ Administrators deliver a report on the
implementation of duties National Council
and deliver a copy to Zone Council
1
National Councils submit the evaluation results to SEZ
Administrators and Zone Councils
The evaluation results of National Councils
shall be followed up by SEZ Administrators
and Zone Councils
National Councils may request input
from SEZ Administrators and Zone
Councils
5
Based on input received, National Councils may: (i) give
direction to improve operationalization performance
SEZ; (ii) conduct monitoring of the operationalization of
SEZ; (iii) provide recommendation on the follow up
measures for the operationalization of SEZ
6
National Councils evaluate the
management of SEZ based on SEZ
administrators report
2
Termination of the agreement on the
management of SEZ in the event that the
managing Business Actors are stipulated by
the Government:
The recommendation may be in form of:
Improvement of the operational management
of SEZ in the event that the managing
Business Actors are the proposing Business
in the public-private partnership:
Proposal for the revocation of the stipulation
of SEZ:
Fail to meet the service performance
standards
Declared bankrupt
Conduct activities that deviate from the
Business Licensing and other licenses
granted
Submit an application to terminate as the
managing Business Actors
Fail to meet the service performance and
failed to meet the service performance
standards
Conduct activities that deviate from the
Business Licensing and other licenses
granted
7
Performance is not improved after the
measures are implemented
The occurrence of large-scale negative
impacts on the surrounding environment
Causing socio-economic upheaval for the
surrounding community
There is a violation of law in SEZ
Source: Art. 64 – Art. 69 GR No. 40/2021
submitted by the National Council to Zone
Council, if the managing Business Entities:
submitted by the National Council to Zone
Council, if the managing Business Entities:
submitted by the National Council to
President, if during the operational of SEZ:
3
4
8a 8b 8c
Evaluation of the SEZ Management
The Managing Business Entities
Join ventures Cooperatives
State-owned
Enterprises
Regional-owned
Enterprises
Private-owned
enterprises
Public service
agencies
Shall be stipulated at the latest before the operation of
SEZ
!
Management of SEZ
A H R P L e g a l B r i e f

9. A H R P L e g a l B r i e f
Taxation, Customs, and
Excise
VAT and Sales Tax on Luxury Goods
Income Tax
Import Duty and Import Tax
Excise
Goods Traffic
The implementation of provisions on imports and
exports shall be carried out through an
electronic system that is developed by the
Central Government and shall be integrated
nationally.
Manpower
The Utilization of Foreign Workers
Special Tripartite Cooperation
Institute
Workers Unions/Labor Unions
Spatial Planning
Implementation of land procurement
Immigration
Foreigners who will make a visit to KEK may be
granted a visitor visa for several trips.
Foreigners having intention for work, investment,
or educational purposes in KEK may be granted
Limited-Stay Visa.
Foreigners who own dwelling houses or residences
in tourism KEK shall be granted: limited-Stay Permit
and/or permanent-Stay Permit
and services and special
procedures for the granting,
extension and renewal of land titles
Facilitation and Coordination of
Spatial Planning
Business Licensing
Business licensing granted by SEZ
administrators and subject to risk-based
business licensing
Business Actors do not require Building
Approval insofar that Business Actors
have established building guidelines or
estate regulations
SEZ Administrators shall supervise the
implementation of Business Licensing in
SEZ
Art. 73 GR No. 40/2021 Art. 101 GR No. 40/2021
Art. 129 GR No. 40/2021
Chapter XI GR No. 40/2021
Chapter XIV GR No. 40/2021
Art. 138 GR No. 40/2021
Facilities and
Relaxations in SEZ
Facilities and Relaxations in SEZ

10. We will continue to follow the developments on this topic and provide additional information as it becomes
available. If you have any questions on this topic, please contact:
Ahmad Arif
arif@ahrplaw.com
Putra Pengayoman
putra@ahrplaw.com
Hana Oktaviandri
hana@ahrplaw.com
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not
intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee concerning
the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your
circumstances before deciding to take any action.
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