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”?
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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.
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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.
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5. Definitions – Cont’d
• Who are the domestic investors?
• Who are the foreign investors?
• What is a domestic capital?
• What is a foreign capital?
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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?
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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.
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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.
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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
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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.
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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”?
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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)
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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
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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
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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.
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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
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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.
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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.
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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
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20. Immigration and Import Facilities
• Please read Art 23 (3)
• Please read Art 24
• Let us have a discussion
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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?
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