Jurisdiction - Indonesia
Reports and Analysis
Indonesia – BKPM Introduces New Investment Rules.

21 May, 2013

 

 

Indonesia’s Capital Investment Coordinating Board (“BKPM”) has issued BKPM Regulation No. 5 of 2013 regarding Guidelines and Procedures for Capital Investment Licenses and Non-Licenses, dated April 12, 2013 (“BKPM Reg. 5/2013″). The regulation introduces new requirements for capital investment registration procedures, as well as relevant licenses and non-licenses. More important, it reiterates and adds statutory weight to the informal policies of the BKPM that were never explicitly stipulated in previous regulations.

 

 

BKPM Reg. 5/2013 replaces Decision of the Head of BKPM No. 19/SK/1991 regarding Venture Company Capital Shareholding in a Foreign or Domestic Investment Company, dated December 9, 1991, and more important, Head of BKPM Regulation No. 12 of 2009 regarding Guidelines and Procedures for Investment Applications, dated December 23, 2009 (“BKPM Reg. 12/2009″). The latter was the main regulation used for direct capital investment applications.

 

BKPM Reg. 5/2013 is effective as of May 27, 2013.

 

Minimum Investment

 

Article 22 of BKPM Reg. 5/2013 expressly sets out the minimum capital investment for both Domestic Capital Investment (“PMDN”) and Foreign Capital Investment (“PMA”). The minimum capital investment for a PMDN Company is Rp 500 million (approximately US$51,000 at the current exchange rate). For a PMA Company the threshold is more than Rp 10 billion, or US$1.2 million.

 

For a PMA Company the minimum paid-up capital is Rp 2.5 billion, or US$300,000. Note that it is an unwritten policy of the BKPM to allow a 1:3 equity/paid-up capital to loan ratio of the total authorized capital of a PMA Company.

 

Additionally, BKPM Reg. 5/2013 makes clear that the minimum equity of a shareholder in a PMA company is Rp 10 million (approximately US$1,025).

 

Licenses

 

BKPM Reg. 5/2013 has removed some licenses that previously fell under the authority of the BKPM and added new ones. Now the BKPM is authorized to issue the following licenses:

 

  • Principle License;
  • Business License;
  • Principle License for Expansion;
  • Business License for Expansion;
  • Principle License for Amendment;
  • Business License for Amendment;
  • Principle License for Company Merger;
  • Business License for Company Merger;
  • Branch Office License;
  • Foreign Company Representative Office License (“KPPA”); and
  • Foreign Trading Company Representative Business License (“SIUP3A”).

 

For non-license matters, regional incentives and information and complaint services are no longer administered by the BKPM. Additionally, the BKPM now has authority over General Importer Identification Numbers (“API-U”) as well as Producer Importer Identification Numbers (“API-P”).

 

Starting and Operating a Business

 

Initiating a business in the framework of BKPM Reg. 5/2013 covers the establishment of a new business, the commencement of a new business in the event of change of status from a PMDN to PMA, and vice versa, or a new project location. These three scenarios require investors to obtain a Principle License and Business License.

 

Note that the Registration License, which was the first step of capital investment under BKPM Reg. 12/2009, has been removed from the BKPM’s licensing authority. This means a capital investment application can be initiated directly by obtaining a Principle License. The first step of this process is to present a business plan to the relevant officials. Upon obtaining a Principle License, the investor can file an application for a Business License, specifying the type of license as provided in Article 33 of BKPM Reg. 5/2013.

 

For the establishment of a new business, BKPM Reg. 5/2013 has introduced new terms for a number of business fields:

 

  • Construction companies are required to obtain a Business License for Construction Business (Surat Izin Usaha Jasa Konstruksi or SIUJK);
  • Brokerage companies are required to have a Business License for Property Brokers (Surat Izin Usaha Perusahaan Perantara Perdagangan Properti or SIUP4);
  • Survey companies must obtain a Business License for Survey Business (Surat Izin Usaha Jasa Survei or SIUJS); and
  • Direct sales (multi-level marketing) companies are required to have a Business License for Direct Sales (Surat Izin Usaha Penjualan Langsung or SIUPL).

 

On a separate note, Article 28 (8) and (9) requires that when a foreign company purchases part or all of the shares of a wholly Indonesian-owned company and converts that company to PMA status, as part of the application all of the companies owned by the target company must be listed on the application and all of these companies must be converted to PMA status. The BKPM provides a one-year grace period for such subsidiaries to be converted to PMA status.

 

Business Expansion

 

BKPM Reg. 5/2013 contains several provisions for when BKPM approval in the form of a Principle License for Expansion is required. Generally, a Principle License for Expansion is required when a company adds new business fields and/or production capacity either at an old location or a new location. For industrial companies, the new regulation confirms that expansion is said to occur when production capacity for a product under the same Business Field Classification Number (“KBLI”) at a particular location increases by more than 30%. However, the BKPM has determined five circumstances where an increase in production capacity and/or product type is not categorized as an expansion, but as starting a new business and thus requiring a new Principle License.

 

Mergers

 

As opposed to BKPM Reg. 12/2009, where the resulting company from a merger could directly file for a Business License for Company Merger, BKPM Reg. 5/2013 requires the resulting company first to obtain a new Principle License for Company Merger. However, in the event that the resulting company is involved in a business activity for which it does not already have a Business License, it must apply for a Principle License or Principle License for Expansion.

 

Modification of Investment Plans

 

Investors must obtain a Principle License for Amendment if they make changes to the capital investment plans set forth in their initial Principle License or Principle License for Expansion. This includes changes to the company name, address, project site or business sector, production capacity, marketing and the estimated annual value of exports, investment plans, the company’s capital and financing sources, and participation in the company’s capital.

 

Public Companies

 

Bearing in mind that share ownership in a publicly listed company (“Tbk”) should be considered an indirect or portfolio investment, BKPM Reg. 5/2013 affirms the BKPM’s policy of regarding the ownership of more than 50% of the shares in a Tbk (controlling shareholder) as a direct investment. Consequently, the status of the Tbk, whether a PMA or PMDN, changes depending on the controlling shareholder. Therefore, in the event of a change of control, such company must apply for a Principle License or Principle License for Amendment.

 

Venture Capital Companies

 

Under BKPM Reg. 5/2013, a venture capital company may not have any shareholding in a large-scale PMDN, defined as having net assets of
Rp 10 billion, excluding land and buildings, or a PMA of any scale. Venture capital companies are required to divest such shares to a national party within 10 years.

 

Divestment Obligation

 

Article 108 of BKPM Reg. 5/2013 states that any divestment obligations of a PMA Company to Indonesian individuals or companies stipulated in investment licenses or approvals issued prior to the enactment of BKPM Reg. 5/2013 remain valid. PMA Companies can receive extensions of up to two years on their divestment obligations if they have yet to find a qualified Indonesian investor.

 

Transition

 

BKPM Reg. 5/2013 upholds the applicability of any license or non-license issued prior to its effective date until such license or non-license expires. If a company has obtained a Registration License under the previous regulation, it may proceed directly to obtaining a Business License. There is an exception to that. If a company requires a fiscal or non-fiscal facility it will have to apply for a Principle License under the provisions of BKPM Reg. 5/2013. Applications for licenses or non-licenses that were submitted and deemed complete and correct prior to the effectiveness of BKPM Reg. 5/2013, but for which the licenses or non-licenses have yet to be issued, will be processed under the provisions contained in BKPM Reg. 5/2013.

 

SSEK

 

For further information, please contact:

 

Mohammad Irham‚Äč, Soewito Suhardiman Eddymurthy Kardono
mohammadirham@ssek.com
 
Wynne Prasetyo, Soewito Suhardiman Eddymurthy Kardono
wynneprasetyo@ssek.com
 

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