Divestment is the releasement, exemption or reduction of shares, which is an obligation for Foreign Direct Investment (Penanaman Modal Asing/PMA) Company who owned 100% shares in the company to gradually shift its share to Indonesian participant(s) (both individual or legal entity) within within 15 year subsequent to its first production through direct ownership or domestic capital market.
Previously, the Divestment obligation regulates under Government Regulation No.20 of 1994 concerning Shares Ownership in the PMA Company (“GR No.20/1994”) juncto. Government Regulation No. 83 of 2001 concerning Amendment of GR No.20/1994 (“GR No.83/2001”) and the latest regulates by Article 16 paragraph (1) of Head of BKPM Regulation No.14 year 2015 on Guidelines and Procedures for Investment Principal License (“BKPM Regulation No.14/2015”).
Pursuant to BKPM Regulation No.14/2015, we understand that the PMA Company obligated to conducting divestment subject to the approval letter and/or business license which has been determined before the enforcement of this.
Further, it stated that the minimum value of shares that must be shifted to the Indonesian participant(s) should be IDR10,000,000 (ten million rupiah) through direct ownership and/or the domestic capital market (Article 16 paragraph (2) and (3) BKPM Regulation No.14/2015).
Please be informed that if the obligation to divest has matured and PMA Company yet get prospective domestic investors, the PMA Company may submit a written request to Central PTSP at BKPM/PTSP KPBPB/PTSP KEK to request an extension of divestment period. However, the extension application must attach legitimate evidence of the effort taken by PT PMA to carry out its obligation to do Divestment, then the BKPM/PTSP KPBPB/PTSP KEK may issues (based on its appropriate authority) an approval for extension period of Divestment (not more than 2 years) or refused to give the extension period of Divestment . (Article 16 Paragraph (4) and (5) BKPM Regulation No.14/2015).
After the transfer of shares to Indonesian shareholders due to divestment has been ratified by the Ministry of Law and Human Rights, such shares can be resold to the Indonesian participant(s) pursuant to the prevailing laws and regulations.
Failure to conduct divestment will result in sanctions for PMA Company as follows:
- Temporary suspension of company activities;
- Revocation of all or part of investment facilities;
- Partial revocation of permits; or
- Revocation of Investment Approval Letter/Principle License.
Please be noted that the obligation to divest shares are also regulated by several prevailing laws and regulations related to the business activities, such as mining or oil & gas. Therefore its advise to you to confirm with your legal consultant or always update with the Indonesia laws and regulations.
PTSP: One Stop Service in the field of investment
BKPM: Indonesia Investment Coordinating Board
KPBPB: Free Trade Zone and Free Port
KEK: Special Economic Zone
HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. Our experience and dynamic firm value assist Clients in staying up-to-date with the newest Indonesian laws and regulations. SMART focuses on foreign investment and general corporate matters, including establishment of PMA Company and providing Corporate Secretarial and Legal Services to maintain investors’ business Indonesia.
Contact Us Now to get your legal solution for your business goals in Indonesia, and still comply with the prevailing laws and regulations.