On 4th of December 2017, the Chairman of BKPM has issued new regulations on the implementation of capital investment in Indonesia. The new regulations encompass two main aspects, Licensing and Facility in Regulation 13 and Monitoring in Regulation 14.
Though it was issued in early December, the regulations would be effective on 2nd of January 2018 for BKPM. The rest of the regional and provincial investment boards should gradually follow the rule on 2nd of July 2018 the latest.
The regulations were published on 15th of December 2017 and were made to simplify the procedure of licenses and facility acquirement for investors. Consequently, there may be some changes on the investment structures that need to be considered by the investors.
Regulation 13: Licensing and Facility
Before starting their activities in Indonesia, a foreign company or a Joint Venture company needs to prepare their administration and documents. As Indonesia is going for a developing investment in the various area and business lines, some special licenses and regulations are issued by BKPM to facilitate the investment.
Though the former regulations have been in use for decades, the updated regulation is set out to simplify the process and to attract more foreign investors to develop their business in Indonesia.
The Key Changes of Regulation 13
There are at least eight key changes on the regulation 13 which should be taken into consideration by the investors:
- Converting All Subsidiary Companies into PMA Companies
The company that receives direct foreign investments should have the status of PMA (Penanaman Modal Asing) Company. The article 6 (3) states that direct foreign investments also include the investments made by PT (Perseroan Terbatas) with a PMA status.
As the former regulation did not state the rule for subsidiary companies, the updated regulation now require all the subsidiaries that still hold PMDN (Penanaman Modal Dalam Negeri) status to be converted to PMA status. This is specified in the article 20 (5) of the regulation.
The definition of the subsidiaries may fall under any corporate actions which conducted between the parent and subsidiary companies. It includes merger, acquisition, change of capital, and dividend declaration.
Such regulations once required back in April 2013. However, BKPM withdrew the regulation later in September 2013.
- Setting Aside Divestment Obligations are Allowed with Certain Requirements
On the article 16 (6), PMA companies are not required to fulfill the divestment obligations under certain conditions:
- Foreign companies which are completely held by foreign parties may not be required to fulfill the divestment obligations. The foreign shareholders should make a statement to confirm that there are no selling agreements with any Indonesian company or party.
- Joint Venture Company is also allowed not to fulfill the divestment obligations. The Indonesian shareholders should assign a statement which confirms that they will not claim for the whole ownership of the company.
The PMA companies should also attain an amendment from the BKPM consisting of the Investment Registration. The amendment would remove the divestment obligations along with the statements made by the shareholders.
If should the PMA companies sell shares to Indonesian entities, the foreign investors are permitted to buy back the share, and the company should hold its status as a PMA company.
- Providing Investment Registration as An Initial Approval
Formerly known as the principle licenses or the Izin Prinsip, the Investment Registration terminology is now used as the approval of the initial investment. In 2009, BKPM had introduced the terminology but changed back to the Izin Prinsip term in 2013.
On the article 10 (1), a company is not required to have a business license to start their activity. They may obtain an Investment Registration first to start their lines of business. The business license will then follow or can be administered in parallel with other licenses. Once the permit is issued by BKPM, the company may start its activity in Indonesia such as establishing the company, business expansion, importing goods, or building business infrastructures.
Next, on 10 (4), the Regulation 13 sets out the certain lines of business that may use the Investment Registration. Those lines of business include the company which is in need to start constructing infrastructure and needs the import duty facilities. It is permitted for those companies to get the Business Licenses while working on the Investment Registration.
If a company can start their business directly without requiring any construction or facilities should consider these rules:
- They must first obtain legal status for the company along with the share and limitation details within the principal regulation.
- Has been registered as a legal taxpayer.
- Has established an office with eligible documents.
- Prohibiting Any Arrangement Representation
As stated on the Capital Investment Law number 25 of 2017, any arrangement representation where an investor declaring the share on behalf of another party is prohibited.
To specify the regulation, the investors are required to make a legal statement to confirm that there is no representation happens in the business agreements. In regards to foreign investments, there is a possibility that the business or shareholding agreement is signed by a representation. Thus, this regulation clarifies the prohibition of such event.
- Extend the Shareholding Regulation Duration
The current regulation allows a Joint Venture Company to hold shares for a maximum duration of 5 years. On the updated article 15 in Regulation 13, the companies may hold the shares for 10 years and extend the duration for the next 10 years.
- Different Validity to A Certain Level of Requirements Fulfillment
The article 34 on Regulation 13 confirms different validity duration of the licenses based on the requirements fulfilled by the company. The company may only apply for a temporary business license unless it fulfills these requirements:
- Holds more than Rp10 billion net assets which do not include land and building stated in the latest financial reports. The BKPM defines net assets as paid-up capital which is already issued.
- Receive more than Rp50 billion of annual revenue stated on the latest financial reports.
The company which does not fulfill the requirement cannot be classified as a large-scale company and may only operate for a 1-year period. The temporary business license may also be extended only for another 1-year period.
- The Handling of Branch Approvals by BKPM
On the article 45 of Regulation 13, the BKPM confirms that the company may apply for additional branch offices. The approvals will then be processed directly by BKPM, no longer by regional investment boards.
- Announcing the Prioritized Services
Indonesia has been developing at least 11 Special Economy Zones (SEZ) and more to be built in the upcoming years. Those SEZ are specified to facilitate the investing companies on various business lines such as oil, steel, garment, wood processing, food production, automotive manufacturer, and many more.
Specifically, the companies which reside at SEZ have a chance of getting the prioritized services from BKPM. Those services can be obtained after the company fill out a checklist form and report it monthly to BKPM.
On the infrastructure side, SEZ will also provide adequate facilities for operating companies such as residences, roads, and entertainment centers. The facilities should accelerate the construction process and help the companies to start their activities sooner.
Regulation 13 Transition Provision
BKPM accepts some conditions due to the transition between former and new regulations to simplify the transition for investors.
- The companies that have attained Investment Registration which is still based on the former regulation should apply for a business license within six months after the application of the updated regulation. Noncompliant companies have Investment Registration revocation risks.
- The principle licenses issued before the update will still be valid until its expiry date. Still, the application of business license should follow the Regulation 13.
- If any pending principle license applications are being reviewed on the effective date of the regulation, it will be processed under the settings of Regulation 13.
- Each of the company that has attained a business license without fulfilling the large-scale requirements should follow the updated rule. It states that they need to apply for a new Investment Registration after meeting the new objective set out in article 10.
Regulation 14: Monitoring
On the same date as the publication of Regulation 13, BKPM also published the Regulation 14 to support the new regulation. The Regulation 14 consists of the Guidelines and Procedures for Capital Investment Implementation Monitoring.
The activation date of the regulation is on the same timeline as the Regulation 13. The BKPM will apply the updated rule as early as 2nd of January 2018, while the regional and provincial investment boards should follow to apply the rule as late as 2nd of July 2018.
The Key Changes of Regulation 14
There are at least six key changes and articles that should be taken into account by the investors:
- Obliging Monthly Development Report
Before the construction start, the company should fill out a checklist form issued by BKPM as specified in the article 10. The form aims to report the company’s development before the construction begins. As the construction starts, the company would then forward to quarterly report known as LKPM (Laporan Kegiatan Penanaman Modal).
- Limiting Access to LKPM Folder
The article 11 states that the LKPM report should be submitted through online SPIPISE (Sistem Pelayanan Informasi dan Perizinan Investasi Secara Elektronik). Once submitted, the company may be able to correct the report twice at least within two days after submission.
- Changing the Office Report Frequency
Currently, the BKPM regulates companies to report the obligation of the office once a year. The updated Regulation 14 in article 12 states that the report should be submitted twice a year on July 10 and January 10. It applies to the representative office, representative construction office, and oil and gas representative office.
- Separating Reports for Different Stages of Company Progress
The new regulations set out three reporting frequency – monthly, quarterly, and semi-annually. The monthly report is obliged to companies which are still on the preparation stage and has yet to start to construct any infrastructure of the business.
The monthly report should be filed by those companies which are ready to start its construction and material importing. As the company proceeds to obtain the business license and start its business activities, they will need to begin to report the progress of the company twice a year or semi-annually.
Though the business license can be directly obtained, the company should note that the Investment Registration still has to be applied in parallel with other additional licenses such as the environmental license.
- Setting Out New Rules for Approval Cancellation
The article 24 and 25 mainly rules out the cancellation of the approval either by the authority or by the shareholder’s request. While the investment may or may not be approved, the cancellation should only be made in two ways: revocation which is followed by liquidation, or without liquidation.
- Announcing Warnings for Undisciplined Companies
Through the article 33, Regulation 14 introduces three warning letters for undisciplined companies. The three warning letters work one at a time, given a 30-days period for the company to restore their responsibility. The letters will be issued if the company does any of these reasons:
- Failing to submit LKPM reports for three times in a row.
- Not complying with the BKPM laws and regulations. The proofs may be attained from the reports submitted by certain government entities.
The third warning functions as the last warning. If the company does not adjust with the regulations within 30 days, the investment approvals could be revoked, and the company is considered as noncompliant.
Regulation 14 Transition Provision
To provide a clearer view of the regulation, BKPM allows some condition especially those relating to the preparation of SPIPISE. The use of SPIPISE online system will be started gradually from early January. Thus, investing companies should familiarize themselves with the system.
- As the companies need to report twice a year in July and January, the first report on 2018 should be submitted on 2nd of July 2018.
- BKPM hopes to receive import duty facility reports as early as 2nd of July 2018. While those who report to the regional and provincial investment boards should have it ready at least on 31st of December 2018.
- The realization of import based on the import licenses should be submitted to BKPM on 2nd of July 2018, or to the regional and provincial investment boards depending on the boards’ availability.
- BKPM will start to process revocation approval application on 2nd of July 2018 at BKPM and on 31st of December 2018 at the regional and provincial investment boards.
- If the company happen to close one of its representative office or branch, the representative or branch offices closure application may be submitted at the latest on 2nd of July 2018.
- While waiting for the eligibility of the SPIPISE system, all reports and applications should be submitted offline or manually to BKPM or the relevant regional investment boards.
The SPIPISE System
SPIPISE stands for Sistem Pelayanan Informasi dan Perizinan Investasi Secara Elektronik. The system is created to simplify the communication between the investing parties with the investment boards of Indonesia. It is also being prepared as an effective way of investment monitoring in the country—foreign and domestic investments.
Investors need to register and verify their data to upload files related to investment development and report. For a country with a vast area of investment, SPIPISE reduces the hassle of getting investment licenses and thus increasing the efficiency and effectiveness of the process.
Furthermore, the online system is also integrated with relevant departments which means investments are not only monitored by BKPM. Manually, companies need to submit their development and investment reports to the BKPM office which takes more time and process. SPIPISE simplify the process by opening the submission for 24/7 online.
The online system allows the company to submit its documents and reports. Those submitted files will be saved carefully on the BKPM server, and the company may reuse or update the documents by the regulation.
Ineffective Regulations after the Application of Regulation 13 and 14
Following the application of the new regulation in early 2018, some former regulations are no longer in use such as:
- Regulation No. 8 of 2015 on Guidelines of Income Tax Facility Application of Capital Investment
- Regulation No. 13 of 2015 on Guidelines of Corporate Income Tax Reduction Facility Application
- Regulation No. 14 of 2015 on Guidelines and Procedures of Capital Investment Principle Licenses
- Regulation No. 15 of 2015 on Guidelines and Procedures of Licensing and Non-Licensing Matters on Capital Investment
- Regulation No. 16 of 2015 on Guidelines and Procedures of Capital Investment Facilities
- Regulation No. 17 of 2015 on Capital Investment Implementation Monitoring
As the new regulations have just been effective for about two months, BKPM hopes that it would simplify the investment process especially in the arranged areas such as SEZ. With less complicated procedures, the investment development is expected to increase the economic growth in Indonesia.