• Investment Law Update:
Recently, the Investment Coordinating Board (Badan Koordinasi Penanaman Modal – BKPM) has issued new regulation namely BKPM Head Regulation No.5 of 2013 (Peraturan Kepala BKPM No. 5 Tahun 2013 – BKPM 5/13) concerning Guidelines and Procedures for Licenses and Non-Licenses for Capital Investment. We have identified here some of major points which may have an impact on your business in Indonesia.
• Capital Threshold:
BKPM 5/13 has regulated the minimum investment amounts for specific types of limited liability incorporated in Indonesia. The intention here is to provide clarity on the investment value when an investor comes to Indonesia. For domestic capital enterprise (Penanaman Modal Dalam Negeri – PMDN), BKPM requires the capital investment of more than IDR500,000,000 (five hundred million Rupiah). Meanwhile for foreign capital enterprise (Penanaman Modal Asing – PMA), BKPM requires the investor to abide by the capital threshold of greater than IDR10,000,000,000 (ten billion Rupiah) or as equivalent to the applicable US Dollars currency at the time of application. This amount however does not include the value of property (land and building). BKPM also requires the investor to participate in issued and paid up capital of no less than IDR2,500,000,000 (two billion five hundred million Rupiah) or the equivalent US Dollars. Further to the capital arrangements, the participation in the company’s capital for each of the shareholder shall be no less than IDR10,000,000 (ten million Rupiah) or equivalent in which the percentage of shares ownership is based on nominal value of shares. Nevertheless, the BKPM has yet to regulate equity to debt ratio vis-àvis, in which plays a big part in capital investment. This would later raise question of the possibility to have an enormous amount of debt to cover big investment. Consultation to BKPM is still needed from case to case basis so as to check on the equity to debt ratio. This may differ for each industry.
BKPM 5/13 also provides the latest procedures on the applications to BKPM. In the previous BKM regulation, registration is the first step in getting BKPM principle license. However BKPM 5/13 has removed this requirement and therefore cutting down the process. BKPM 5/13 requires PMDN to provide presentation beforehand, for better understanding of its business. Though it is not mandatory for PMA, sometimes PMA companies are requested to provide technical briefing to BKPM also.
SHAREHOLDING BKPM 5/13 also provides some guidelines on change of shareholding. It is now clear that the subsidiary company(s) of a PMA company is required to apply for change of status to become PMA as well. In addition to the aforementioned, if the Indonesian subsidiary is in the closed line of business activity under Negative Investment List (Daftar Negatif Investasi – DNI), the subsidiary is required to divest its shares to Indonesian entity or any other PMDN based on DNI. LISTED COMPANY BKPM 5/13 also stipulates the provisions in relation to shareholding for listed company. BKPM 5/13 expands to include the definition of controlling shareholders in listed company. It is stipulated that, anyone who owns more than 50% of the total paid-up shares or any entity in which has the ability to determine the management or policy of a listed company whether direct or indirect, shall be considered as controlling shareholders. The regulation further defines the classification of the listed company based on its shareholding composition. Firstly, the listed company that one or the entire controlling shareholders are foreign entity, shall be considered as PMA. Secondly, such company is to be considered as PMDN in the event all of controlling shareholders are Indonesian. As such, any listed company that is classified as PMA, should apply for principle license. BKPM 5/13 further provides that the application must be accompanied by a copy of a letter submitted by the controlling shareholder to the Financial Service Authority (Otoritas Jasa Keuangan – OJK). Currently there is no implementing regulation on the requirement to report changes of shareholding for a public listed company to OJK. This issue need to be ironed out between OJK and BKPM by having an implementing regulation.
• Restriction For Venture Capital Companies:
As for venture capital companies, BKPM 5/13 restricts any Indonesian venture capital companies to be shareholders in a large-scale PMDN or PMA. Existing shareholdings by venture companies must be divested within a period of ten (10) years.
BKPM 5/13 clearly stipulates that the existing divestment obligation of a PMA as contained in the investment approval/business license issued by BKPM would still be applicable and binding to the obligated party. Additionally, PMA entity of which divestment obligation has already been due date and still unable to find proper Indonesian shareholder, BKPM 5/13 may consider providing extension period of maximum two (2) years.
Initially there were two authorities that are capable of issuing representative office namely Ministry of Trade (Kementerian Perindustrian – KemenPerin – MOT) and BKPM. Subsequent to the issuance of BKPM 5/13, BKPM is the only authority to issue license in relation to representative office. Previously, there was no period imposed on representative office which is registered with BKPM. However, with the issuance of BKPM 5/13, representative office is only allowed for a period of 3 (three) years, with the possibility of two times extension, each for 1 (one) year period. The main reason for introducing the timeframe is to encourage investors to set up its business in Indonesia after familiarizing with the Indonesian market. In relation to the existing representative office under the previous license, the BKPM 5/13 is silent on the obligation to reapply the said license to comply with BKPM 5/13. However, there is a huge possibility that if the representative office proposes changes and is required to make submission to BKPM, BKPM may enforces the representative office to comply with the recent regulation thus losing the availability of unlimited period of establishment from the previous license.