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Business Sectors for Investment in Indonesia

According to Article 12 (1) Law No. 25/2007, all business sectors are open to investment activities, save business sectors declared closed for investment or activities that can only be carried out by the central government. Business sectors which are closed for investment are as follows:

 

  • the cultivation and industry of class I narcotics;

  • any forms of gambling and/or casino activities;

  • the capture of fish species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES);

  • the utilization or extraction of corals and utilization or the corals taking from nature used for building/lime/calcium materials, aquariums, and souvenirs/jewelry, as well as living or dead coral (recent death coral) from nature;

  • the chemical weapons manufacturing industry; and

  • the industrial chemicals industry and industrial ozone-depleting substances.

 

Further, the government has also enacted PR No. 10/2021 which regulates the business sectors for investment in Indonesia. In line with Law No. 25/2007, PR No. 10/2021 also specifies that all business sectors, whose natures are commercial, are open to investment activities, except business sectors declared closed for investment or for activities which can only be carried out by the central government.

In particular, the following business sectors are declared closed for investment according to PR No. 10/2021:

 

  • business sectors that cannot be operated in accordance with the business sectors listed in Article 12 Law No. 25/2007 as mentioned above; and

  • alcoholic beverages industry (KBLI 11010), alcoholic beverages industry: wine (KBLI 11020), and malt beverages industry (KBLI 11031).

 

Meanwhile, the business sectors for activities that can only be carried out by the central government are activities that are service in nature or defense and security-related that are strategic in nature and cannot be carried out or cooperated with other parties.

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Specifically, the business sectors that are open to investment are as follows:

Business Sectors in Indonesia

Business Sectors in Indonesia

Source: Art. 3, 4 (1), 5 (2) and (3), and 6 (1) PR No. 10/2021.

Priority Business Sectors

 

Priority business sectors constitute business sectors that satisfy the following criteria: (i) national strategic programs/projects; (ii) capital intensive; (iii) labor-intensive; (iv) high technology; (v) pioneer industry; (vi) export-oriented; and/or (vii) research, development, and innovation activities oriented. In particular, the business sectors that are categorized as priority business sectors are elaborated in Appendix I PR No. 10/2021.

 

There are 2 (two) types of incentives which are provided to parties who invest in priority business sectors, namely fiscal incentives and/or non-fiscal incentives. Specifically, fiscal incentives consist of taxation and customs incentives. According to Article 4 (5) PR No. 10/2021, taxation and customs incentives consist of:

 

Taxation Incentives

  • tax allowance for investment in certain business sectors and/or in certain areas;

  • corporate income tax deduction (tax holiday); or

  • deduction of corporate income tax and net income facilities for investment as well as reduction in gross income for certain business activities (investment allowance), including:

  1. reduction of net income for new investment or business expansion in certain business sector that are labor-intensive industries; and/or

  2. reduction of gross income for organizing work practice, apprenticeship, and/or learning activities in the framework of human resources guidance and development based on certain competency; and

Customs Incentives

Customs incentives are in the form of import duty exemption for the import of machinery, goods, and materials for industrial construction or development within the framework of Investment.

 

For non-fiscal incentives, Article 4 (6) PR No. 10/2021 stipulates that non-fiscal incentives include ease of business licensing, provision of supporting infrastructure, guarantee of energy availability, guarantee of raw materials availability, immigration, labor, and other facilities in accordance with the provisions of laws and regulations.

Business Sectors with Certain Conditions

 

Business sectors with certain conditions are business sectors that can be undertaken by all investors, including cooperatives and UMKM that satisfy the following criteria:

 

  • investment requirements for domestic investors;

  • investment requirements with limitation to the ownership by foreign capital;

  • investment requirements with a special license; or

  • other investment requirements, namely business sectors that are restricted and strictly supervised as well as regulated in separate laws and regulations in the field of alcohol beverage control and supervision.

 

The list of business sectors with certain conditions in the form of investment requirements for domestic investors are stated in Appendix III PR No. 10/2021. Moreover, investment requirements with restrictions on foreign capital ownership do not apply to:

 

  • investments that have been approved in certain business sectors before PR No. 10/2021 is enacted, as stated in the business license, except where the provisions in PR No. 10/2021 is more profitable for investment; or

  • investors who obtain leasehold rights based on an agreement between Indonesia and the country of origin of the Investor, except where the provisions of the same Business Sectors as in PR No. 10/2021 is more profitable for investors.

 

The companies whose businesses are included in the type of business sectors with restrictions on foreign capital ownership and who will alter their foreign capital ownership as a result of a merger, acquisition, or consolidation in the same business sectors, are bound by the following provisions:

 

  • the limitation of foreign capital ownership in the company that receives the merger as stated in the business license of the company receiving the merger;

  • limitation of foreign capital ownership in the company being taken over as stated in the business license of the company being taken over; or

  • limits on foreign capital ownership in the new company resulting from the consolidation in accordance with the provisions of the laws and regulations at the time the new company resulting from the consolidation is formed.

Other Business Sectors

 

Business sectors other than the (i) priority business sectors, (ii) business sectors that are allocated for or carried out in partnership with cooperatives and UMKM, and (iii) business sectors with certain conditions, are open to all investors.

Business Sectors Allocated for or which shall be Conducted in Partnerships with Cooperatives and UMKM

 

Business sectors, that are allocated for or which shall be conducted in partnerships with cooperatives and UMKM, are:

 

  • business sectors allocated for cooperatives and UMKM; and

  • business sectors, that are open to large businesses, conducted in partnerships with cooperatives and UMKM.

 

Moreover, business sectors, that are allocated for cooperatives and UMKM, are determined based on the following criteria:

 

  • business activities that do not use technology or that use simple technology;

  • business activities that are special in nature and labor intensive in nature, and have a special cultural heritage and are hereditary; and/or

  • the capital for the activity does not exceed Rp10.000.000.000,- (ten billion rupiah), excluding the value of land and buildings.

 

Furthermore, business sectors that are open to large enterprises in partnership with cooperatives and UMKM are created based on the following criteria (i) business sectors that are mostly cultivated by cooperatives and UMKM; and/or (ii) business sectors that are encouraged to enter the Big Business supply chain. In addition, the business sectors that are allocated for and which shall be conducted in partnerships with cooperatives and UMKM, are detailed in Appendix II PR No. 10/2021.

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