Problems relating to Trade and Investment on Indonesia

 
1. Restrictions on entry of foreign capitals
Issue
Issue details
Requests
Reference
(1) Limitation on the Foreign Capital Contribution Ratio - A member firm of JBCTIF, investing in an engineering company in Indonesia for water treatment equipment in the category of construction sector, is unable to increase readily its capital for business expansion, due to the foreign investment cap of up to 67% specified in the Negative List.
- By Negative List promulgated on 23 April 2014, GOI reduced to 33% from the previously authorised 100%, the foreign investor's maximum capital contribution ratio upon incorporation of a distribution company, capable of selling direct to the customers in the Indonesian domestic market. It has deprived autonomy in foreign investor's establishment of a distributing company. While a member firm already maintains a representative office in Indonesia (MFS), it is disallowed to assert its own legal personality. Thus, MFS's hands are tied in providing various services to local customers.
- Investment into the restricted business fields has been subject to cap on foreign capital ratio (FCR), and presidential regulation No. 39, 2014 has further tightened that cap which has been reduced to 33% from 100% on distributor, while online retailing previously without cap, is open only for the domestic capital. While No.39 does not apply to the existing enterprises thanks to the grandfather clause, it hinders new foreign investments.
- The New Negative List promulgated in April 2014 established the cap of 33% on foreign capital investment in the distribution business field without exclusionary provisions on the subject items and the business mode. It precludes FFE's establishing singly of distribution company for selling own products, materially hindering new business developments.
- GOI has reduced down to 33% from the previous 100%, the foreign capital contribution rate on establishment of the local distribution company.
- On new establishment of a trading company, less than 33% foreign capital ratio applies.
- The new act promulgated in October 2014 on insurance business (Revision on Undang-Undang Nomor 2 Tahun 1992 Tentang Perasuransian) includes description that suggests restricting share ownership by foreign funded enterprises in insurance companies operating domestically in Indonesia. The details are due for promulgation by Decree within 2-1/2-years from now. Assuming arguendo, the amendment restricts the FFEs' share ownership lower than the currently owned shares or prohibits the majority ownership, it would give a severe impact upon the operation of the insurance business of the locally incorporated FFEs'
- In construction sector, in addition to setting at 67% the foreign capital contribution, change in the class for the construction work licence compels a huge amount of initial investment upon foreign constructors. In addition, in light of facilitating the construction licence acquisition, the scope of prospective local partner substantively gets narrowed down to fellow traders. Minister of public works regulation 10/PRT/M/2014, guideline for licencing foreign construction service representative office (new regulation) promulgated on 22 September 2014 has been in force since 8 October 2014. However, it was only on 25 November at the explanatory meeting presided by ministry of public works that the detailed ex post facto report was given. Furthermore, as of 29 January 2015, no implementing rules for the regulation have yet been made public.
- Protectionism is on the rise, such as Negative List Amended this year while the deliberation is now under way on the tariff hike.		 - It is requested that Government of Indonesia (GOI):
-- takes account of the effect of the member firm's contribution to this date toward environmental improvement by its grant of technology, and
-- deregulates or repeals the foreign capital investment in this business sector.
- It is requested that GOI takes steps to authorise establishment of 100% foreign owned distribution company, as has been the case to this date.
- It is requested that GOI considers deregulating foreign capital restrictions by accepting foreign investment to achieve further development in Indonesian economy.
- It is requested that GOI takes step to repeal the unjust tightening of restrictions that goes against the main stream of harmonising the treatment between domestic and foreign investors.
- Would not it be possible for GOI to take step to increase the foreign capital ratio to minimum 51%?
- It is requested that GOI takes step to repeal the restrictions.
- GOI's propensity toward protection of domestic Industry appears to be unavoidable to a degree, by reflection of the developments concerning ASEAN, birth of new administration, financial agency's positive stance, etc. Nevertheless, impact of such propensity upon vested rights should be avoided. It is requested that GOI gives careful deliberation upon the rich, high level knowledge and expertise that foreign funded insurance enterprises bring into Indonesia and for the sake of enhancing the spirit of free competition, and makes a cool judgement.
- It is requested that GOI provides in advance opportunities to exchange dialogues between the Government and FFEs on each introduction/ amendment of the new schemes, laws and regulations.
- It is requested that GOI takes a long-term perspective for shifting its industrialisation policy rather than seeking relief from short term protectionism.		 - Presidential Regulation No. 36 of 2010 On List of Business Fields closed to Investment and Business Fields Open, with conditions, to Investment promulgated on 25 May 2010
- Foreign Investment Law Negative List (2010 Regulation No.36)
- Negative List promulgated on 23 April 2014
- Presidential Regulation No 39, 2014, On List of Business Fields Closed and Open (with condition) to Investment
- Insurance Act No.40, 2014 (Undang-Undang Republik Indonesia Nomor 40 tahun 2014 tentang Perasuransian)
  (Action)
- Deregulation in foreign investment control has been under way as exemplified by the Presidential Decree of 1994, which permitted the 100% foreign investment in certain business sectors, in the face of the Asian economic crisis and political upheavals. Most recently, by promulgation of Presidential Decree No.96/2000, deregulation in foreign investment has been made in steps in the 4 business sectors, recently, Presidential Decree No.96/2000classified the deregulation into 4 categories, namely, I. Business sectors in which investment by private parties is totally prohibited; II. Business sectors in which investment by foreign-funded enterprises ("FFEs") is prohibited; III. Business sectors in which restrictions in the equity share ratio no longer apply; and IV. Business sectors which are liberated with certain conditions.
- According to Coordinating Ministry of Economic Affairs (CMEA) Press Release of 14 September 2004, National Working Group on Investment Improvement ("NWGII" revised in August 2004) submitted a draft Negative List (PEPI, GR No.87/2003, chaired by the President) concerning the new national improvement for investment and export. The draft Negative List is being prepared, due for release as PD in December 2004.
- In August 2004, as amendment of PI Tax No.5/2003, GOI submitted to House of Representatives the new investment bill, which will replace both the Foreign Investment Act and the Domestic Investment Act implemented in 1967 and 1968, respectively, specifically intended to attract more FDIs into Indonesia. The Bill will repeal the outdated legislative provisions that are incompatible with the international standards. One of the Bills offers liberalization of FDI and promises a national treatment to FDI. As one of its important features, the bill offers, among others, a 30-year even amortization to foreign investors, executing the project. Investors are authorized to operate its business, as long as the operation is considered to be economically viable. The bill also eliminates any possibility for the project to be deprived by local partners upon lapse of a certain period from the hands of foreign investors.
Furthermore, a permanent visa will be issued to aliens having invested a certain amount of money into Indonesia and having resided for a certain period in Indonesia. The following are the main features of the Bill:
1. The equal treatment is granted to all domestic and foreign investors (the national treatment),
2. Investment is liberalized to all sectors/locations, excepting those included in the Negative List,
3. Investors are not deprived of their equity shares by their local partners and/or by the nationalized portion of their equity share,
4. A free remittance abroad of a reasonable portion of the foreign investment capital/yields and earned wages/salaries of foreign employees,
5. Licenses for foreign investment are issued commensurate with the economically viable period of each project,
6. Investment system may be simplified to permit foreign investors' access to the local financing institutions.
7. GOI will promote a beneficial partnership between large-scale foreign enterprises, local enterprises and small-to-medium enterprises, and
8. Regional governments will set up and maintain the "one-stop-investment service" window to facilitate both foreign and domestic investors.
- Presidential Decree No.3 of 27 February 2006 "Policy Package for Improvement of Investment Environment" includes among others submission to Parliament by March 2006 of "Bill to amend Investment Law, revision of Negative List, Conditionally Liberalized Sectors" to ensure clarity, simplicity, and methodical transparency.
- In March, GOI submitted to Parliament Bill to amend Investment Law, incorporating deregulation of investment restrictions.
- On 26 April 2007, Investment Law of 2007 was enforced. The New Investment Law stipulates among others:
(1) Non-discrimination between domestic and foreign capitals,
(2) Shared authority of investment licence between the central and local governments,
(3) One roof service that integrates all procedures on investment,
(4) Special Economic Zones, newly incorporated, and
(5) Extended term for the rights related to land properties.
- On 3 July 2007, GOI issued Negative List of Investment ("DNI") for 2007 by Presidential Decrees Nos. 76 and 77 of 2007. DNI now provides 9-business categories of investment, namely, 25%, 45%, 49%, 55%, 65%, 80%, 85%, and 95%. Presidential Decree No. 111 that followed in December 2007 both tightens and deregulates restrictions in parts.
- On 20 July 2007, the Parliament passed the Law No. 40/2007 on New Limited Company Act. The Act includes a provision that raises the minimum capital requirement to IDR50 billion.
- On 9 June 2010, Indonesian Investment Coordinating Board (BKPM) promulgated 2010 Negative List of Investment (DNI) pursuant to Presidential Regulation No. 36 promulgated and enforced on 25 May 2010. DNI is intended to simplify the preceding 2007 DNI. 2010 DNI is focused on: (1) Portfolio Investment, (2) Business expansion, (3) Issuance of Allocated Shares for business expansion, (4) Merger and acquisition within the same industrial sector, (5) Grandfather clauses, (6) Deregulation of investment restriction in certain sectors, (7) Tightening of protection for certain domestic industry, and (8) Deregulation of foreign fund contribution as regards ASEAN investors (Fulfilling the undertakings of Indonesia as a Member State of ASEAN Economic Community.)
2010 DNI amends the previous form of Appendix to the Presidential Regulation classifying business sectors corresponding to restricted types. It has been turned into a simpler, more comprehensive and easier-to-understand document. 2010 DNI amends Presidential Regulation No.77 and its amendments.
- Restrictions imposed upon all business sectors:
(1) By way of controlling foreign investment, a 100% Foreign Funded Enterprise must divest a portion of its equity shares to indigenous (pribumi) Indonesian individuals or legal entities within 15-years of opening its business in Indonesia, provided, however, that its practical implementation is nebulous.
(2) Minimum rules concerning Capital, amount including without limitation, Minimum Authorised Capital 50-million Rupiah, minimum amount of Subscribed Shares 12.5-million Rupiah (equal to 25% of Authorised Capital), Minimum Paid-Up Capital 12.5-million Rupiah.
(3) Land ownership is authorised only to indigenous (pribumi) Indonesians.
(4) Employment of foreign workers is restricted on job type, which can be filled by indigenous (pribumi) Indonesians, with the exception of enterprises exporting abroad more than 65% of the products manufactured.
- Depending upon business sectors, GOI controls investments such as: Prohibited Sector (vehicle test operation), Sector Compelling Majority Capital Control (vehicle maintenance and repair), and Sector Compelling Local Partner Participation (bolts and nuts, motor parts/components, pumps/compressors, 2-wheel/3-wheel motor vehicle component/equipment, bicycle equipment).
- On 26 December 2013, BKPM promulgated Amended Foreign Investment Negative List (Daftar Negatif Investasi "DNI 2013"), which both increases and reduces FFEs' capital ownership in many categories:
Key Changes introduced in DNI 2013:
Industry Sector --------------------------------------------------------- DNI 2013 Foreign Investment Level ---- DNI 2010 Foreign Investment Level
Land transportation facilities ------------------------------------------------------------- 49% --------------------------------- 0%
Regular vehicle inspection ---------------------------------------------------------------- 49% --------------------------------- 0%
Pharmaceutical industry ------------------------------------------------------------------- 85% --------------------------------- 75%
Venture capital financing ------------------------------------------------------------------ 85% --------------------------------- 80%
Distribution and Storage ------------------------------------------------------------------- 33% --------------------------------- 100%
Cold Storage (Sumatra, Java, Bali) ------------------------------------------------------- 33% -------------------------------- 100%
Cold Storage (Kalimantan, Sulawesi, East Nusa Tenggara, Maluku and Papua) -- 67% -------------------------------- 100%
Farming -------------------------------------------------------------------------------------- 30% --------------------------------- 95%
Fixed telecommunications ----------------------------------------------------------------- 65% ------------------- Previously unregulated
Multimedia-integrated telecommunication network ----------------------------------- 65% ------------------- Previously unregulated
Multimedia service provider -------------------------------------------------------------- 49% ------------------- Previously unregulated
Public-Private Partnership (PPP) --------------------------------------------------------------------- 95%(49% in private projects)
ProjectsAirportsSeaports ------------------------------------------------------------------------------- 49%(49% in private projects)
Land transportation terminals ------------------------------------------------------------------------- 49%
Water utilities -------------------------------------------------------------------------------------------- 95%
Toll road facilities --------------------------------------------------------------------------------------- 95%(95% in private projects)
Power plants (1-10 megawatt capacity) -------------------------------------------------------------- 49%(49% in private projects)
Power plants (10 and more megawatts capacity) --------------------------------------------------- 100%(95% in private projects)
Electricity transmission --------------------------------------------------------------------------------- 100%
Electricity distribution ---------------------------------------------------------------------------------- 100%
- In April 2014, Presidential Decree No. 39 on Foreign Investment Negative List was promulgated and enforced.
-- Business Sectors where Tightened Restrictions on Foreign Capital (FC) apply:
(1) Prohibited to FC without Upper Limit => Restricted to Domestic Capital only: namely, Supermarket, Mini-Market, Retailers other than Department Stores, dealing in Electric Home Appliances, Cosmetics, Toys, Footwear, Foods/Drinks, Retailing via Mail Order, Internet
(2) Changed to "Prohibited Entry": Operation, maintenance service, design, engineering, installation of Oil/Gas Facilities,
(3) Reduction in Foreign Capital Cap 95%=> 75% Overland Oil/Gas Mining & Excavation Service
(4) Reduction in Foreign Capital Cap 100%=> 33% Distributors, Warehousing, and Refrigeration Storage (in Java, Sumatra, and Bali Islands)
(5) Reduction in Foreign Capital Cap 49% Contents Services, Information Service Centre, Data & Telecommunication System Service
(6) Reduction in Foreign Capital Cap 95%=> 30% Raising Seedlings for Garden Crop, Cultivation (Compatible with the Gardening Law)
- According to the Netherlands' Embassy in Jakarta, Indonesia has informed the Netherlands that it has decided to terminate the Bilateral Investment Treaty from 1 July 1 2015. From that date onwards the provisions of the Agreement will continue to apply only to investments made prior to that date, for a period of fifteen years (in accordance with the Sunset Provisions) . GOI has mentioned it intends to terminate all of its 67 bilateral investment treaties. It remains nebulous if both governments intend to negotiation on new Treaty, replacing the terminating Agreement.
  (Improvement)
- By Presidential Decree ("PD") No.20/2004 of 12 April 2004, BKPM (Badan Koordinasi Penanaman Modal) is designated to act as Single Window authority to accept and process all investment applications and to issue related licenses. Since the publication on 20 July 2004 of The Decree of the State Minister of Investment/the General Director of Coordinating Board for Investment (No. 58/SK/99 and No.60/SK/2004), all applications for new investment are due for submission only to BKPM.
All existing applications (filed with the Regional Investment Coordinating Committee/Overseas' Indonesian Government (Embassies) pursuant to the previous HCBI Decree 37/SK/99 and No.05/SK/1989) must be finalized within 30 days from 20 July 2004 (the issuing date of Decrees No.58 and No.60 of 2004). The Permits and Approvals already issued by the Regional Governments And Embassies shall remain valid. PD No.29/2004, concentrating the procedures for permits and approvals under the single umbrella of BKPM, was not intended to override the power of the local governments. It is rather intended to promote a close liaison and collaboration by and among BKPM, the related authorities and the local governments. Thus, all requisite documents are issued after examination by each local government and the related governmental authorities, as has been the case before the PD No.20/2004. All investors are required to file all investment project plans with BKPM, and must be ready to receive requests for further production of documents from the local governments and the related authority.
- Japan - Indonesia Economic Partnership Agreement ("JIEPA") signed on 20 August 2007 includes in Chapter for Investment, among other things, National Treatment, Most-Favored-Nation Treatment, Prohibition of Performance Requirements, such as export requirement and domestic procurement requirement, and the mutual obligations to maintenance of status quo on liberalization (stand-still).
- "2010 Negative List Investment List" (2010 DNI) promulgated on 9 June 2010 has deregulated foreign investment restriction in certain sectors as follows:
-- Saccharine and cyclamate: 2010 DNI permits, subject to fulfillment of certain conditions, foreign investment into saccharine and cyclamate sectors, which had been closed to foreign capitals.
-- Construction: The cap on the foreign capital contribution ratio has been raised from 55% to 67%.
-- Movie related service: Motion picture studio, Film development room, Post-recording equipment, Film dubbing operation, and other movie related service previously prohibited to foreign investors are deregulated under 2010 DNI, which allows up to maximum 49% of foreign investment.
-- Medication service: The cap on foreign fund contribution ratio has been raised from 65% to 67%, enabling foreign funded enterprises to provide medication service anywhere inside Indonesia. Medication service includes Hospital, General clinic, Specialty clinic, Inspection room, etc.
-- Electric generation: Foreign investment into small electric generation plant (1-10MW) is now open to foreign investment taking the form of partnership entity, while it has been open only to small-to-medium enterprises. Foreign investors may continue to make capital contribution up to maximum 95% in electric generation plant (over 10MW).
On the other hand 2010 DNI has tightened restrictions for foreign investment in postal service and communication tower sectors.
-- Postal service: Ordinance No.38 [2009] on Postal service provides cap of 49% maximum on foreign capital contribution, while making acquisition of special licence a requisite requirement to provide postal service.
-- Telecommunication tower: Solely domestic enterprises with 100% capital contribution are authorised to engage in Provision of Telecommunication tower, maintenance, operation, rental and construction.
- In April 2014, Presidential Decree No. 39 on Foreign Investment Negative List was promulgated and enforced.
Business Sectors where the RestrictionS were deregulated:
(1) Raise in Foreign Capital (FC) Cap: 95%=> 100%---Power generation by Public-Private-Partnership (PPP) of less than 10 Mega Watt, Power Transmission, Power Distribution
(2) Raise in FC Cap: 75% => 85%---Pharmaceutical Sector
(3) Prohibited FC Entry: FC Cap raised to 49%---(Subject to Minister of Transport Recommendation)
(4) Prohibited FC Entry: FC Cap raised to 51%---Raising Seedlings for Garden Crop, Cultivation (Compatible with the Gardening Law)
Equipment for Movie Advertisement (subject to investment from ASEAN Member States)
- On 11 February 2016, Joko administration's 10th economic policy, GOI released Amended Negative List on 64-business sectors, the 10th shot to boost economy, "the conditionally open business sectors", by raising the capital contribution upper cap from 33% to 67% on distributors and warehousing, 33% to 100% on refrigerated storage, 49% to 67%, on vocational training, and tourism, 51% to 100% on restaurants, 55% to 67% on construction business consulting service, 65% to 67% on telecommunication, 85% to 100% on pharmaceutical manufacturing, 95% to 100% on express way, and 95% to 100% on telecommunication equipment test laboratories.
[Remarks] Please refer to the following PDF file (in Indonesian Language) for "the Thrust of the Minister of the Coordinating Ministry for Economic Affairs, titled "Investment with Increased Protection for Micro, Small, and Medium Businesses and Cooperatives."
(http://apindo.or.id/userfiles/publikasi/pdf/Paket_Kebijakan_Ekonomi_10.pdf)
(2) Nebulous Mandatory Divestment Rules - Under Article 7 of Decree No.20, 1994 on share ownership in a company incorporated under foreign investment law, a company incorporated in Indonesia by 100% foreign capital must divest part of its shares to Indonesian pribumi/Indonesian legal entity within 15-years maximum from the start of commercial production. BKPM director order No.5 of 12 April 2013 (partially amended by director order No.12 of September 2013), reinstated the obligations. However, substantive details (sales scheme, purchasers, the number of shares to be sold/percentage, etc.) for the sale of shares remain undefined in BKPM director order or in its guidelines. There is no consistency in BKPM's guidance / instructions, either. Furthermore, after promulgation of director order No.12, there have been cases where a foreign funded enterprise repurchased the shares once sold to revert the company to the fully foreign owned enterprise. Should BKPM authorises such transactions as lawful, it makes more and more ambiguous the purpose of the divesting obligations, to begin with.
- Article 7(1) of Regulation No. 20/1994 of BKPM Directorate General provides: A fully foreign owned enterprise shall divest a portion of its shares within 15-years maximum by selling directly to Indonesian nationals (including an ex-Japanese, who acquired the Indonesian nationality through marriage with an Indonesian) and/or via the domestic capital market (by listing in the stock exchange market) after the commencement of the commercial production under IUT (permanent business licence) or IUI (industrial business licence).
On the other hand, "Regulation No.5 /2013 of BKPM Director General promulgated on 8 April 2013 and enforced since 27 May 2013", provides under Article No.108, the obligations of the wholly foreign owned enterprises (so called foreign financial capital, namely, PMA= penanaman modal asing) that had received the licence for establishment and approval for investment, prior to the implementation of the New Investment Law promulgated on 26 April 2007, to discharge their obligations for divestment of the shares to Indonesian shareholders and legal entities, so called "the foreign capital 15-year rule", within 15-years of the commencement of their businesses operation. Furthermore, as a partial amendment of this Regulation, BKPM Directorate General promulgated Regulation No.12/2013 of 11 September 2013 (hereafter, No.12), which was enforced from 18 September 2013.
In effect, No.12 deleted the provisions under Article 108(5) of No.5, ("In the case where investment company (IC) that had already discharged the divestment obligations as stipulated in the letter of approval and/or business licence prior to the enforcement date of this regulation, in so far as IC continues its manufacturing/business operation, the share-ownership of the Indonesians or Indonesian legal entities shall remain unchanged"). In a nutshell, No.12 enables repurchase of the shares owned by Indonesians and/or Indonesian legal entities, and approves 100% foreign capital ownership, provided, however, that it requires extremely complex procedures that require purchase and repurchase of the shares.
- GOI compels foreign investors to transfer 10% interests to Indonesian participant. The transfer of 10% interests' in a project suggests problems on the project financing, including without limitation, dwindled project financial composition and increased interest cost (due to the participation by Indonesian enterprises with a lower financing capability or credit standing).
GOI is responsible for nominating the Indonesian enterprise, the recipient of the 10% Interests. However, GOI fails to make the nomination, past the due date. The delay in nomination can jeopardise formation of the sound financial composition and other plans for the project.		 - It is requested that GOI repeals the Decree, in as much as the thrust of the rule is ambiguous.
- It is requested that GOI takes steps to repeal all legislative provisions concerning the Divestment Requirement on Foreign Capitals. (It is meaningless.)
- It is requested that GOI:
-- takes steps to give flexibility to the transfer of 10% interests to Indonesia participant or
-- provides financial guarantee on account of the Indonesian Participants.		 - Decree No.20 [1994], Chapter 7 On Share Capital Ownership of Companies established under Foreign Capital Investment Act
- Foreign Investment Law 1967, Article 27
- Decree No. 20, 1994, Chapter 7, Article 1
- The Production Sharing Contract (PSC)
- BKPM Directorate General Decree No.5 of 12 April 2013, Article 108
  (Action)
- While 1994 Government Decree No. 20 authorises establishment of 100% FFEs, it also compels 100% FFE to divest a portion of the capital contribution to local Indonesians or Indonesian legal entities within 15-years from the start of the commercial production (The 15-years rule). These mandatory rules remains valid and intact, provided, however, that, its implementing procedures are ambiguous. For example, what stands for "a portion of shares" is not precisely laid down.
- Up to January 2008, a letter requesting deletion of the divestment obligations was all that was necessary. However, since February 2008, GOI has directed enterprises to attach agreement of shareholders, and in March, BKPM despatched to Japanese affiliated FFEs a letter titled "Implementation of Divesting Obligation".
- Article No.108 of Decree No.5 (2013) of Director General of BKPM promulgated on 12 April 2013 provides the obligations of the wholly foreign owned enterprises established before implementation of New Investment Law of April 2007 to divest a part of its shares to Indonesian individuals and legal entities within 15-years of the commencement of their businesses. According to the Decree, the minimum amount of 10 million Rupiah shall mean the amount representing "a part of its shares divested", provided, however, that it further provides that it allows filing of application for the 2-year-extension.
(3) Establishment of Local Manufacturing Depot as a Condition for Grant of Import Licence - By Regulation 38/M-DAG/PER/8/2013 enforced in August 2013, registered importers of smartphones /PDA/ tablet computer, must "establish within 3 years of import licence acquisition an industry of cellular phone" and customs requires submission of its plan. A member firm's customer, holding a valid import licence, nevertheless, receives enquires from customs about the progress made under the plan, delaying the customs clearance each time. Should the import licence expire, its renewal is difficult by satisfying the requirements under this regulation. - It is requested that GOI:
-- clarifies the provision: "establish an industry of cellular phone",
-- deregulates or eliminates the requirements.		 - Regulation 38/M-DAG/PER/8/2013
  (Action)
- On 23 February 2016, Ministry of Trade (MOT), Indonesia held public hearing on draft amendment of import regulation (MOT import regulation No.82, 2012) on handheld computer / tablet computer. The draft regulation seeks amending the local contents requirement, qualification, documents, enforcement, etc. as conditions for issuing import licence.
(4) Delayed Grant of Share Acquisition Permit for by a Locally Incorporated Subsidiary of FFEs - Relative to the share acquisition by a foreign funded enterprise, in addition to submission of the sale and purchase contract, examination is necessary by plural competent authorities. It takes time from application date to final approval in some cases. - It is requested that GOI takes steps to expedite the procedures for the approval of the competent authorities.
(5) Compulsory Cap on Coal Production Volume - GOI directs each coal producer, responsible for supply to the domestic market, to submit production plan to enable GOI to grasp and adjust the production volume in each year. It seems consultation has taken place in the past years between GOI and the coal producers: the theme of such consultation, however, has been limited to the extent of production plan. A Member Firm gathers, this time by its notification, GOI has tightened its pressure for observance of the cap on the production volume for the year 2014. This is a matter of concern as it interferes with free production/ distribution of coal and could develop into the binding governmental order in the end.
(6) Restricted Foreign Capital Ratio Cripples Highly Efficient Management - Due to the inclusion of distributors in the negative list of the foreign capital in the wholesale business, foreign manufacturer's value-chain gets dissected between manufacturer and distributor, injuriously separating the healthy partnership between the domestic and foreign capitals. It hinders the formation of a healthy domestic and foreign partnership and its efficient business management - It is requested that GOI takes step to deregulate the foreign capital restrictions in distribution business, to enable the uniform operation, joining manufacture and distribution together. - Presidential Regulation 2010 No.36 on Foreign Investment with Negative List (2010 Regulation No.36)
(7) Ambiguous Possibility of Foreign Funded Distributor's B-to-B Direct Sales - BKPM directs: "foreign funded enterprises (FFEs) shall not make direct sales to end users, as such sales are authorised only to local funded enterprises." However, the definition of "sales to end users" is ambiguous so that a member firm's subsidiary (MFS) is at its wit's end in determining what responsive action to take.
Should domestic distributor get involved in the domestic B-to-B sales of manufacturing equipment, there is no merit. It would end up by debilitating the end user's competitive edge.
Foreign funded distributor's direct sales ought to be permitted, for example, on information equipment for use in power generation plant facilities, lifts (elevators) for buildings, manufacturers equipment, information equipment for finance and other commercial business, etc.		 - It is requested that GOI expressly stipulates into legislation as follows:
-- Domestic funded distributors shall sell to unspecified large number of individuals, while
-- FFEs holding distributor licence may make direct sales of machineries and equipment, etc. destined to enterprises.		 - Presidential Regulation 2014 No.39
- Minister of Trade Decree 2013 No.35.
(8) Tightened Control of Expatriates' Office of Construction Business - Suddenly, since October 2014, GOI tightened its control on "foreign representative office of construction service (FROCS)". It appears confusion has spread to include Japanese affiliated representative office (JARO), which has been in operation since some length of time (as follows):
-- Previous Regulation (PMK-05):
FROCS is only allowed to perform complex construction project, high risk and/or high technology.
-- New regulation (PMK-10):foreign representative office of construction service is only allowed to perform high risk construction project, High technology and high cost.
-- PMK-10 also regulates the definition of each criterion:
--- High risk: construction work which endangers public safety, Property, human life and the environment.
--- High technology: construction work that needs a specific and sophisticated technology, including many experts.
--- High cost: construction work with contract value of more than IDR 100 billion (equivalent to USD 8,333,333 ? assumption 1 USD = IDR 12,000).
Based on the corporate policy to kickoff for the growth of B2B/G business, it would necessitate strengthening the value-chain (a shift from box-sales to solution sales, from the perspective, especially, of the business kick-off as early as possible.)		 - In the long run, Japanese enterprises will need to sound out local construction enterprises for joint operation (M&A, JV, JO, etc.), but for the time being, it is ideal if GOI deregulates restrictions by practical employment or interpretation, or by further deregulating the terms for joint operation with local enterprises, by way of annexure. - [Ministry of Public Works]
-- Previous Regulation: PMK-05
-- New Regulation: PMK-10
  (Action)
- "Minister of Public Works (MPW) regulation 10/PRT/M/2014" of 22 September 2014 amended the terms and conditions as well as guideline for the grant of licence on establishing in Indonesia, construction local representative office (CLRP) of foreign construction service enterprise engaged in planning, construction and administration in Indonesia.
(1) Pledge (de facto prohibition from holding the concurrent office) was added to the application documents for the licence of CLRP that the directors and auditors of the foreign construction service company about to open CLRP do not hold concurrent office as director and/or commissaris (auditor).
(2) On JO, allocation ratio of works and interests was set forth to Indonesian construction service enterprise, an Indonesian partner to joint operation.
(3) As one of the conditions whereby CLRP can carry out by JO intervention can be cited the installation service project with construction cost of minimum 100 billion INR (about one billion JPY) and planning/supervision service fee of about 10billion INR(100 million JPY). (BTMU Global Business Insight of 17 April, 2015).
(9) Intensified Demand Upon Joint Operation In EPC Business - Under the construction business licence issued by ministry of public works, subject to formation of joint operation with Indonesian enterprises, it is possible for a foreign funded enterprise to contract engineering, procurement and construction (EPC) business, subject, however, to the following problematic conditions:
(1) The requisite condition for establishment of joint operation to contract EPC business has been changed since 2011, so that only 100% domestically owned enterprise can be a partner to the joint operation.
(2) Since 2014, one billion JPY per project has become the minimum to qualify for EPC. Unless the applicant satisfies this requirement, the licence renewal in every 3-years, it is expected, will presumably become impossible.		 - It is requested that MPW will change the policy stated in the left column. - Ministry of Public Works Regulation 10/PRT/M/2014
(10) Regional Restriction of Business Activities - Customers of member firm's subsidiary (MFS) are scattered all across the country (substantive customers presumably reside outside Jakarta).
However, activities under work visa are generally restricted to the area within Jakarta.
GOI prohibits having a business talk or providing after service, etc. in the areas other than Jakarta. It is said some company was severely fined with monetary penalty for having provided after service in violation of this rule for the customer in the local area.		 - it is requested that GOI lifts the regional restrictions.

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