16 May 2013
BKPM REGULATION NO. 5 OF 2013
The Investment Coordination Board (BKPM) has issued a new BKPM Regulation No. 5 of 2013 concerning Guidelines and Procedures for Licenses and Non-Licenses for Capital Investment (“Reg 5 2013”), dated April 8, 2013. This new regulation presents new items that may impact new investment for establishing a foreign investment company as well as existing foreign investment companies (“PMA Company”). The following are some of the key points of Reg 5 2013 based on our review of this regulation.
Reg 5 2013, replaces BKPM Regulation 12 of 2009, and is effective 30 business days as of enactment date (on May 27, 2013).
Unlike the previous regulation, Reg 5 2013 explicitly sets out the minimum investment.
-The minimum total investment (excluding land and buildings): more than Rp. 10 billion (or its equivalent in US Dollars, or approx USD 1,030,927 using today’s exchange rate);
-The minimum issued and paid-up capital: Rp. 2.5 billion (or its equivalent in USD, approx USD 257,740);
-The minimum equity of a shareholder: Rp 10 million (approx USD1,030), and the percentage of share ownership is based on nominal value of shares.
Reg 5 2013 deals with procedures on investment licensing and procedures, and introduces new forms to be used. Unlike the previous regulation, Reg 5 2013 eliminates the requirement to have an investment registration, thus cutting down the process.
Establishment, Implementation and Commercial Operations
Commencement of business comprises the activities of establishment of a new entity, acquisition of an existing entity or commencement of a new business in a new location as a result of relocation of project. Commencement of the business requires a Principle License.
For a new application which covers more than 1 business sector in which one of them includes manufacturing, separate Principle Licenses will be issued.
The timeline for implementing the investment plan set out in the Principle License is 3 years, except for a particular business that requires a longer period. Extensions may be given if the period lapses, subject to procedures set out in Reg 5 2013.
Once a PMA Company is ready to commence commercial operations, it must apply for a Business License from BKPM or from the relevant competent authority.
In terms of Business License, Reg 5 2013 also introduces new terms for certain fields of business, such as Business License for Direct Sale (Surat Izin Usaha Penjualan Langsung or SIUPL), Business License for Survey Business (Surat Izin Usaha Jasa Survei or SIUJS), Business License for Property Brokers (Surat Izin Usaha Perusahaan Perantara Perdagangan Properti or SIUP4), Business License for Construction Business (Surat Izin Usaha Jasa Konstruksi or SIUJK).
Change in Shareholders
For PMDN Companies: For partial or entire acquisition of shares in local companies/PMDN Companies, the company must obtain a Principle License as a foreign investment company.
One important provision in applying the Principle License is to include a list of all the PMDN Company’s subsidiary companies. One year post issuance of the Principle License, the
subsidiary companies must apply for PMA status. Reg 5 2013 further on provides that if any of the subsidiary companies engages a business which is restricted for foreign direct investment, the parent PMA company must divest its shares in the subsidiary companies
to Indonesians. Due to the broad definition of 'PMDN companies', these subsidiary companies would include locally-owned companies that have not obtained investment facilities from BKPM.
For PMA Companies: For entire acquisition of shares in a PMA Company by Indonesian individuals or PMDN Companies, the PMA Company must obtain a Principle License as a domestic investment company.
For Publicly Listed Companies: For acquisition of shares in a publicly listed company (“Listed Company”), Reg 5 2013 reiterates the definition of ‘controlling shareholders’, which is stated as anyone who owns more than 50% of the total paid-up shares or has the ability to determine, directly or indirectly, and by any means, the management and/or policy of a Listed Company. A Listed Company will be categorized as a PMA Company if the entire or one of its controlling shareholders is a foreigner, a foreign legal entity or a PMA Company. A Listed Company categorized as a PMA Company must obtain a Principle License if there is a change in controlling shareholder. Article 50 Reg 5 2013 further provides that the application must be accompanied by a copy of a letter submitted by the controlling shareholder to the Financial Services Authority.
Based on this provision, we observe that BKPM is attempting to assert the requirement that a shareholding in a Publicly Listed Company by a foreigner or foreigners which is categorized a controlling shareholder shall be excluded from the term ‘indirect or portfolio investment’, which, under the Negative List (Article 4 of Presidential Regulation No. 36 of 2010 concerning Fields of Business Closed or Open to Foreign Direct Investment). Thus, in a controlling shareholding situation, a Publicly Listed Company would be subject to the provisions under the Negative List. However, the foregoing is not explicitly stated in Reg 5 2013 but was addressed by BKPM during the socialization of Reg 5 2015. Thus, it is not clear as to how or whether BKPM will enforce this.
Restrictions for Venture Capital Companies
Reg 5 2013 introduces a restriction where Indonesian venture capital companies cannot be shareholders in a large-scale local company (so called PMDN Companies) or a PMA Company. Existing shareholdings by venture capital companies must be divested within a period of 10 years.
Concerning divestment obligations, Reg 5 2013 addresses that the divestment obligation of a PMA Company to Indonesian individuals/entities would still apply if the obligation is stated in the investment approvals/licenses issued before the enactment of Reg 5 2013. Extensions can be applied to BKPM (a maximum 2 years can be obtained) to the extent that it has not successfully found a proper Indonesian shareholder.
The sanction provisions of Reg 5 2013 provides that any applicants submitting false information or data in the application may be prohibited to processing further applications for one year and be imposed by criminal sanctions under the prevailing laws. The specific legislations on criminal sanctions are not stated under Reg 5 2013.
The information in this alert is in summary form only and is not a legal advice. If you would like any further information on the Investment Law or any legal aspects of doing business in Indonesia please contact our team.
Ali Budiardjo, Nugroho, Reksodiputro