28 Sep 2021
Some More Clarity Emerges on New Rp 10-Billion Minimum Capital Requirement for FDI Projects in Indonesia

On 11 May 2021, we published an ABNR Legal Update titled New BPKM Rules to Require PMA Companies to Have IDR 10 Billion in Paid-up Capital: Will Existing Investors Be Affected?In this update, we set out some tentative conclusions in this regard based on our enquiries and discussions with senior officials at the Ministry of Investment/Investment Coordinating Board (“BKPM”).

In principle, the IDR 10 billion[1] paid-up capital requirement, as mandated by Regulation No. 4 of 2021 on Guidelines and Procedure for Risk-Based Licensing and Investment Facilities (“Reg. 4”),[2] does not apply to existing foreign direct investment (“FDI”) companies (“PT PMA”) that are: (i) fully incorporated and (ii) already had the required licenses and permits to operate their business at the time Reg. 4 entered into force.[3]

Circumstance (i) is quite straightforward, whilst (ii) warrants some clarification.

The test as to which licenses and permits are required by a PT PMA will be based on how the new risk-based licensing rules[4] classify its line(s) of business.[5]

If a PT PMA is classified as “low risk” to “medium-low risk” under these rules and had already obtained a Business Identification Number (“NIB”) prior to Reg. 4 becoming effective, it will not be required to increase its paid-up capital. In other words, its existing position will be grandfathered.

However, if the risk-based licensing regulations identify the PT PMA’s line of business as “medium high” to “high” risk, it appears that it will need to increase its paid-up capital to IDR 10 billion if the licenses or permits (on top of its NIB) that are required for such a medium-high or high risk business had yet to be obtained prior to Reg. 4 becoming effective. So, in other words, if it had not obtained these licenses or permits before Reg. 4 became effective, it will need to increase its paid-up capital to IDR 10 billion.

For example, a manufacturing company that is classified as a “high risk” business will require a business license (industrial business permit) on top of its NIB. Should it not have obtained this license at the time when Reg. 4 entered into force, it seems that it will need to increase its paid-up capital to IDR 10 billion before it can apply for it.

ABNR Commentary

Prior to the introduction of the IDR 10-billion capital requirement, the previous minimum was set at IDR 2.5 billion under a 2013 BKPM regulation and subsequent reiterations thereof. Even that was considered onerous by some prospective foreign investors.

Overall, the rationale for the IDR 10-billion capital requirement, in a scheme that purports to incentivize FDI, remains unclear. Rather than improve the business climate, we fear that the requirement may prove to have quite the opposite effect, especially in a region where the competition to attract FDI is already quite stiff. [6]

By partner Mr. Giffy Pardede (gpardede@abnrlaw.com) and associate Mr. Gerry Razy (grazy@abnrlaw.com).

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.