Investment Environment

Comparative Advantages for Foreign Investment

As a member nation of the ASEAN countries, Indonesia is located on the cross road of two great continents, namely Asia and Australia, and the Indian and Pacific Oceans, offers some comparative advantages to investors with attractive ranges and combinations such as:

1. A vast, fertile country endowed with rich and diversified natural resources, among others agricultures, plantations, fisheries, mining, oil and gas.
2. A large population of about 210 million and dynamically adaptive to progress, constituting a huge potential market as well as the competitive work force.
3. A strategic location controlling vital international sea communication lines.
4. A more democratic country.
5. An open market-oriented economy, with free foreign currency exchange regime.

Legal Aspect

In order to create a conducive environment through a series of policy and institutional improvements, therefore on February 27th, 2006, The government of the Republic of Indonesia has issued Presidential instruction Number 3 of 2006 (INPRES 3/2006) concerning a policy package to improve the investment climate, compromising a series of programs and actions intended to improve the investment climate.

The Package include new policies to improve security and public order, judicial reform, labor law reform, tax and custom reform, accelerating the provision of infrastructure, and the removal of central and local government’s laws and regulations that obstruct investment and trade.

The strategic action plans include:

1. To simplify the procedure to obtain permits and licenses to issue within 30 days
2. To revise laws and regulations on investment and on infrastructure provision
3. To provide tax incentives to promote direct investment in business activity and/or in certain national priority areas to reduce inter-regional disparity.

Foreign Direct Investment Incentives

The existing policy on foreign direct investment, which is already quite liberalized as follows:

1. Foreign investors are allowed to have 100% equity in almost all investment sectors except in some sectors such as public infrastructure. In these sectors, foreign investors are allowed to own maximum of 95% equity.
2. There is no more mandatory requirement for divestment, although 15 years after commercial operation of project, foreign shareholders are expected to voluntarily divest a small portion of their shares to the Indonesian nationals.
3. The amount of investment is up to the investing parties depending on the economic feasibility of the proposed project.
4. Foreign investors in Indonesia can be either companies or individuals who thereafter form a new foreign investment company. Foreign investors may either establish a new investment project of directly purchase or acquire of the shares of existing local firms.
5. Basic investment incentives that are provided for foreign investors are as follows:
1. Import duties reduction for the importation of machineries and equipments
2. Import duties reduction on the importation of raw and supporting materials for the first two years of production(for both new projects as well as expansion projects)
3. Accelerated depreciation
6. Foreign investment companies may hire foreign expatriates in most positions except for those positions that are not open for foreign workers. The restrictions on the use of foreign expatriates are very much reduced for projects that are located in the eastern part of Indonesia.
7. Indonesia has opened retail and wholesaler trading to foreign investment. In the case of retail and wholesale trading they should be conducted in the form of joint venture or similar form of cooperation with the Indonesian nationals or Indonesian companies.
8. The investment licensing or approval services in the Investment Coordinating Board (BKPM) have also been streamlined. It now requires only 10 working days to issue foreign investment approval while the other implementing permits can usually be finalized in 4 to 10 working days.