Guidelines and Procedures for Licensing and Investment Facilities

Licensing and Investment FacilitiesBackground

Indonesia Investment Coordinating Board (“BKPM”) issued a new regulation namely the Investment Coordinating Board Regulation No. 13 of 2017 on Guidelines and Procedures for Licensing and Investment Facilities ("PERBKPM"), which entered into force on 2 January 2018.

This Regulation aims to accelerate the implementation of the business as stipulated in Presidential Regulation no. 91 of 2017.

At the time this regulation is in force, the previous head of BKPM regulations such as Perka BKPM No. 8 Year 2015, Perka BKPM No. 13 Year 2015, Perka BKPM No. 14 Year 2015, Perka BKPM No. 15 Year 2015, Perka BKPM No. 16 of 2015 and the amendments are revoked and declared no longer valid.

Provisions on Investment Licensing

1. Registration of Investment

Foreign Investment Companies ("PMA") and Domestic Investors ("PMDN") that will start a business with certain business activity criteria are required to have Registration of Investment.

The meaning of starting a business within PERBKPM is as follows:

  1. New business establishment, whether for PMDN or PMA;
  2. Initiate business activities for change of status to PMA;
  3. Initiate business activities for change of status to PMA;
  4. The addition of new business fields;
  5. Addition of new business fields;
  6. Additional production capacity in the industrial sector for business expansion; or
  7. The addition of business type in the same business field outside the industrial sector.

Criteria for certain business which must firstly go through the stages of Registration of Investment are as follows:

  1. Business fields that require time to carry out construction / construction activities;
  2. Areas of business that can obtain Investment Facility in accordance with the provisions of the laws and regulations;
  3. Business fields that have the potential to create medium and large environmental pollution impacts in accordance with the provisions of laws and regulations;
  4. Business fields related to national defense, natural resource management, energy and infrastructure; or
  5. Other business fields in accordance with the provisions of sectoral legislation.

Type of Registration of Investment is the registration as follows:

  1. new;
  2. change of status; and
  3. amendment.

Registration of Investment for PMDN and PMA is proposed before or after a company is incorporated in Indonesia and may be issued if the applicant has complied with the provisions concerning (i) the provisions of a closed business field and an open business field with conditions, and (ii) completeness of application requirements.

The validity period for Registration of Investment is the same as the project completion period stated in the Investment Registration, which is 1 to 5 years in accordance with the characteristics of the business. Extension of the registration period of at least 30 days before expiration.

2. Business License

PMA and PMDN who are ready to conduct the production of goods and / or produce services (operation) before conducting sales transactions, must have Business License. Investments in certain business fields may be directly granted a business license provided that (i) has been incorporated as Indonesian business entity with a shareholding limit in accordance with the provisions of laws and regulations; (ii) has owned NPWP; and (iii) has control of the office / place of business.

Companies that have a business license must conduct business activities within 1 (one) year, otherwise the business license may be revoked.

Certain business fields as described above must meet the following criteria:

  1. Business fields that do not require construction activities; or
  2. Business fields that do not require exemption of import duty on the import of machinery / capital goods.

Applicants may apply for a Business License without making an Investment Registration if it complies with the above-mentioned requirements or has a business license / expansion license and will change the status of the company.

Business License issued by BKPM include business license in the agriculture, environment and forestry sectors, energy and mineral resources, marine and fisheries, industry, trade, public works and public housing, tourism, health, transportation, communication and informatics, employment, education and culture, and police.

The period of validity for the business license is determined as long as the company still conducts the production / operation business, except (i) for PMA companies that have not fulfilled the requirements as a company with large-scale business qualification as stipulated in legislation, a business license is granted for a validity period of 1 year since determined, or (ii) business fields regulated in the laws and regulations in accordance with the business sector.

PMA that has met the requirements of large-scale qualification companies (net assets of more than 10 billion Rupiah and annual sales of more than 50 billion) may apply for a business license with a valid term for as long as the company still conducts business activities. Foreign investors who have not fulfilled this requirement may apply for a renewal no later than one year with a change of business license prior to its expiry and cannot be renewed and the business license becomes void by law.

Investment Registration and Business License for PMDN are given to:

  1. PT whose shares are owned by Indonesian citizens;
  2. CV, Firm or individual business;
  3. Cooperatives or foundations established by Indonesian citizens;
  4. BUMN or BUMD.

Especially for PMA, the registration can only be given to a PT. Application for investment registration and business license must pay attention to the Indonesian Standard Classification of Business Enterprises ("KBLI") and Investment Negative List ("DNI")

Investment Value Terms

Foreign investors who want to start a business in Indonesia, unless otherwise provided by law, are required to comply with the provisions of investment value as follows:

  1. The total value of the investment is greater than Rp10,000,000.00 (ten billion Rupiah), excluding land and buildings;
  2. The issued capital value is placed equal to the paid-up capital value, which is at least Rp2,500,000,000.00 (two billion five hundred million Rupiah);
  3. Equity participation in a company for each shareholder of at least Rp10,000,000 (ten million Rupiah).

This provision shall be exempted if investment activities are carried out for development and management of the property so that the provisions shall be as follows:

  1. In the form of property in the form of (i) the whole building, or (ii) the housing complex in an integrated manner, the investment value is greater than Rp10,000,000,000.00 (ten billion Rupiah) including land and building, paid-up capital of at least Rp2,500,000,000.00 (two billion five hundred million Rupiah) and value of investment in the company's capital, for shareholders of at least Rp10,000,000.00 (ten million Rupiah); or
  2. The form of the property is not in (i) 1 complete building; or (ii) 1 housing complex in an integrated manner, The investment value is greater than Rp10,000,000,000.00 (ten billion Rupiah) excluding land and building, paid up capital of at least Rp2,500,000,000.00 (two billion five hundred million Rupiah) and value of investment in the company's capital, for shareholders of at least Rp10,000,000.00 (ten million Rupiah) under the terms of Debt to Equity Ratio (DER) 4: 1

The Venture Capital Company ("PMV") may become a shareholder of an investment company provided that it may only be temporary and may not exceed 10 (ten) years from the date of the shareholders approved by the Ministry of Law and Human Rights ("MOLHR") and may be extended twice with a total extension of a maximum of 10 (ten) years.

In conducting investment, PMV should still refer to the provisions of applicable legislation. Investments by PMV whose shares are owned by PMDN or in the presence of foreign capital elements, are still classified as national equity participation.

Representative Office License

The scopes of representative office license referred to this PERBKPM are:

  1. License of Representative Office of Foreign Company ("KPPA")

The objectives of KPPA are as supervisors, liaison, coordinator, and managing the interests of the company or its affiliates, preparing for the establishment and development of PMA's business in Indonesia.

KPPA shall be based in the office building of the Provincial Capital and shall not engage in any commercial transaction with any Indonesian company or individual and shall not participate in any form of management of a company or branch in Indonesia.

  1. License of Representative Office of Foreign Trading Company ("KP3A")

KP3A may take the form of a sales agent, a factory agent and / or a purchasing agent. KP3A is prohibited from conducting trading activities and sales transactions, from the initial level up to the end such as tender, contract signature, settlement of claim and the like.

To apply KP3A, a Foreign Trade Company Representative License Business License ("SIUP3A") is required. SIUP3A consists of (i) temporary approval of appointment of foreign trading company, (ii) New SIUP3A of Head Office, (iii) SIUP3A New Branch Office, (iv) SIUP3A New Branch Office, (v) SIUP3A Extension, and (vi) SIUP3A amendment.

  1. License of Representative Office of Foreign Construction Service Business Enterprise ("BUJKA")

BUJKA Representative Licenses are granted to BUJKA with large-scale qualification by complying with other provisions set forth in the laws and regulations. Representative License shall be valid for a maximum of 3 years and may be extended, and may be used to conduct construction services business activities throughout Indonesia.

BUJKA Representative License consists of (i) new BUJKA license, (ii) Renewal of BUJKA license, (iii) Substitution of data of BUJKA License and (iv) closing of BUJKA license.

  1. KPPA Migas License

The permanent business entity may apply for a KPPA license in the oil and gas sub-sector with a validity period of no more than 3 (three) years and may be extended.

Investment Facilities

Investment facilities provided through this PERBKPM are as follows:

1. Exemption from Import Duty on Import of Machinery and Goods and Materials for Development or Industrial Development

Companies that have Registration of Investment/Principles License/ Investment License whether new, extension, amendment, and have legal entity or have valid Business License/ Expansion License obtain fiscal facility in the form of (i) exemption facility of import duty on machine excluding tribe spare; and (ii) exemption of import duty on the import of goods and materials.

2. Exemption of Import Duty on the Import of Capital Goods for the Development or Development of Power Plant Industry for Public Interest

Business entity conducting Power Plant Industries for Public Interest which already obtained Investment Registration/License of Principles/ Investment License either new, extension, or change and IUPTL may apply to obtain facility of import duty exemption on import of capital goods.

3. Provision of Exemption or Relief of Import Duty and / or Exemption of Value Added Tax on Import of Goods for Contract of Work and Working Agreement of Coal Mining Entrepreneur

Import of goods for contract of work and agreement of work of coal mining concession shall be granted exemption or relief of import duty according to the contract owned.

4. Tax Allowance Facility for Investment in Certain Business Fields and / or in Certain Regions

This facility is granted to taxpayers who undertake new investments or expansions already existing in certain business fields, and/ or certain business fields and certain areas governed by government regulations. An application may be filed by a taxpayer who has a new Investment Registration/License of Principles/ Investment License, expansion, or amendment.

5. Facility Exemption or Reduction of Income Tax (Tax Holiday)

This facility can be given to taxpayers of agencies that make new investments which are considered as Pioneer Industries.

The Pioneer Industry includes:

  1. Upstream metal industry;
  2. Petroleum refining industry or industry and oil refineries infrastructure, including those using the scheme of government cooperation and business entities (KPBU);
  3. Basic organic chemicals industries derived from petroleum and natural gas;
  4. Industrial machinery producing industrial machinery;
  5. Agricultural, forestry, and fishery-based processing industries;
  6. Telecommunication, information and communication industries; and/or
  7. Marine transportation industry.

Daniel Pantouw

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