As you are aware from our client alert in December 2017 (click here), a new Head of BKPM regulation on the implementation of capital investment licensing and facilities (ie, Regulation 13) became effective on 2 January 2018 for BKPM. It will become effective at the latest on 2 July 2018 for provincial/regional investment boards.
As mentioned in the December 2017 client alert, Regulation 13 regulates a number of new matters related to capital investment licensing and facilities. The following are some of the key changes:
- Introducing investment registrations concept as initial approval (Article 10)
- Allowing companies with certain lines of business to directly obtain business licenses without the need to first obtain investment registrations (Article 11)
- Emphasizing the prohibition of nominee arrangements (Article 12)
- Allowing the non-fulfillment of divestment obligation with certain requirements (Article 16)
- Removing the limited 5-year validity license for regional representative offices (Article 37)
Implementation - Status
Although Regulation 13 became effective on 2 January 2018 for BKPM, as far as we are aware, it has not yet been fully implemented in the BKPM online system. As far as we are aware, investment amendment applications still cannot be submitted online to BKPM at the moment, but investment registration applications can. In our experience, it would usually take around two to four weeks for the BKPM online system to accommodate the full implementation of a new system.
Also, it is still not clear how a number of the new requirements under Regulation 13 will be implemented. For example, in relation to allowing companies with certain lines of business to directly obtain business licenses without the need to first obtain investment registrations (Article 11), Regulation 13 allows investors whose lines of business do not require construction or facilities to directly apply for a business license but they must have first:
- obtained legal entity status with share ownership limitation in accordance with the prevailing regulations
- obtained a taxpayer registration number
- acquired an office
As far as we are aware, there have been no changes to the systems of the Ministry of Law and Human Rights and tax offices to support the implementation of this provision, ie, at the moment, the Ministry of Law and Human Rights still requires a principle license/initial investment license to process the establishment of a foreign investment company and the tax offices still also require a principle license/initial investment license to process the taxpayer registration number of a foreign investment company.
We heard that BKPM officials will have meetings in the coming weeks to discuss the implementation of Regulation 13.
Other Matters to be Considered in Regulation 13
While we are still monitoring how Regulation 13 will be fully implemented in practice, please see below some other matters that are worth considering in Regulation 13, some of which may still cause concerns for investors:
1. Recognizing investment for land and buildings as part of the calculation for the minimum investment requirement fulfillment for the line of business of property in the form of any of the following:
a) an entire building
b) an integrated residential complex
The investment of a foreign investment company must be more than Rp10 billion (excluding investment for land and buildings). This has caused problems with property companies where their investment would include lands and buildings. BKPM has accommodated these concerns under this provision.
2. Requiring DER of 4:1 for investments in the line of business of property not in any of the following:
a) an entire building
b) an integrated residential complex
Under Regulation 13, the calculation for minimum investment obligation for property companies that are not in the form of an entire building or an integrated residential complex exclude investments for land and buildings. There is also a requirement for DER to be of 4:1 for this line of business.
3. No provision on extension of divestment obligation
Regulation 13 is silent on whether the divestment completion period can be extended (under the previous regulation it could be extended for two years). In our view, the absence of the extension provision under Regulation 13 could be because Regulation 13 has provided a mechanism for companies to not fulfil their divestment obligation. That is, a company is permitted to not fulfil the divestment obligation if there is shareholders approval confirming:
a) for joint venture companies, that the Indonesian shareholder does not want to claim the share ownership in accordance with the divestment obligation
b) for 100% foreign owned companies, that all shareholders do not have any commitment with an Indonesian party to sell their shares
As mentioned in our previous client alert, it is still not clear though whether the above also applies to companies whose divestment obligation has already become due.
In the absence of the extension provision, we suspect that companies that have a divestment obligation and would like to extend the divestment completion period may need to discuss the extension with BKPM. Whether or not the extension is given would be subject to the discretion of BKPM.
4. Requiring subsidiaries to convert status to become foreign investment companies when they do corporate action if the parent becomes a foreign investment company (Article 20)
It is still not clear what is meant by a "corporate action". We suspect that BKPM would determine a benchmark for this (eg, referring to any action that will require BKPM approval). However, like previously, it remains to be seen how this subsidiary obligation provision will be implemented in practice. Also, in our view it may still be difficult for BKPM to effectively monitor this implementation.