In order to increase investment and create jobs, along with the empowerment of cooperatives and micro, small and medium enterprises (usaha mikro, kecil, dan menengah – “UMKM“), the Indonesian government is currently working to prepare the change of Presidential Regulation No. 44 Year 2016 on Lists of Business Fields that are Closed for and Business Fields that are Open with Conditions for Investment (“Negative List“). In 2020, the government issued Law No. 11 Year 2020 on Job Creation (“Omnibus Law“). As the implementing regulation, the government aims to publish the updated Negative List, which will promote equitable investment in various business activities to balance investment in Indonesia’s regions. A Preparation for the Long-Awaited “Positive List” and What to Expect
The Omnibus Law amended Article 12 in Law No. 25 Year 2007 on the Investment. In Article 12 paragraph (1), it is stated that basically, all business fields are open for investment, except business fields which are declared closed or only to be carried out by the central government. Previously, there were 20 closed business fields, and after the issuance of the Omnibus Law, there are only 6 closed business fields. Among them are: (i) narcotics cultivation and industry class I; (ii) gambling and/or casinos; (iii) fishing species (as listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES); (iv) utilization or extraction of corals and corals from nature used for building materials/lime/calcium, aquariums and souvenirs/jewelry, as well as live or dead coral from nature; (v) chemical weapons manufacturing industry; and (vi) chemical industry and the ozone-depleting industry.
In January 2021, the government issued a new draft of presidential regulation (“Bill“), which is projected to become the most recent negative list of investment. Referring to the Article 2 of the Bill, this Bill should be a list of positive investment also accompanied by certain conditions instead of a new negative list. There are several groups of open business fields subject to a significant change from the previous regulations, namely priority business fields and allocated business fields or partnerships with cooperatives and UMKM. There are still open business fields with specific requirements and open business fields that do not belong to the three groups. Business fields that are not included in the three categories can be entered by all investors, namely individuals or domestic or foreign business entities.
Based on the Bill, there are several sectors for foreign ownership that will still be limited, namely the sectors related to transportation, broadcasting and news publishing, and alcoholic beverages, while industries including banking and finance will require special permits from the government.
Investors who invest in priority business sectors will receive fiscal incentives, such as tax incentives and customs and excise incentives. Besides, investors can also be given non-fiscal incentives, such as ease of processing business license, provision of supporting infrastructure, energy, guaranteed availability of raw materials, immigration, employment, and other facilities in accordance with existing regulations. However, there are several criteria concerning these priority business fields, such as national strategic projects, capital intensive, labor-intensive, high technology, pioneer industries, export orientation/import substitution, and/or orientation in research, development, and innovation activities.
Business fields with conditions to be allocated or partnered with cooperatives and UMKM shall have the following criteria:
- businesses with simple technology or no technology at all;
- business activities that have specific processes, are labor-intensive and have exceptional cultural heritage and are passed down from generation to generation; and
- the required business capital does not exceed IDR 10,000,000,000, – (excluding land and buildings where the business conducted).
Apart from the three above, there are also business fields for large businesses with the condition that they are obliged to cooperate through partnerships with cooperatives and UMKM. The criteria referred to are the business fields that cooperatives and UMKM and/or business fields mostly undertaken in the framework of scale-up to enter the supply chain. The big business in question is as defined by Law No. 20 Year 2008 on UMKM. In this case, foreign investors can only carry out business activities in large businesses with an investment value of more than IDR 10,000,000,000.
Since Omnibus Law has mandated that its implementing regulation shall be promulgated three months after the passing of Omnibus Law, the Bill is expected to be promulgated this February 2021. However, business people may prepare for executing the opportunities to play a role in investment in Indonesia, especially in the UMKM sector, where the government fully encourages investors to help raise UMKM as it is the largest source of employment in Indonesia. According to the Ministry of Cooperatives and Small and Medium Enterprises of the Republic of Indonesia, it was stated in 2019 that UMKM contributed to 97.02% of the employment.