indonesia investment law

indonesia investment law

INVESTMENT POLICIES STATEMENT

THE GOVERNMENT OF INDONESIA

Recognizing, that the importance of private sector investment to achieve sustainable economic growth, employment creation, development of strategic national resources, transfer and implementation of competitive technology and technical skills, export growth and improved balance of payments.

Appreciating, that an appropriate legal framework is prerequisite to promoting a stable, predictable and attractive business environment that will encourage and support private economic activity by Indonesian and foreign investors.

Acknowledging, that an appropriate legal framework for investment must provide certain key principles, among which are: equal treatment of investors in similar circumstances irrespective of nationality; protection against expropriation, confiscation or requisition of investments and unilateral alteration or termination of contracts; freedom to repatriate foreign investment capital and net proceeds there on; and access to impartial, quick and effective mechanisms for the resolution of commercial and other investment disputes.

Cognizant, that these principles have increasingly been adopted as standard international practice and have been incorporated into national legislation in many countries, both regionally and globally, and have been recognized in various international documents, including the GATT/WTO Agreements, the APEC Non Binding Investment Principles, and numerous bilateral investment agreements.

Undertake and Resolves to reform the investment policies, legislation and regulations of the Republic so as to create an enabling environment for private investment consistent with the above stated principles, to be characterized by active promotion and facilitation of investment, transparent criteria for the admission and establishment of investments, transparency of government procedures and administration, and minimized restrictions, prohibitions, screening and licensing requirements based on a short "Negative List" of restricted investments.

The government has therefore established an Investment Policy Reform Initiative having as its objective the encouragement and facilitation of private sector investment through reform and implementation of transparent, predictable, market oriented policies applied equally to both foreign and domestic investors. In this the Government has recently adopted major policy changes, including liberalizing the rules for foreign investment. The Government is committed to the rapid elimination of the remaining restriction on foreign and local private investment.

This statement sets forth newly adopted and current policies of the Government for promoting and facilitating private sector investment in Indonesia. The Government is fully committed to these policies and will take the necessary steps to ensure their effective implementation. This statement will be supplemented by detailed investment guidelines to be issued in the near future.

To encourage and facilitate private investment, the Government has adopted the following policies.


NATIONAL INVESTMENT LAW
The Government is preparing a unified law on Investment that will replace the existing Domestic Capital Investment Law and the Foreign Investment Law and regulate investment on all sectors. This new law will incorporate market oriented principles of investment policy and establish basic guarantees such as equal treatment of Indonesian and foreign investors whenever possible, protection against expropriation of investment. Free repatriation of foreign investment capital and returns and a reasonable part of the salaries and wages of expatriate personnel and related concepts drawn from regional and international best practice. Regulations and Decrees issued under the earlier investment laws will be streamlined and reformed to minimize negative list and other restrictions on local and foreign investment. In the interim and as these legislative enactments are prepared, the administration of investment related functions by government agencies and departments will be updated and improved in light of the new policies contained in this Investment Policy Statement.

FREEDOM TO INVEST
Investors shall be permitted to invest in any sector of the economy except in a small number of activities, which are listed on "Negative List". There shall be no restriction on the size of the investment, the source of funds or whether the products are destined for export or for the domestic market. Existing foreign investors may invest in activities other than those initially authorized, except for activities stated on "Negative List".

COMPANY FORMATION
Industrial licenses are still needed based on the principles of fairness, simple, quick and transparent mechanism and procedure.
Procedures for company formation are to be administered so as to permit prompt establishment of business enterprises.

TAXES AND DUTIES
The Government is committed to enhance the country's investment climate and international competitiveness by further reducing and simplifying taxes and duties through ongoing tax and trade policy reform programs. The current Indonesia tax law provides tax incentive to investor who invest in certain sectors and or certain areas as follows:

1. Investment Allowances,

2. Accelerated depreciation and amortization,

3. Expanded loss compensation but not more than 10 years,

4. 10% tax rate for dividend paid to foreign taxpayer, except to prevail tax convention maintaining lower tax rate.

Indonesia always tries to maintain equal treatment in tax law not only for taxpayers but also for tax cases that have similarities. By giving tax incentive to investors, Indonesia must assure that this incentive granted still reflect the principle of equal treatment and the application of that principle did not depart from the objective of tax incentive.

AVAILABILITY OF FOREIGN EXCHANGE
The Government will continue to ensure, according to pre-set criteria and procedures, that foreign exchange for import transactions and dividend payments is freely available and the Government is committed to ensuring the ease of repatriation of capital and payments for business services.

ACCESS TO LOCAL FUNDING
The Government is considering introducing a simple system that will allow foreign investments access to local funding based on simple established criteria.

LABOR PRACTICES
Within the framework of the labor laws of Indonesia, the Government recognizes that enterprises may require foreign expertise. Accordingly, it will continue to make residence permits readily available according to prevailing regulation for key personnel required for employment in such enterprises.

GENERAL INFRASTRUCTURE
The Government recognizes the importance of infrastructure to support investment and is committed to make available adequate infrastructure such as transport, electricity, water and communications through partnership mechanisms that attract private capital. Adequate legal protection including guarantees for the integrity of contracts will be provided.

AVAILABILITY OF LAND
The Government is committed to ensure that land for industrial and commercial use is readily available to investors. The Government will receive and simplify all existing land licensing and environmental approval procedures to ensure transparency.
The Government is committed to develop new serviced industrial sites and has provided the necessary framework to enable private investors to develop industrial sites including through arrangements for subleasing to other investors.

ENCOURAGEMENT FOR SMALL AND MEDIUM ENTERPRISES
The country's small and medium scale enterprises hold great potential for rapid economic growth and employment creation. The Government is therefore dedicated to continuing with various programs assists these enterprises, including simplifying the regulatory and policy environment, removing obstacles to securing access to raw materials, removing tax related impediments and improving access to credit.
The Government will promote mutually advantageous, commercially beneficial subcontracting/ partnership arrangements between large-scale foreign and local firms and small- and medium-scale business.

INVESTMENT PROMOTION
To further enhance the capacity of the BKPM and to create an integrated investment promotion regime, the Government is actively reviewing proposals for the formation of an independent, public private partnership to promote and facilitate all private investment in Indonesia.

INVESTMENT SERVICES
The Government is committed that the investment services for foreign and domestic investment in the era of regional autonomy is more preferable that the current condition. Therefore, a "one stop service" system will be introduced to be implemented in the region.

INVESTMENT PROTECTION
The Government recognizes that security of assets of investors is of paramount importance. It therefore, assures investors that it will avoid using any measures that will adversely affect their property rights.
In the case of foreign investors, the Government has negotiated and concluded several bilateral investment treaties, which provide direct protection to investors for the security of their assets as well as assurances for the repatriation of proceeds from their investments. The Government will actively work to pursue to conclude additional bilateral investment treaties with other countries. Indonesia has also joined the Multilateral Investment Guarantee Agency (MIGA).

DOUBLE TAXATION RELIEF
To improve economic and trade relationship with other countries, Indonesia would like to have certain law provisions that regulate the right of tax imposed from each country. The purposes of those provisions are achievement of rule of law, avoiding double taxation, and prevention of tax evasion. Government is entitled to make an agreement with other countries to avoid double taxation and to prevent tax evasion.
The framework and the matter of this agreement are based on international convention and other rule of laws and also the tax regulation of each country.

ARBITRATION
The Government recognized that foreign investors must have an appropriate forum to resolve disputes that can not be settled amicably. While such disputes would normally lie within the jurisdiction of a competent court, parties may agree in certain cases to pursue extra-judicial adjudication and to choose an appropriate forum, including international conciliation or arbitration.
To that end, Indonesia has become a member of the International Center for Settlement of Investment Disputes (ICSID) at Washington DC.