New Capital Investment Regulation on Licensing and Facilities
The Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) recently issued Chairman of BKPM Regulation No. 13 dated December 11, 2017, on Guidelines and Procedures for Capital Investment Licensing and Facilities (“BKPM Reg. 13/2017”). BKPM Reg. 13/2017 will be effective at the central Integrated One Stop Service Office (Pelayanan Terpadu Satu Pintu or “PTSP”) at BKPM as of January 2, 2018, and at the lower level PTSPs (provinces, cities/regencies, free trade and free port zones, and special economic zones) not later than July 2, 2018. Upon taking effect, BKPM Reg. 13/2017 will revoke and replace the following BKPM regulations:
- Chairman of BKPM Regulation No. 8 of 2015 dated May 5, 2015, on Procedures for Application for Income Tax Facilities for Capital Investment in Certain Business Lines and/or Certain Regions, as amended by Chairman of BKPM Regulation No. 18 of 2015 dated October 8, 2015;
- Chairman of BKPM Regulation No. 13 of 2015 dated September 7, 2015, on Procedures for Applications for Corporate Income Tax Reduction Facilities, as amended by Chairman of BKPM Regulation No. 19 of 2015 dated October 8, 2015;
- Chairman of BKPM Regulation No. 14 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Principle License, as lastly amended by Chairman of BKPM Regulation No. 8 of 2016 dated October 28, 2016;
- Chairman of BKPM Regulation No. 15 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Licensing and Non-licensing; and
- Chairman of BKPM Regulation No. 16 of 2015 dated October 8, 2015, on Guidelines and Procedures for Capital Investment Facilities.
Because this regulation covers a broad range of topics that were previously subject to separate, more specific regulations, there may be considerable uncertainty as to how certain provisions will be implemented and enforced. We expect BKPM to provide extensive socialization of the new requirements in the near future and will update you accordingly. In the meantime, please see below for a brief overview of the key changes in BKPM Reg. 13/2017.
♦ INTRODUCTION OF CAPITAL INVESTMENT REGISTRATION AND DIRECT GRANTING OF BUSINESS LICENSES
BKPM Reg. 13/2017 is issued as a follow-up to Presidential Regulation No. 91 of 2017 on Acceleration of Doing Business, which is an effort by the Government to improve the ease of doing business in Indonesia. BKPM Reg. 13/2017 no longer recognizes the Principle License as the license required to start a new business. Instead, it introduces a Capital Investment Registration, which is only applicable for businesses with the following criteria:
- businesses that need time for construction activities;
- businesses that are entitled to capital investment facilities;
- businesses that have medium to high level of environmental pollution potential;
- businesses related to national defense, management of natural resources, energy, and infrastructure; or
- other businesses in accordance with the relevant laws and regulations in certain fields.
BKPM may directly grant a Business License to businesses other than those mentioned above, provided that the company is duly established, holds a Taxpayer Identification Number, and has secured a location for the business. A Business License will be valid as long as the company still carries out business. Within one year of receiving a Business License, the company must conduct the activities stipulated in the license; otherwise the Business License may be revoked by BKPM or the relevant regional PTSP.
The validity period of the Business License does not apply for foreign capital investment (penanaman modal asing or “PMA”) companies that have not fulfilled the qualifications as a large business. If a PMA company has not fulfilled the qualifications as a large business when applying for the Business License, the BKPM will grant a Business License for one year, which can be extended for another year. The company must then apply for a “permanent” Business License after fulfilling the qualifications as a large business.
♦ MINIMUM INVESTMENT AND ISSUED AND PAID UP CAPITAL
The minimum investment and issued and paid up capital requirements in BKPM Reg. 13/2017 remain the same as under the previous regulations, but the provisions of BKPM Regulation No. 14/2015 that required a minimum investment for each location where a business operates have been revoked.
As has been the case for some time, PMA companies must have a minimum investment of more than Rp10 billion other than land and buildings, an issued and paid up capital of minimum Rp2.5 billion, and a minimum shareholding of Rp10 million per shareholder.
BKPM Reg. 13/2017 further stipulates that PMA companies shall fulfill the qualifications for a large business, i.e., having net assets of more than Rp10 billion other than land and buildings, or having an annual sale revenue of more than Rp50 billion.
Property development and management businesses are subject to special provisions on minimum investment value. If the property is in the form of whole buildings or integrated housing complex, the minimum investment is more than Rp10 billion, including land and buildings. On the other hand, if the property units are not located in one whole building or one integrated housing complex, the minimum investment is more than Rp10 billion other than land and buildings, with a debt to equity ratio of 4:1.
As was the case before, BKPM Reg. 13/2017 states that businesses in capital-intensive industries and highly regulated businesses, such as mining and financial sector, will be subject to higher minimum investment requirements according to the relevant laws and regulations.
♦ MULTIPLE BUSINESS LINES
For companies having multiple business lines listed in their Capital Investment Registration, Principle License, or Investment License, the application for a Business License must cover all of the applicable business lines at the same time. If a company does not include a particular line of business in its Business License application because it is not yet ready to commence operations, that line of business will be cancelled, and a new Capital Investment Registration or Business License will have to be obtained in the future. Please see the section below on Expansion for more information.
♦ CONVERSION OF SUBSIDIARIES
By law, once a company is converted into a PMA company, all of its subsidiaries must also be converted into PMA companies. BKPM has previously invoked, and then revoked, specific requirements for parent companies to convert their subsidiaries. BKPM Reg. 13/2017 does not set out a specific deadline for this conversion, but now requires the subsidiaries to be converted into PMA companies when the subsidiaries conduct corporate action. Examples of corporate action include change of shareholding and change of capitalization, but it is questionable how BKPM plans to enforce this requirement, except in cases where the subsidiary would already need BKPM approval in order to conduct the proposed corporate action.
♦ DIVESTMENT OBLIGATIONS
Foreign-wholly owned PMA companies whose licenses had been issued prior to 2007 have long been subject to a general obligation to divest foreign-owned shares to Indonesian shareholders within a certain period of time. This obligation is commonly memorialized in the Notes section of the investment registrations or the Business Licenses. In some cases, the obligations have been met, but the Notes remain in the Business Licenses; in other cases, the obligations have not been met, due to a number of reasons ranging from lack of enforcement to insufficient local shareholder interest.
BKPM Reg. 13/2017 requires all PMA companies that are subject to divestment obligations to fulfill such obligations within the time frame stipulated in the investment registration/Business License. However, the obligations may be waived if approved by a resolution of a General Meeting of Shareholders (“GMS”). For PMA companies owned in joint venture between Indonesian and foreign shareholders, the Indonesian shareholders should expressly state in the GMS resolution that they do not wish for or demand increased share ownership in accordance with the divestment obligation. The company may then apply for cancellation of the divestment obligation by enclosing the GMS resolution. The same holds true for 100% foreign-owned companies, where the foreign shareholders shall state in the GMS resolution that they do not have a commitment or agreement with any Indonesian party to dispose of their shares (e.g., no agreement on price or other terms). However, the obligation for 100% foreign-owned companies can be reinstated in the future by the demand of an Indonesian party. This last provision is highly problematic, as the regulation states no further time limits, criteria, or procedures for such a demand.
The provisions allowing companies to waive their divestment obligations by means of GMS resolution do not apply to companies that have other statutory obligations to divest shares, such as in the mining sector.
♦ BUSINESS EXPANSION
The previous BKPM regulations covering business expansion required all companies seeking to increase capacity or add new lines of business to obtain an Expansion Principle License. BKPM Reg. 13/2017 abolishes the Expansion Principle License and redefines the requirements to an extent.
Now, only industrial businesses are required to obtain an Expansion License (Izin Perluasan). Business expansion for industry is defined as the increase of production capacity under the same five-digit Indonesian Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”) code, regardless of the amount of increase. Previously, increased production capacity was only deemed expansion if it exceeded 30% of the existing capacity.
Under the previous regulations, an addition of a new business line in non-industrial companies was also considered “expansion”; there is no such provision in BKPM Reg. 13/2017. An addition of new business lines now requires obtaining a new Business License or Capital Investment Registration, subject to the requirements for the particular line of business, including increasing the amount of investment for each new line of business by more than Rp10 billion.
It is not yet clear whether the new Business License will cover only the new line of business, or whether BKPM will issue a single new license that covers cumulatively all of the company’s business activities.
PMA companies that currently hold an Expansion Principle License with investment value of less than Rp10 billion must increase that amount to more than Rp10 billion, outside of land and buildings.
♦ REPRESENTATIVE AND BRANCH OFFICES
BKPM Reg. 13/2017 regulates licensing for Foreign Company Representative Offices, Foreign Trade Company Representative Offices, Foreign Construction Services Business Entity Representative Offices and Foreign Oil and Gas Company Representative Offices, as well as licensing for branch offices of Indonesian companies.
Companies that will open branch offices shall apply for a Branch Office Opening License from BKPM or the provincial PTSP.
♦ TRANSITIONAL PROVISIONS
Companies that have obtained Capital Investment Registrations that were issued pursuant to Chairman of BKPM Regulation No. 12 of 2009 on Guidelines and Procedures for Capital Investment Licensing shall apply for a Business License within six months as of the effective date of BKPM Reg. 13/2017. If the companies fail to apply for a Business License, BKPM or the regional PTSP has the authority to revoke their Capital Investment Registrations.
Principle Licenses that were issued prior to the effective date of BKPM Reg. 13/2017 shall be valid until the expiration of the project completion date thereunder. New applications for Principle Licenses will be processed in accordance with BKPM Reg. 13/2017.
Lastly, all PMA companies that have obtained Business Licenses but have not fulfilled the qualifications for large companies shall apply for new Capital Investment Registrations and fulfill the qualifications.
December 26, 2017
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- December 26, 2017