Regulatory frameworks are conditioning mechanisms for foreign investments in Indonesia. The more open and flexible they are, the more attractive a specific market will be for investment. It is essential to periodically verify their scope and content. In the case of Indonesia, the process of opening up and flexibilizing its regulatory framework took a step forward with the adoption of Presidential Decree 44/2016. Now, another step has been taken with the approval of Presidential Decree 10/2021, amending Investment Law 25/2007 and revoking Presidential Decree 44/2016.
Presidential Decree 10/2021, which elaborates on Law 11/2020 (better known as the Omnibus Law), partially reduces the remaining restrictions on foreign investments in Indonesia through the implementation of a New Investment List. This list opens up a certain number of sectors to foreign investment. Sectors that were completely closed to any type of investment have decreased from 20 to 6. Sectors that were partially or fully closed to foreign investment have reduced from 350 to 46. Sectors that required partnerships with local entrepreneurs have decreased from 55 to 51.
It is worth noting that some sectors like wholesale distribution, telecommunications, and media, where foreign investment was limited to 67%, are now liberalized. Additionally, within this New List of Foreign Investments in Indonesia, a new section on “Priority Sectors” related to projects requiring significant capital, advanced technology, or focusing on R&D, regulates the possibility of accessing fiscal, tariff, or non-fiscal incentives in 245 sectors. These incentives include simplified licensing procedures.
Furthermore, Government Regulation 40/2021 establishes and develops 12 Special Economic Zones to address economic disparities in certain regions. In sectors such as logistics, tourism, education, health, or energy, significant reductions in Corporate Tax or VAT can be obtained. The minimum investment threshold of 10 billion Indonesian rupiahs (approximately 595,000 euros) remains in effect.
Despite the progress made with the aforementioned measures, there are still sectors off-limits to foreign investments in Indonesia. These include areas reserved for small and medium enterprises that require intensive labor, low technology, or capital below 10 billion Indonesian rupiahs. Therefore, even with the recent advancements in regulations, it is crucial to carefully analyze the sectors where investments are considered to determine if they are closed, open, or open with conditions for foreign investment.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
