Indonesia’s Positive Investment List: Sectors Open and Restricted to Foreign Businesses

Indonesia’s Positive Investment List allows foreign investment in over 200 business sectors, including transportation, energy, and telecommunication. Foreign investors can fully own a business in these sectors unless subject to specific limitations. The positive investment list classifies business fields into four categories, which are priority sectors, business fields with specific requirements, business fields open to large enterprises with compulsory partnerships, and business fields fully open to foreign investment. There are fiscal and non-fiscal incentives available for priority sectors. Investors seeking to expand their operations in Southeast Asia can scrutinize the sectoral requirements listed below.

Presidential Regulation 10 of 2021 as amended to President Regulation No. 49 of 2021 (PR 49/2021) liberalizes many business sectors for foreign investment. Dubbed the positive investment list, PR 49/2021 liberalizes over 200 business lines, including transportation, energy, and telecommunication.

The general principle under the positive investment list is that a business sector is open to 100 percent foreign investment unless it is subjected to a specific limitation. The regulation presents one of Indonesia’s greatest liberalizations in foreign ownership limitations since the negative investment list was first introduced in the 1980s.

The design of Indonesia’s positive investment list

The government has classified business fields into four categories.

1. Priority sectors;
2. Business fields that stipulate specific requirements or limitations;
3. Businesses fields open to large enterprises, including foreign investors, but are subject to a compulsory partnership with cooperatives and micro, small, and medium-sized enterprises (MSMEs); and
4. Business fields that are fully open to foreign investment.

Priority sectors

To classify as a priority sector, business enterprises must meet the following criteria:

• Must be labor intensive;
• Must be capital intensive;
• Must be part of a national project/program;
• Must be export-oriented;
• Must involve a pioneer industry (renewables, oil refining, metals, etc.);
• Must utilize advanced technologies; and
• Must implement research and development activities.

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There are 246 business fields under this category of the positive investment list. Moreover, businesses in priority sectors are eligible for a range of fiscal and non-fiscal incentives.

Fiscal incentives include a 50 percent corporate income tax reduction for investments between 100 billion rupiah (US$6.9 million) and 500 billion rupiah (US$34.9 million) for five years and 100 CIT reduction for investments over 500 billion rupiah (US$34.9 million) for a period between five and 20 years. In addition, tax allowances are available in the form of a reduction in the taxable income of 30 percent of the total investment for six years, a special withholding tax rate on dividends of 10 percent, and tax losses carried forward for up to 10 years.

Examples of non-fiscal incentives are the provision of supporting infrastructure, simplified business licensing procedures, and the guaranteed energy supply and raw materials. We explore a few examples of the prioritized business lines and their incentives below.

Business fields that stipulate specific requirements or limitations

Under this category, business fields are open to foreign investments but are subject to the following types of restrictions:

• Lines of business reserved for domestic investors;
• Lines of business subject to foreign ownership limitations;
• Lines of business that require special licenses; and
• Other investment requirements, namely business lines that are restricted and strictly supervised as well as regulated in separate laws and regulations in the field of alcoholic beverage control and supervision.
  • The business lines include:
    • Wholesale trade of alcoholic beverages (importers, distributors, and sub-distributors);
    • Retail trade of alcoholic beverages; and
    • The street retail of alcoholic Beverages.

The foreign ownership limitations (bullet point 2) do not apply in the following circumstances:

• The investments are conducted in special economic zones;
• Investments are in the form of non-direct investments taken through the Indonesian stock exchange;
• Investments subject to more favorable treatment under a treaty between Indonesia and the investor’s country of origin; or
• Any investments approved prior to the issuance of the positive investment list. The positive investment list provides for this through a ‘grandfathering policy’.

Business fields open to foreign investors but subject to a compulsory partnership with MSMEs

Business fields under this category are open to foreign investors or large-scale enterprises through a compulsory partnership agreement with an MSME. There are 106 business lines for this category, being:

• Business lines that do not use advanced technology;
• Are labor-intensive businesses, characterized by a special cultural heritage; or
• The capital for the business’ activities does not exceed 10 billion rupiah (US$701,000).

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Having said the above, the government determined certain business fields that are open to foreign investors or large-scale enterprises through a compulsory partnership agreement with an MSME. There are 106 business lines that are allocated for or which require partnership with cooperatives or MSME (including 60 business lines which allocated for MSME).

Further, they cover businesses that are commonly carried out by MSMEs and/or sectors that have the potential to enter the larger supply chain. The partnership arrangement can be in the form of operational cooperation, profit sharing, subcontracting, outsourcing, or distribution.

Businesses open to 100 percent foreign investment

The following business fields are open to 100 percent foreign investment:

• Oil and gas construction;
• Onshore upstream oil installation;
• Onshore and offshore distribution pipelines;
• Onshore and offshore oil and gas drilling service;
• Oil and gas well maintenance service;
• Electricity generation;
• Construction of electricity installation;
• Geothermal electricity generation;
• Supermarkets (with areas less than 1,200 sqm);
• Department store (with areas between 400 – 2,000 sqm);
• Ports;
• Airport and airport supporting services;
• Maritime cargo handling;
• Telecommunication;
• E-commerce;
• Pharmaceutical industry; and
• Hospitals.

What business activities are closed for investments?

There are six business sectors closed for investments for both domestic and foreign companies. These are:

• Class-I narcotics and cultivation;
• All forms of gambling and/or Casino activities;
• Fishing of endangered species;
• Utilization of corals found in nature for the production of jewelry, souvenirs, building materials, etc.;
• Chemical weapons production;
• Alcoholic beverage manufacturing;
• Manufacturing of beverages containing alcohol-wine;
• Manufacturing of beverages containing alcohol-malt; and
• Industrial ozone-depleting substances industries and industrial chemicals.

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