BKPM Issues Important New Regulations on Investment

The Indonesian Investment Coordinating Board ("BKPM") recently issued BKPM Regulation No. 5 of 2013 (“New Regulation”), which was promulgated on 12 April 2013 and entered into effect 30 working days thereafter. The New Regulation introduces a new set of rules on investment licensing and other procedures, covering both Indonesian domestic direct investment companies ("PMDN") and foreign direct investment companies ("PMA").

One important legal issue which has been addressed is whether portfolio investments by non-Indonesian entities in Indonesian public companies constitute direct or indirect investment. Previously, the understanding amongst practitioners as well as academics was that portfolio investments by non-Indonesians would be treated as indirect investment, thereby exempting them from the "Negative List" (a list of business sectors that are fully or partially off-limits to foreign investment).  However, in the New Regulation, it has been clarified that a public company (including a PMDN) will now be treated by the BKPM as a PMA if the controlling shareholder of such company is a foreign investor. The term “controlling shareholder” is defined as a shareholder that holds more than 50% of the issued share capital or has de facto control of the company. Classification as a PMA gives rise to various procedural consequences, including the need to obtain a foreign direct investment license and the need to comply with the “Negative List”.