Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

Foreign direct investment is subject to restrictions or requirements that vary based on the line of business of the company, for example: limited foreign shareholding; minimum capital contribution; or certain cooperation with micro-, small and medium-sized enterprises.

For foreign shareholders, the dividend received is subject to income tax at a general rate of 20 per cent or 10 per cent for a specified line of business that is subject to tax facilities, or can be lower if there is a tax treaty that has established a lower tax percentage between Indonesia and the home country of the shareholder.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

There are no restrictions on insurance policies over project assets provided or guaranteed by foreign insurance companies. However, payment of the insurance premium received by foreign insurance companies is subject to income tax in Indonesia (at 20 per cent).

Insurance policies over project assets are payable to foreign secured creditors if the insurance policies are subject to fiduciary security and the relevant insurance company has provided its acknowledgement of the fiduciary security or assignment.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

Employment of foreign workers, technicians, engineers or executives by a project company requires the project company to initially obtain the necessary permits (ie, Approval of Foreign Personnel Utilisation Plan). In certain sectors, for example geothermal energy, there is a requirement that the head of geothermal engineering and deputy head of geothermal engineering cannot be a foreign worker and must be an Indonesian national.

Equipment restrictions

What restrictions exist on the importation of project equipment?

Importation of project equipment is subject to obtaining approval of the master list and the project company or contractors obtaining the necessary import licence. Import of equipment or any capital goods is subject to import duties, value-added tax (VAT) and income tax for imports.

For foreign investment companies, there are tax facilities provided by the government that can be applied for exemption from import duties and VAT for capital goods.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

Indonesian investment law generally protects foreign investment companies from nationalisation or expropriation by the government. The government does not take measures to nationalise or expropriate the proprietary rights of investors; if the government were to do so, it would have to be based on law and involve payment of compensation determined by market value established in accordance with internationally accepted methods adopted by an independent appraiser appointed by the parties.