The Omnibus Law: New regulation replacing the negative list of investment

On 2 February 2021, the Indonesian Government issued Presidential Regulation No. 10 of 2021 on Investment Business Lines (Presidential Regulation 10/2021) as one of the implementing regulations of Law No.11 of 2020 on Job Creation (Omnibus Law).

What you need to know

Prior to Presidential Regulation 10/2021, business fields in Indonesia’s investment activities are classified into three: (a) business fields open for investment, (b) business fields closed for investment and (c) business fields open with conditions. Under Presidential Regulation 10/2021, all business fields in Indonesia’s investment activities are open for investment unless the business fields are closed under the Omnibus Law or business fields, which are limited to Indonesian Government.

There are several key provisions of Presidential Regulation 10/2021:

1. Business fields closed for investment. These business fields include business related to controlled substance, gambling, fishing of certain endangered species, coral utilization, chemical weapons, and industrial process of chemical substance and ozone-depleting substances.
2. Business fields limited to Indonesian government. These business fields are service activities or for the purpose of defence and security which are strategic and cannot be carried out or cooperated with other parties.
3. Business fields open to investment. Presidential Regulation 10/2021 classifies further business fields open to investment: (a) priority business fields, (b) business fields reserved for cooperation (koperasi) or micro small medium business (Usaha Mikro Kecil Menengah or UMKM), (c) business fields with certain conditions, (d) business fields open to all investors.

• Priority business fields. The Indonesian Government lists 245 priority business fields. Generally, those are business fields related to national strategic projects, business fields that require significant capital, large number of employees, advanced technology, pioneer in nature, export oriented, those oriented on research, development, and innovation. The Indonesian government provides fiscal or non-fiscal incentives for business classified as priority business fields.
  
  Fiscal incentives consists of tax incentives and custom incentives such as import duty exemption. Non-fiscal incentives consists of ease of business licensing, provision of supporting infrastructure, guarantee of energy availability and raw materials, immigration, labour and other conveniences.
  
  
• Business fields reserved for cooperation or UMKM. The Indonesian Government lists 89 business fields reserved for cooperation. These business fields are usually business fields with simple technology or business fields that only require capital less than IDR 10 billion excluding land and building.
  
  
• Business fields with certain conditions. These are business fields that are open to all investors with certain conditions such as shareholding composition conditions or certain type of licensing. The Indonesian Government lists 46 business fields that are open with certain conditions. These conditions are not applicable to special economic zones.
  
  
• Business fields open to all investors. Presidential Regulation 10/2021 states that business fields not classified as the above classifications (not listed under Presidential Regulation 10/2021) are open to all investors. The assumption is these business fields not classified as the above classifications are open 100% for foreign investment.

Significant breakthrough introduced by Presidential Regulation 10/2021

Many business sectors that were previously restricted are now presumably open to 100% foreign investment. We set out below some examples of the lifting of restrictions in certain sectors.

1. Telecommunication and IT, which includes internet service provider, fixed telecommunication network provider and mobile telecommunication network provider.
2. Health, which includes investment in hospitals, wholesale of pharmaceutical raw materials, healthcare equipment distribution, main clinic with specialists, and pharmaceutical products for human).
3. Energy and mineral resources, which includes investment in oil and gas, onshore and offshore oil and gas drilling services, electricity installation maintenance and operation, and electricity generation.
4. Large trading, which includes distribution that is not affiliated with production.
5. Transportation, including freight forwarding services and operation of terminal for land transportation of passengers.
6. Plantation and agriculture, including palm oil seed plantations and agriculture of certain fruits and vegetables.
7. Press, including publication of newspaper, magazines and bulletins.

Presidential Regulation 10/2021 is still fairly new policy and regulation, closer observation on how Presidential Regulation 10/2021 is implemented in practice is still needed. For further clarity, we would be happy to advise investors on regulatory landscape and specific requirement as well as practical advice with regard to implementation of Presidential Regulation 10/2021.