COVID-19 crisis inspires global tightening of Foreign Investment Screening

Global Publication June 30, 2021

In Indonesia, foreign direct investments (FDI) are not subject to screening or prior approval. However, FDI is prohibited in the following six strategic sectors (business fields closed for investment):

  • cultivation and processing of controlled substances;
  • gambling and/or casino activities;
  • fishing of species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora;
  • utilization or collection of coral for the purpose of building materials, aquariums, or souvenirs, as well as live or recently dead coral;
  • chemical weapons manufacturing; and
  • chemical industry materials and processing of materials that are hazardous to ozone layer.

Investments in defense and security activities, which are reserved for the Indonesian government, are also prohibited. Before Presidential Regulation No. 10 of 2021 implementing Law No. 11 of 2020 regarding Job Creation (also known as the Omnibus Law) (Presidential Regulation 10/2021) came into force in March 2021, FDI was prohibited in an additional 16 sectors, including: forestry, energy and mineral resources, transportation, tourism, communication and informatics, banking, finance, education and health.

Moreover, investments in many business sectors are subject to certain conditions, such as shareholding composition conditions or certain types of licensing, except when conducted in special economic zones. Under Presidential Regulation 10/2021, there are 46 such business sectors, but this is not an exhaustive list. For example, Government Regulation 5 of 2021 limits foreign shareholding in certain business sectors related to construction. The Indonesian Investment Coordination Board (Badan Kordinasi Penanaman Modal or BKPM) will need to clarify the scope of business fields open to investment with certain conditions.

By Kresna Panggabean and Jeremiah Purba of TNB & Partners in association with Norton Rose Fulbright Australia

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