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Legal Updates

New Negative List of Investment

The Indonesian Government finally published the long awaited new Investment Negative List. The new list, issued on 25 May 2010 under Presidential Regulation No. 36 of 2010 (“2010 Negative List”) which replaces the previous Negative List issued in 2007. It sets out the lines of business that are closed to investment as well as those that are open to investment under certain conditions. The 2010 Negative List regulates 17 business fields that are conditionally open to capital investment, namely agriculture, banking, communications & information technology, culture & tourism, defense, education, energy & mineral resources, finance, forestry, health, industry, manpower & transmigration, marine & fisheries, public works, trading, transportation, and security.

The following are the provisions worth highlighting:

  1. The 2010 Negative List does not apply to investments that were already approved prior its issuance, unless the terms of the 2010 Negative List are more favorable to the investor.

  2. The 2010 Negative List does not apply to indirect investments or to portfolios of which the transactions are made through the domestic capital market/stock exchanges.

  3. In the event of a shareholding change which is the result of a merger, acquisition, or consolidation of investment companies having the same line of business, the maximum foreign shareholding is:
    • In the case of a merger, as stipulated in the investment license of the surviving entity.
    • In the case of an acquisition, as stipulated in the investment license of the acquiring company.
    • In the case of a consolidation, as stipulated in the investment license of the new company being the result of the consolidation.

  4. The pre-emptive right provisions under the Indonesian Company Law will apply in the case where a foreign investment company wishes to expand its business by increasing its capital through a rights issue. If the Indonesian partner/domestic investor is not able to participate and as a result the foreign shareholding exceeds the limit set out in the investment license, a mandatory divestment must be made within 2 years by selling the shares to Indonesian nationals, by offering the shares to the public, or by repurchase of the shares by the investment company, until the limit is complied with.

  5. The provisions of this regulation do not prejudice the provisions of regulations on business activities that have been issued by governmental technical departments or by a regional government.

  6. The 2010 Negative List also sets out conditions of foreign ownership and/or location for investors from ASEAN countries. These conditions are given to implement Indonesia’s commitment in investment related to the ASEAN Economic Community.

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