Head of the Indonesian Investment Coordinating Board ("BKPM") Regulation No. 12 of 2013 ("BKPM 12/2013") on the Amendment of Regulation No. 5 of 2013 ("BKPM 5/2013") on the Guide and Procedure of Investment Licenses and Non-Licenses has been issued on 11 September 2013, and came into force on 18 September, just over 5 months after BKPM 5/2013, issued on 8 April 2013, which it revises in order to tone down some of the more onerous provisions of the investment licensing regime.
Most notably it retreats from the earlier infringement on the Capital Market regulatory regime by removing Article 49, which classified listed companies controlled by foreign shareholders as foreign direct investment companies (PMA), with the resulting application of a range of investment and operating restrictions.
Article 49 was contentious as it was seen as infringing the delimitation between direct investment and portfolio investment. The negative investment list and a number of PMA-specific regulations were meant to apply to exclusively to direct investment. The removal of Article 49 thus brings BKPM’s new regulation in line with the separation of the two investment regimes.
Foreign-Controlled Listed Corporations Are No Longer Classified as PT PMA
The most significant amendment under BKPM 12/2013 is the removal Article 29(3) and the entirety of Article 49. This effectively removes regulation of listed corporations from BKPM’s purview, thus affirming the separation of the regulatory regime for portfolio investment from direct investment. Consequently, the subsidiaries of foreign-owned or foreign controlled listed corporations will remain classified as domestic corporations. Consequently, they will not become subject to more stringent regulations and negative investment list reserved for PT PMA.
Under BKPM 5/2013, a listed corporation was classified as PT PMA if one of its “controllers” was a foreign investor. “Control” is defined as ownership of more than 50% of the corporation’s paid up shares OR the ability to directly/ indirectly control its management/policy. Under this provision, beneficial ownership through corporate structure may trigger the “control” threshold, although BKPM will leave the determination to the OJK (Financial Services Authority).
In turn, being classified as PT PMA is significant as it subjects a corporation, listed or not, to the Investment Law (Law No. 25/2007). This means that it would become subject to an array of licensing regimes and other controls. Equally, foreign ownership may be restricted under the Negative Investment List. While Regulation 5/2013 did not immediately require foreign-controlled listed corporations to adjust their shareholding, it created unsettling vagueness.
Unclear Correlation Between BKPM 12/2013 and ESDM Regulation on Divestment of Foreigner-Owned Shares in Mining Corporation
ESDM Regulation 27/2013 (“ESDM 27/2013”), which was issued after the enactment BKPM 5/2013 but before BKPM 12/2013, sets out the procedure for divestment obligation of foreign shareholding in mining companies. The correlation between BKPM 12/2013 and ESDM 27/2013, however, remains unclear owing to the vague articulation of the relevant provisions in the ESDM regulation.
“Saham pemegang IUP Operasi Produksi dan IUPK Operasi Produksi yang dijual melalui pasar modal Indonesia, bukan merupakan bagian dari kewajiban Divestasi Saham”
“Shares of IUP Production Operation and IUPK Operation Production that are sold through the stock exchange of Indonesia are not part of Shares Divestment obligation.”
Article 1(1) ESDM 27/2013 in turn defines “Divestasi Saham” as:
“foreigner-owned shares that must be offered to Indonesian Investors.”
The consequence of this articulation is open to at least two interpretations and, at the time of writing, ESDM has not confirmed which of the two is correct. One interpretation is that listed shares fall outside ESDM 27/2013’s sphere, which entails that foreign ownership of these shares is not subject to the divestment obligation and foreign owners need not divest them.
Alternatively, listed shares fall under ESDM 27/2013 and the permitted threshold under Article 3 ESDM 27/2013 comprises of listed and non-listed shares, BUT divestiture of such listed shares will not count towards the divestment obligation. This interpretation conforms to ESDM’s increasingly nationalist attitude towards mineral resources exploitation. However, this interpretation is difficult if not outright impossible to reconcile with the separation of regulatory regime between portfolio and direct investment.
The other changes are as follows:
BKPM 5/2013 placed restrictions on ownership by Venture Capital Companies (Perusahaan Modal Ventura / PMV), which BKPM 12/2013 relaxed. As a result, PMV can invest in large scale foreign direct investment and domestic direct investment companies, and such investment shall be considered as a national capital contribution. PMV companies can also extend their investment for a further 5 years beyond the 10 year deadline.
BKPM 12/2013 also relaxes the extension process for in principle licenses of those who have not yet implemented their project after 3 years. Under BKPM 12/2013 the extension period is no longer limited to 2 years, and the extension request does not have to be submitted prior to license expiry.
BKPM 12/2013 allows multi-sector companies to submit applications simultaneously or sequentially, in contrast with BKPM 5/2013, which required simultaneous submission and automatically invalidated sequential submissions.
BKPM 12/2013 removes the distinction between foreign representative offices as Selling Agents, Manufacturing Agents, or Purchasing Agents.
BKPM 12/2013 also clarifies the availability of machinery import duty concessions, which are limited to sectors that are specified by the Ministry of Finance.
Source: Head of the Indonesian Investment Coordinating Board Regulation No. 12 of 2013 on the Amendment of Regulation No. 5 of 2013 on the Guide and Procedure of Investment Licenses and Non-Licenses
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