The Banking and Foreign Exchange System

Exchange rates are issued by the Central Bank on a daily basis for commercial banking purposes. However, for tax purposes (in calculating the Indonesian income tax liability on foreign currency income) the exchange rates are issued on a weekly basis by the Indonesian Ministry of Finance. Foreign exchange controls do not exist currently in Indonesia, however transfers of funds exceeding USD 10,000 from and within Indonesia should be reported to the Central Bank.

Openness to Foreign Investment

Indonesia encourages private sector‐led growth and foreign investment. Foreign investment approvals in 2007 increased to USD 10 billion, from USD 6 billion in 2006.

The biggest foreign investments are by Singapore investors ($ 130.2 million) and are followed by England ($ 9.6 million), Belgium ($6.4 million), and South Korea ($ 5.7 million). Investment approvals for Indonesian firms trended even more steeply upward, amounting in 2007 to USD 3.9 billion, from USD 2.7 billion in 2006.

Investment Law

On March 29^th 2007, Parliament passed a new Investment law aimed at improving Indonesia’s investment climate and attracting greater foreign investment into Indonesia. Law Number 25 of 2007 was signed by the President on April 26^th, 2007. The law establishes basic investment protections including the following:

• Equal treatment for domestic and foreign investors. However, equal treatment is not applicable to investors from countries which obtain, “special rights based in an agreement with Indonesia.”
• The Government of Indonesia (GOI) will not undertake any nationalization action, unless by law. In the event that the GOI “takes action to nationalize,” it will grant compensation with specified amount based on the market value or arbitration if the two parties do not agree.
• Investors may freely transfer assets to other parties, as long as assets are not determined (by law) to be state assets.
• Investors may transfer and repatriate capital, profits, royalties, income from asset sales, and other sources, in foreign currency, in accordance prevailing laws and regulations. However, this does not restrict the right of the GOI to receive taxes or royalties or implement laws and regulations requiring reporting of the transfer of funds. The GOI may also implement laws to protect the rights of creditors and to avoid losses to the State.
• Investments disputes between the Government and Investors may be settled through international arbitration based upon prior agreement between the parties
• The new law appears to increase the authority of the Investment Coordinating Board (BKPM) in both implementing and proposing investment policy. The BKPM’s duties under the law include coordinating and implementing one door integrated services, developing an investor roadmap, provide consultation to investors seeking capital investments, and others. Although the law contains no provision authorizing BKPM to approve investments, BKPM approval is needed in order for investors to receive immigration facilities or investment incentives.

The Role of the BKPM

Foreign direct investment in the manufacturing, industrial or non‐financial services sectors is licensed by BKPM. Investment in the areas of banking, insurance, general mining, oil and natural exploration, production and related activities are licensed by other regulatory bodies.

Sector Restrictions

Restrictions on foreign investment have been regulated by Regulation of The President of The Republic Indonesia No. 77 of 2007 concerning list of business fields that are closed to investments and business fields that are conditionally open for investments. Every sector has limitations of foreign capital ownership. These include limitations up to 95 % of foreign capital ownership in some Energy & minerals resources sectors.

An environmental impact study may be required, therefore the Articles of Association of corporate shareholders, or passports of individuals, should be attached. The BKPM aims to process applications within one month. In practice, approvals may be faster.

Investment Application

The process of foreign investment begins with the submission of a formal application to the BKPM. The application must include a description of the project including names of participants, total capital required, employment details, production process description, power requirements and environmental issues

Capital Requirements

There is minimum capital requirement based on Law No. 40/2007 concerning Limited Liability Companies. They should prepare IDR 50 million for minimum capital and 25 % of capital should be issued and paid up at the time of incorporation. The BKPM will grant approval based on its assessment of the need of the project. Share capital should be paid up in cash or in kind in the form of either tangible or intangible assets. Assets other than cash should be independently appraised. The BKPM can provide a range of facilities including import duty exemptions based on the submission of a ‘master list’, investment repatriation guarantees and possible tax holidays.