There are compliances/regulations related to restrictions to foreign stake in an Indonesian company. All duties and taxes applicable on Indonesian domestic companies are also applicable on foreign JVs and subsidiaries in the Indonesia. There are generally no restrictions or concessions for foreign JVs/ subsidiaries in Indonesia unless specified.
Indonesian FDI Policy
Indonesia has liberal policy on FDI among the emerging economies. FDI under the current framework is permitted for all categories of investors and in all sectors except:
1. Retail Trading (except single brand product retailing which is allowed).
2. Atomic Energy.
3. Lottery Business.
4. Gambling and betting.
For other sectors, there are two routes for investing in Indonesia:.
( i) Automatic Route wherein the foreign investor does not require any prior approval from the RBI or Government of Indonesia. Post Investment, certain compliances are required and after completion RBI issues a registration number for FDI.
( ii) Prior Government Approval Route which applies in the following circumstances:.
A. Activities/Items that require an Industrial License.
B. Proposals in which the foreign collaborator has an existing financial/ technical collaboration in Indonesia in the same field.
C. Proposals for acquisition of shares in an existing Indonesian company in:.
a. Financial services sector and.
b. Where Securities & Exchange Board of Indonesia (Substantial Acquisition of Share and Takeovers) Regulations, 1997 is attracted;.
D. All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.
FDI OPTIONS IN Indonesia
Trading in Indonesia B2B.
B2B trading is allowed under the Automatic Route of IDR in Indonesia, it is irrelevant whether the goods are sold to business customer, who conducts retail or to business customer conducting operations other than retail such as restaurant or a hotel. The concept of B2B sales form part of the wholesale trading and can not be termed as retail trade.
Repatriation of Capital and Profit.
In case foreign investments are made by a foreign company as per the Reserve Bank policy and necessary compliances are made, the foreign exchange can be remitted freely to Indonesia and also remittances can be made from Indonesia for dividends and capital gains on sales of shares after payment of necessary income tax and compliances with certain procedures which are fairly established.
The foreign investments laws for investments from Europe, America, Hong Kong, Taiwan and China are same.
Upon compliance with necessary procedures and allotment of a registration number by Reserve Bank of Indonesia for the foreign investments, the dividends declared by the Indonesian Joint Venture or company are freely repatriable after payment of Dividend tax (presently taxed at 16.995% in 100% subsidiary in Indonesia.
Foreign investments in Indonesia are subject to valuation norms prescribed by Reserve Bank of Indonesia. Inward investments should be not be at a rate lower than valuation of the Indonesian company certified by Company Auditor or Chartered Accountant with experience of over 10 years or a Merchant banker.
While remitting funds upon sale of shares of to the foreign investor; the sale of shares can not be at a rate higher than valuation of the Indonesian company certified by Company Auditor or Chartered Accountant with experience of over 10 years or a Merchant banker.
Government Control on Foreign Exchange.
An economy is said to have capital account convertibility when there is complete freedom to convert local currency into foreign currency and vice versa – without the permission of the Reserve Bank, and without limits. This allows residents to receive and make payments in foreign currency for all purposes other than loans and investments.
When they are imported, one can buy most things foreign with rupiahs. One can travel abroad and buy whatever dollars you need – well almost – over the counter. One can also incur expenses abroad on your credit card and pay for the dollars (or pounds, or Euros) expended in rupiahs.
The foreign exchange transactions on revenue account are largely free i.e. an Indonesian company (including Joint Ventures and subsidiaries of foreign companies) can import and export freely except for restrictions on few items. Transactions of capital nature i.e. foreign investments in Indonesia companies and debt from overseas entities including overseas investments by Indonesian enterprises are stilled controlled by Reserve Bank of Indonesia though the policy is very open and liberalized and there are clear rules and guidelines governing compliances of these controlled transactions.
Limit on Foreign Exchange outflows and inflows.
There is generally no limit on foreign change inflows and outflows for foreign investments and purchase/sale of goods and services. Necessary compliances/ documentation needed as prescribed.
FDI inflows – No limit except for banned sectors or where sector limit is not 100%.
Profit remittance – No limit within the approved FDI.
Payment for Import of goods – No limit except for certain banned products.
Exports proceeds – No limits.
Import of services – No limits.
Technical services & fees – No limit.
Foreign Loans – This is not free. There are restrictions and foreign loans can be taken as per policy.