ASEAN update: Amendments to Paid-up Capital Requirements of Foreign Companies in Indonesia

"ASEAN Update
Amendments to Paid-up Capital Requirements of
Foreign Companies in Indonesia"

June 2021

As of 2 June 2021, foreign investment companies that seek to establish legal presence in Indonesia will have to satisfy an increased paid-up capital requirement from the previous 2.5 billion Rupiah to 10 billion Rupiah, excluding values in land or building. This change was announced by Indonesia’s Ministry of Investment/Investment Coordinating Board in Regulation 4 of 2021 and follows from recent governmental efforts to boost the investment climate in the country.

Exceptions for foreign investment companies seeking to expand business activities

Foreign investment companies that engage in multiple business activities or are seeking to expand their business services might not be required to satisfy an additional paid-up capital of 10 billion rupiah if the following are satisfied:
• Company already has a total paid-up capital greater than 10 billion Rupiah (not including amounts invested in land or building)
• New business activity has satisfied the KBLI code requirements pertaining to the selected industry

Fundamentally, all businesses in Indonesia have to classify their business activity under Indonesia’s Klasifikasi Baku Lapangan Usaha Indonesia (“KBLI”) system. This applies to all foreign investment companies as well.
Below are the KBLI code requirements that can exempt a foreign investment company from having to meet the additional paid-up capital requirement for their expanded business activities:
• Food and Beverage: KBLI code of the additional business activity that has the same first two digits as their initial business.
• Large Scale Trading or Construction: KBLI code of the additional business activity has the same initial four digits as their initial business.
• If foreign investment company produces various products: KBLI codes for the various products are the same i.e. all five digits are the same as their initial business or has different five digits of KBLI codes but in one line of production.

Additional changes that should be noted

Generally, more reforms can be expected following Indonesia’s increasing efforts to cater to the growth and development of more diverse economic activities in the country. Therefore, foreign investment companies should also take notice of the new risk-based approach recently adopted which calls for new procedures to be followed to obtain the relevant licenses required to new businesses.

Under this new regime, the types of licenses required to conduct business activities by companies are determined by an assessment of the relevant risks posed by such undertakings. The appropriate risk-level of the business to be entered into by the company is assessed by the Government, following which a risk-level is assigned. The different categories will require different licensing and/or registration requirements before any company can carry out business activities in Indonesia. The following are the different levels and the relevant requirements:
• Low risk (business registration number)
• Medium-low risk (business registration number and Certificate of Standards)
• Medium-high risk (business registration number and Certificate of Standards approved/verified by the Government)
• High risk (business registration number and license)

Foreign companies that want to embark on starting business activities in Indonesia will be required to submit an application through an Online Single Submission system and the required information will then be provided subsequently.

Overall, both changes relating to the change in requirement for paid-up capital and the adoption of the risk-based approach will be in place and fully effective by June-July 2021. Therefore, foreign investment companies that seek to enter the Indonesian market should take into consideration the financial and administrative regulations that are currently imposed.

This article is jointly produced by Bird & Bird and NSMP. NSMP is a member of the Bird & Bird Plus network.

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