Indonesia has quite a lot of potential that can be utilized by foreign investor, such as abundant natural resources, a large amount of productive labor, large market potential and adequate infrastructure improvements to reach all regions of Indonesia. However, the level of investment in Indonesia is still low when compared to other countries in Southeast Asia. This is due to the low level of ease of doing business in Indonesia. Therefore, through Law No. 11 of 2020 on Job Creation (“Job Creation Law“), several changes to Law No. 25 of 2007 on Capital Investment (“Investment Law“) are made. These changes are:
- The Implementation of Investment Law
Prior to the Job Creation Law, Investment Law is applied for all investor in all sectors in the territory of the Republic of Indonesia. After the Job Creation Law, Investment law is also the main reference for investment in all sectors in the territory of Republic of Indonesia.1 According to these changes, all laws and regulations relating to investment enacted after the promulgation of Job Creation Law shall comply with the provisions regarding investment under the Job Creation Law.
- Business lines
Before amendment, business lines that were closed for capital investment were listed in Appendix I of the Negative Investment List. According to Negative Investment List, there are 20 (twenty) business lines that are closed for capital investment.2 After Job Creation Law, the closed business lines is reduced into 6 (six) business lines, as follows : (a) the cultivation and industry of class I narcotics, (b) any form of gambling and/or casinos, (c) fishing for specific species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), (d) utilizing or taking coral (koral) and utilizing or taking of reefs (karang) from nature to be used as building materials/lime/calcium, in aquarium, or to make souvenir/jewelry, as well as live coral or dead coral (recently dead coral) from nature, (e) chemical weapon manufacturing industry, and (f) chemical industry and ozone layer depleting industry.3 Further provision regarding investment requirement is stipulated under the presidential regulation.4
- Development of Cooperative, Micro, Small and Medium Enterprise
The Job Creation Law revokes the obligation of the central government to set out business lines that are reserved for cooperative, micro, small and medium enterprises, or business lines by large scale business that have to partner with cooperative, micro, small and medium enterprises.5 Subsequently, the Job Creation Law changes the obligation of the central government or local government to become providing convenience, empowerment, and protection for cooperative and micro, small, and medium enterprise in the implementation of investment based on norm, standard, procedure, and criteria set by the central government6 through: (a) partnership program, (b) human resource training, (c) increased competitiveness, (d) the encouragement of innovation and market expansion, (e) accessibility to financing, and (f) widespread dissemination of information.7
Therefore, the central government no longer has the obligation to set out business lines that are reserved for cooperative, micro, small and medium enterprises, or business lines by large scale business that have to partner with cooperative, micro, small and medium enterprises.
- Criteria for Investor who Obtain Incentive
Prior to the Job Creation Law, investor will obtain an incentive if they at least fulfill one of the following criteria: (a) absorb a lot of labor; (b) qualified as high priority scales; (c) qualified as infrastructure development; (d) conducting transfer technology; (e) conducting pioneering industry; (f) situated in remote areas, disadvantaged areas, border areas, or other areas deemed necessary; (g) maintain environmental sustainability; (h) carry out research, development and innovation activity; (i) conduct partnership with micro, small, medium-sized or cooperative enterprise; or (j) industry that use capital goods or machinery or domestically produced equipment.8 After the Job Creation Law, there is an additional criteria, namely (k) qualified as tourism business development.9 Accordingly, the addition of these criteria provides more opportunities for investors to obtain investment incentive.
Job Creation Law no longer lists the types of investment incentive and will be subject to laws and regulations on taxation10. Further provision regarding incentive can be seen under Presidential Regulation Number 10 of 2021 on Investment Business Lines. Incentives are given to investor who invest their capital in business lines that are included in the list of priority business lines.11 The incentive consists of : (a) fiscal incentive in the form of tax allowance, tax holiday, investment allowance and custom incentive,12 and (b) non-fiscal incentive in the form of ease of business licensing, provision of supporting infrastructure, guarantee of energy availability and raw material, immigration, labour and other conveniences.13
According to changes as mentioned above, Job Creation Law has significantly increased the number of business opportunities that were previously off-limits for investor. There is also an expansion of opportunities for investor to obtain investment incentive. Therefore, the changes are aimed at improving the ease of doing business for investor in Indonesia.
- Article 2 of Investment Law as amended by Job Creation Law
- Appendix I of Presidential Regulation Number 44 of 2016 on the List of Business Lines that are Closed and Business Lines that are Open with Conditions to Investment (“Negative Investment List”)
- Article 12 paragraph (2) of Investment Law as amended by Job Creation Law
- Article 12 paragraph (3) of Investment Law as amended by Job Creation Law
- Article 13 paragraph (1) of Investment Law
- Article 13 paragraph (1) of Investment Law as amended by Job Creation Law
- Article 13 paragraph (2) of Investment Law as amended by Job Creation Law
- Article 18 paragraph (3) of Investment Law
- Article 18 paragraph (3) point k of Investment Law as amended by Job Creation Law
- Article 18 paragraph (4) of Investment Law as amended by Job Creation Law
- Article 4 paragraph (4) of Presidential Regulation Number 10 of 2021 on Investment Business Lines
- Article 4 paragraph (5) of Presidential Regulation Number 10 of 2021 on Investment Business Lines
- Article 4 paragraph (6) of Presidential Regulation Number 10 of 2021 on Investment Business Lines