Indonesia’s foreign direct investment regime

By Bono Daru Adji and Eko Ahmad Ismail Basyuni, Assegaf Hamzah & Partners

Inbound foreign direct investment (FDI) in Indonesia is managed by the Investment Coordinating Board (known by its Indonesian abbreviation “BKPM”). The BKPM operates under Law No. 25 of 2007 (the 2007 Investment Law).

Rookie investors entering Indonesia for the first time will need to establish an Indonesia-domiciled company (known by its Indonesian abbreviation “PMA”), which conforms with investment rules and procedures that BKPM may update periodically. Where legislation does not permit 100% foreign ownership, the PMA must enter into a partnership with a domestic investor – normally in the form of a joint venture. The foreign investor will be permitted to own between 30% and 95% of the PMA depending on the industry and sector (rising to 100% for certain types of public private partnerships [PPPs]).

BONO DARU ADJI Assegaf Hamzah & Partners管理合伙人 Managing Partner Assegaf Hamzah & Partners
Managing Partner
Assegaf Hamzah & Partners

There are no restrictions on the maximum size of investments, financing sources, whether products may be sold on the domestic or export market, or on repatriation of earnings. However, the BKPM restricts FDI projects to those that are worth a minimum of IDR10 billion (US$0.73 million), consisting of at least IDR2.5 billion in paid-up capital and the rest in the form of additional capital injections or loans. In addition, the government’s negative investment list (known by its Indonesian abbreviation “DNI”) requires investors in particular sectors to fulfil conditions such as, among other things, requirements to collaborate with small to medium enterprises (SMEs), or to obtain special licences or recommendations from relevant line ministries.

Foreign investors must also comply with regulations on various other issues, such as environmental protection, manpower, and zoning. The principal licences in the forestry and mining sectors are issued by relevant government ministries.

EKO AHMAD ISMAIL BASYUNI Partner Assegaf Hamzah & Partners
Assegaf Hamzah & Partners

All FDI into Indonesia must comply with the DNI, which lists business sectors that are either completely closed, completely open, or conditionally open to foreign investment. The list is based on the classifications set out in the Central Statistics Bureau’s Indonesian Business Sector Classifications (KBLI). These classifications are very general in nature, with no definitions being given.

The government issued the first iteration of the DNI in 1998, and since then has revised the list several times. Presidential Regulation No. 44 of 2016, effective from 18 May 2016, sets out the latest version (2016 DNI).

Perceptions of FDI in Indonesia have tended to ebb-and-flow, generally in line with the pace of economic growth. When growth is strong, protectionists tend to sit in the driving seat, as was the case towards the end of President Susilo Bambang Yudhoyono’s second term in office (2009-2014). By contrast, when economic conditions are relatively weak, as they are at present, the liberals tend to get the upper hand. There is, therefore, a constant tug-of-war between those who back vested business interests, and reformers eager to attract greater FDI inflows. The current list is probably the most favourable to FDI to date. There has also been noise emanating from government circles that further liberalization is on the cards, although no decisions have been announced as yet.


As always, several caveats must be observed when discussing the DNI. Despite the relatively more relaxed current regime, there continues to be various other restrictions on FDI in practice. As mentioned earlier, for example, the BKPM requires a minimum investment of IDR10 billion to set up a PMA (although portfolio investments by foreign investors in Indonesian listed companies are not restricted).

Further, the BKPM has a great deal of discretion in interpreting which business activities fall within each business line listed in the DNI, due to the lack of definition of business sectors in the KBLI. Even if the DNI does not mention a particular business activity, the BKPM may decide whether the business in question comes under another sector to which FDI restrictions apply. Potential investors will therefore need to test the waters by consulting with the BKPM before taking the plunge.

In addition, various sectors are either reserved for Indonesian SMEs, or they impose minimum investment thresholds below which FDI is not permitted. The government considers SMEs to be important due to Indonesia’s status as a developing nation, and has stressed that it will continue to nurture this sector.


The 2016 DNI specifically provides that portfolio investments (investments through share purchases on Indonesia’s Stock Exchange) are not covered by the FDI restrictions contained in the DNI. This is consistent with an express statement in the 2007 Investment Law that confirms this exception for portfolio investments. Nevertheless, as a result of the BKPM’s inherent discretion, practice on the ground has often been very different, resulting in a considerable amount of confusion through the years. However, this confusion appears to have been cleared up by Article 25(3)(a) of BKPM Regulation No. 6 of 2016, which provides that a listed PMA company is exempt from the foreign investment restrictions set out in the DNI.

Thus, for example, a non-listed PMA company that operates in the distribution sector may have a maximum foreign ownership of 67% under the DNI. However, upon becoming a listed company, foreign ownership of such company may be increased to 100%.

Prior to this regulation, the BKPM had always taken the view that a listed PMA company should be treated in the same way as a non-listed PMA company if the controlling shareholder of such a company was not Indonesian. This resulted in indirect and portfolio investments (i.e., investments made through the stock market) being brought within the ambit of the DNI despite the DNI providing a specific exemption from the foreign ownership restrictions in the case of such indirect and portfolio investments, as explained above.

Bono Daru Adji is the managing partner of Assegaf Hamzah & Partners in Jakarta. He can be contacted on +62 21 2555 7878 or by email at

Eko Ahmad Ismail Basyuni is a partner of Assegaf Hamzah & Partners in Jakarta. He can be contacted on +62 21 2555 7802 or by email at