Previously, all foreign investment companies in Indonesia, otherwise known as PT PMA, are required to divest part of their shares to Indonesian citizens or legal entities after a predetermined amount of time. Learn more about divestment obligation which currently applies for PT PMA.
The divestment obligation in Indonesia is known as the requirement for foreign investment companies (Perseroan Terbatas Penanaman Modal Asing or “PT PMA”) to sell part of their shares to Indonesian citizens or legal entities.Therefore, fully foreign-owned companies have the obligation to gradually shift their shares ownership partially to Indonesian investors.
OLD DIVESTMENT REGIME IN INDONESIA
Even though Law Number 25 of 2007 concerning Investment (“Investment Law”) does not specifically regulates the divestment obligation, Government Regulation Number. 20 of 1994 juncto Government Regulation Number. 83 of 2001 (“GR 20/1994”) requires PT PMA to sell part of its shares to Indonesian citizens or Indonesian legal entities within 15 (fifteen) years after it commenced commercial activity.
However, GR 20/1994 does not regulate the required percentage or amount that must be divested. In practice, the divestment obligation is decided on case-by-case basis by the BKPM, and the divestment requirement of the PT PMA is usually stated in the Principle License (IzinPrinsip) and/or in the Business License (Izin Usaha).
NEW DIVESTMENT REGIME IN INDONESIA
To our knowledge, GR 20/1994 is currently still active. However, Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) has issued several regulations concerning divestment. The latest one, Head of BKPM Regulation Number. 14 of 2015 on Guidelines and Procedures for Investment Principal License (“BKPM Regulation 14/2015”) does not require newly established PT PMA to divest part of their shares to Indonesian citizens or legal entities. It must be noted that different divestment obligations applied for companies which have a divestment requirement based on specific legislation in its business sector, such as mining companies. Any divestment requirement of the PT PMA is usually stated in the Principle License (Izin Prinsip).
For PT PMA which has been established prior to the enactment of BKPM Regulation 14/2015 or even before the establishement of Head of BKPM Regulation Number 5 of 2013 (“BKPM Regulation 5/2013”) and was determined its divestment obligation in the Investment Approval Letter and/or Business License, the divestment obligations remain binding and shall be implemented in accordance with a predetermined period of time. The minimum amount of ownership for each shareholder in the fulfillment of divestment obligation is IDR 10,000,000 (ten million Rupiah).
If the divestment obligation has matured and PT PMA has yet to get prospective domestic investors, the PT PMA may submit a written request to BKPM or other governing authorities as authorized by BKPM for the extension of divestment period, by attaching a legitimate evidence showing the efforts taken by PT PMA to carry out its obligation to do divestment. After reviewing the application, BKPM may grant an extension of 2 (two) years maximum, or refuse to grant the extension.
Following the transfer of shares to Indonesian shareholders due to divestment ratified by the Ministry of Law and Human Rights, the shares can be resold to Indonesian citizens/Indonesian legal entities/Foreign citizens/Foreign entities pursuant to the prevailing laws and regulations.
Failure to conduct divestment will result in sanctions for PT PMA. The sanctions are as follows:
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