About new Positive Investiment list

On 2 February 2021, the President of the Republic of Indonesia finally enacted a new regulation on investment as one of the implementing regulations of Law No. 11 of 2020 on Job Creation (“Omnibus Law”), i.e. Presidential Regulation No. 10 of 2021 on Capital Investment Business Sector (“PR 10/2021”). The new regulation became effective on 4 March 2021. PR 10/2021, known as the Positive Investment List, effectively revokes Presidential Regulation No. 44 of 2016 on the List of Closed Business Sectors and Open Business Sectors with Requirements in the Capital Investment Sector (“PR 44/2016”), also known as the “Negative List”, and drastically loosens the restrictions on foreign investment in Indonesia. 1 2. Four Categories of Business PR 10/2021 further elaborates the four categories of business which are open to foreign investment, i.e

a. Priority lines of business The priority lines of business consist are 245 business types which are further grouped as follows:  National Strategic Programs/Project  Capital-intensive  Labor-intensive  High Technology  Pioneering Industry  Export Oriented  Research, Development and Innovation Oriented Businesses falling within the above groups are eligible for certain fiscal incentives, such as tax allowances, tax holidays and investment allowances (e.g. net income deductions or gross income deductions on certain activities), and non-fiscal incentives (such as simplified business licensing procedures). These activities include: (i) five and four star hotels in certain areas, the automotive industry, coal gasification, geothermal exploration, and smelting of ores such as nickel and copper, which are eligible for tax allowances; (ii) manufacture of main components of electricity power plant machinery, economic infrastructure (such as power plants using new and renewable energy), and digital economy, which includes data processing activities, hosting and other activities related thereto, all of which are eligible for tax holidays; and (iii) the agricultural and forestry machinery industry and paper and cardboard packaging and box industry, which are eligible for investment allowances. b. Lines of business which are (i) allocated to, or (ii) are in partnerships with, cooperatives and micro, small and medium-sized businesses (“UMKM”)2 (i) The lines of business allocated for cooperatives and UMKMs are determined based on the following criteria:  the business activities do not use technology or only use simple technology;  the business activities that have a specific process, are labor-intensive, and have a special and hereditary cultural heritage; and/or  the business capital for activities does not exceed IDR 10 billion, excluding building and land value. In this category, 51 business types are to be allocated for cooperatives and/or UMKMs. For example, barbershop services, one star hotels, retail minimarkets, agriculture endevors with crops that occupy less than 25ha, and the gathering of forest products.

It should be noted that the minimum requirement of IDR 10 billion outside of the building and land value is still applicable for foreign investments and the foreign investment must be in the form of a limited liability company based in Indonesian law and domiciled within the territory of the Republic of Indonesia (“PMA company”), unless exempted by PR 10/2021 as provided below (see Exemption to the Application of PR 10/2021) or otherwise provided by the prevailing laws and regulations. Accordingly, business activities falling within this category cannot be carried out using foreign investments. (ii) The lines of business open for Large Businesses partnering with cooperatives and UMKMs are determined based on the following criteria:  business activities commonly carried out by cooperatives and UMKMs; and/or  business activities supporting enterance into the supply chain of Large Businesses. In this category, 38 business types are open for ownership by large companies in partnership with cooperatives and/or UMKMs. For example, manufacture of sawn wood with production capacity of less than 2,000 m3 per year, raising of broiler chicken, courier agent activities, salt production/extraction, and consultation in electrical power installation. As mentioned in (i), considering that foreign investment is categorized as Large Business, relevant entities may carry out business in these categories subject to the partnership requirements. c. Lines of business with certain requirements The third category is for businesses subject to certain requirements, under which the foreign investment threshold still applies. Some 46 business types (this number being drastically decreased from the Negative List) fall under this category. For example:  media publication/press business: 100% domestic investment during establishment and limited to 49% foreign ownership (through capital market) during expansion of business;  domestic sea transportation for tourism: limited to 49% foreign ownership;  postal activities: limited to 49% foreign ownership;  scheduled commercial air transport: limited to 49% foreign ownership and the domestic owner must maintain a greater ownership percentage than the total foreign ownership (single majority); and  traditional medicine industry: 100% domestic investment. d. Lines of business that are not included in the above categories, which are open for all investors 3. Exemption to the Application of PR 10/2021 The foreign capital ownership limitations in PR 10/2021 do not apply in the case of: a. investment activities carried out indirectly or through portfolio transactions in the domestic capital market; b. businesses located in a special economic zone; c. investments that have been approved in certain business fields prior to the promulgation of this PR 10/2021, as stated in the business license, unless the provision is more favorable for said investment; and/or

investors who obtain special rights based on an agreement between Indonesia and the country of origin of the investor, except for cases in which the benefits applicable to the same line of business stipulated in this presidential regulation are deemed more profitable for the investor. Further, foreign investments in special economic zones involving technology-based startups are allowed an investment value equal to or less than IDR 10 billion (outside of the building and land value). 4. Change of Negative Investment List PR 10/2021 has effectively revoked PR 44/2016 and opened several lines of business, previously restricted under PR 44/2016, for 100% foreign investment. Nevertheless, Article 11(2) of PR 10/2021 specifically prescribes that businesses in the finance and banking sectors are still subject to the licensing and other requirements applicable in the relevant sector. Further, under Article 13 of PR 10/2021, it is stated that “all provisions of the laws and regulations concerning the Capital Investment Business Sector shall remain in effect as long as they do not conflict with the provisions of this Presidential Regulation.” Accordingly, this provision suggests that any requirement under sectoral regulations will remain valid after the issuance of PR 10/2021. For example, construction companies still need to have a local shareholder to be considered a “national” construction company with a minimum equivalent “large” classification as required under the Law No. 2 of 2017 on Construction Services and as amended by the Omnibus Law; otherwise construction businesses are no longer regulated under PR 10/2021 (see table below). The table below presents several changes to foreign investment ownership: Line of Business Indonesia Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI” PR 44/2016 (Old Negative List)