Since the issuance of Presidential Regulation No. 49 of 2021 on Investment Business Activities, Indonesia has adopted the Positive Investment List, replacing the previous Negative Investment List (DNI). This policy aims to attract foreign investment by allowing greater participation in specific business sectors, subject to certain ownership limitations and special treatment for ASEAN and non-ASEAN investors.

One key aspect of the Positive Investment List is the differentiated shareholding structure for investors from ASEAN countries compared to those from non-ASEAN countries. This differentiation influences how foreign investors structure their business entities and determine their local partnerships.

Foreign Ownership Limits and Shareholding Allocation Under the current investment framework, different business sectors are assigned specific foreign ownership caps. For example:

1. A certain business sector might allow 70% foreign ownership for ASEAN investors.
2. The same business sector might allow only 67% foreign ownership for non-ASEAN investors.

This raises an important question: How should the remaining shares be allocated?

Read More: LKPM Report

Local Shareholding Requirement

When foreign ownership is capped at 70% (ASEAN investors) or 67% (non-ASEAN investors), the remaining shares must be allocated to Indonesian shareholders. This means that foreign investors must collaborate with local partners to comply with the prevailing shareholding structure. The remaining 30% or 33% must be held by an Indonesian entity or individual to satisfy the local ownership requirements.

Example of Business Sectors with Different Foreign Ownership Limits

To illustrate this framework, consider the following KBLI (Kode Baku Lapangan Usaha Indonesia) classifications registered in OSS BKPM:

1. KBLI 70209 – Other Management Consulting Activities
   • Maximum 70% foreign ownership for ASEAN investors
   • Maximum 67% foreign ownership for non-ASEAN investors
   • At least 30% (ASEAN) or 33% (non-ASEAN) local shareholding required

2. KBLI 61101 – Wired Telecommunications Activities
   • Maximum 67% foreign ownership for ASEAN investors
   • Maximum 49% foreign ownership for non-ASEAN investors
   • Local investors must hold the remaining shares

3. KBLI 86201 – Hospital Activities
   • Maximum 67% foreign ownership for ASEAN investors
   • Maximum 49% foreign ownership for non-ASEAN investors
   • Mandatory local partnership with a minimum 33% Indonesian shareholding

4. KBLI 49231 – Urban Transportation Services
   • Maximum 70% foreign ownership for ASEAN investors
   • Maximum 49% foreign ownership for non-ASEAN investors
   • At least 30% local shareholding required

Read More: What is LKPM?

Key Considerations for Foreign Investors

1. Joint Ventures with Local Partners
   Since foreign investors cannot own 100% of the shares in restricted sectors, forming a joint venture with an Indonesian partner is a mandatory requirement. Establishing a local partnership enables compliance with the ownership structure and allows foreign investors to leverage local market expertise. Proper due diligence in selecting a local partner is crucial to ensure long-term business success.

2. Compliance with Licensing Regulations
   Companies must register with the OSS system under the appropriate KBLI code and adhere to licensing requirements set by BKPM. The licensing process includes submitting required documents, demonstrating financial capability, and ensuring business activities align with regulatory frameworks.

3. Sector-Specific Conditions
   Some sectors impose additional conditions, such as mandatory technology transfer, local workforce employment, or minimum capital requirements. Technology transfer agreements may be necessary in high-tech industries, while employment quotas might be enforced to encourage local job creation. Minimum capital requirements vary depending on the business sector and company structure.

4. Investment Incentives and Restrictions
   Certain sectors offer tax incentives, duty exemptions, and government support for foreign investors meeting strategic priorities. However, sectors deemed critical to national interest may have tighter restrictions on foreign ownership, requiring closer collaboration with local stakeholders.

5. Dispute Resolution and Exit Strategies
   Structuring investment agreements with clear dispute resolution mechanisms is essential for mitigating risks. Foreign investors should also consider exit strategies, including share transfers and repatriation of capital, to ensure flexibility in business operations.

Conclusion The implementation of the Positive Investment List provides greater opportunities for foreign investment while ensuring local participation in strategic sectors. Investors from ASEAN countries generally enjoy more favorable ownership limits compared to non-ASEAN investors, reinforcing regional economic cooperation. However, all foreign investors must collaborate with local shareholders to meet Indonesia’s regulatory framework. Understanding these ownership structures is crucial for compliance and successful market entry.

For further guidance on structuring foreign investments in Indonesia, ET Consultant is ready to assist with comprehensive legal and regulatory advisory services. Contact us today to ensure compliance with Indonesia’s evolving investment landscape.

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ET Consultant is a Business Consultant and Legal Consultant Expert that provides support for local and multinational clients to start and manage their business operations in Indonesia. ET Consultant specializes in Business Incorporation, Licensing & Legal, Accounting & Taxes, Immigration, and Advisory Services.

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