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Indonesia – The New Capital Investment Regime

Recent amendments to the Indonesian capital investment law (Law No. 25 of 2007) warrant discussion. This law concerns capital investment of all kinds, whether domestic or foreign. For purposes of this article, we will call the revised capital investment law, the ‘Law’.

A key change in the Law is the introduction of lines of business and/or activities which are reserved for the Indonesian central government.

Our previous blog of 2 December 2020 referred to what used to be called the ‘negative list’ of business activities which were closed for capital investment. This negative list was updated and revised by the relevant government ministry, from time to time.

The Law amends the capital investment law, however, providing that all lines of business are open for investment, except for activities which are closed and reserved for the Indonesian central government, and this closed list is now set out in full in the legislature’s elucidation of the provisions of the Law.

The upshot of this change is that in order for the closed list to be added to or amended in any way, the Law itself must be amended, and that involves a lengthy and complex legislative process, much more so than the issuing of a negative list by the appropriate ministerial department.

While the most recent negative list contained twenty business activities which were closed for capital investment, the Law has reduced this to just six.

But what is as yet unclear is whether the activities which were closed for capital investment under the negative list, are now open for investment under the Law. The author of this article will provide updates on this point, as and when they are publicly available.

The Law also provides for certain types of investment or business activity which will be designated ‘priority business activities’, a kind of capital investment priority list (for example, activities with respect to ‘micro’, and SME businesses, and the requirement for partnering between larger businesses and any such micro or SME business.

This priority list has not yet been published. We will update our readers when the list is published.

Another key change brought about in the Law is the ‘protection’ afforded or mandated by central government to micro, and SME-scale businesses, and cooperatives.

It is noteworthy that the Law and its related legislation now restricts foreign capital investment activities to large-scale businesses, and makes it a requirement for such large-scale businesses to enter into partnerships with the small-scale enterprise, whether that small-scale enterprise is a cooperative, SME or micro business.

The Law provides some description too, of how and in which areas that kind of ‘partnership’ must be carried out (for example, through access to finance, or to ‘information’, or by providing training).

Perhaps more troublesome, at least potentially, is the Law’s requirement that central and regional levels of government work together to facilitate partnerships of this kind, and provide supervisory oversight of that process.

This blog is for information purposes only. It is not intended to provide legal advice.

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