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Contributed by Siregar & Djojonegoro

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Indonesia has many potentials as investment destination country. The capital owners from many foreign countries consider Indonesia as the country with many potentials for investment because Indonesia has many important aspects to support good investment.

There are 2 (two) legal entities that are permitted for foreigners in Indonesia: (1) a foreign representative office; and (2) a foreign investment limited liability company (“PT PMA”).

Foreign Representative Office

Foreign companies are permitted to establish foreign representative offices in Indonesia. However, unlike a PT PMA, a foreign representative office has more restrictions on its activities. A foreign representative office’s activities are limited to: (i) take care of the company interests or its affiliated companies and/or; (ii) prepare for the establishment and development of business enterprise of foreign investment in Indonesia or in other countries; and (iii) located in the provincial capital and located in an office building.

Generally, there are 3 (three) types of foreign representative office: (1) foreign company representative office (“KPPA”); (2) foreign trade company representative office (Kantor Perwakilan Perusahaan Perdagangan Asing or “KP3A”); and (iii) construction service provider representative office (Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing or “KPBUJKA”). KPPA is approved by the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”). A KP3A is approved by the Minister of Trade. Foreign construction companies may establish a representative office in order to bid for potential projects and develop construction projects in Indonesia. KPBUJKA can only carry out construction projects if they are considered to be high risk, high cost, or if the project requires a certain type of technology which the relevant foreign company possesses. KPBUJKA is required to execute projects with a local construction company partner pursuant to a joint operation agreement. In order to establish KPBUJKA, a foreign construction company is required to obtain a license from the Minister of Public Works.

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The Indonesian economy’s growth in 2017 has been steady, which is somewhat below the level needed to fulfil President Joko Widodo’s promised major step-up in infrastructure spending, towards which he has allocated IDR404tn ($30.23bn) out of the government’s 2018 budget. This initiative involves a number of public-private partnerships (PPPs) for toll-roads, railway lines and airports across the country. Another key development is the ‘big bang’ liberalisation, which relaxes the restrictive laws on foreign investment.

Traditionally, the appetite for investment in Indonesia centred upon its natural resources sector. However, the oil and gas industry has dropped from 6% of the country’s GDP in 2011 to only 3% in 2016. Alongside this, greater importance is being placed on renewable energy, particularly geothermal energy, and the government aims to produce 9,500MW in geothermal power by 2025.

Indonesia has the world’s fourth-largest population, so naturally there is a great deal of investment focusing on the purchasing power of the region’s rising middle class, which has seen other sectors such as technology, retail and real estate coming to the fore. A prime example of this is the motorbike ride hailing app GO-JEK, which closed $550m in funding last year. Another exciting development in 2017 is that Facebook opened its first permanent office in Jakarta.

The country has a closed legal market, which has led to many international firms working in association with local firms. Among these include Ginting & Reksodiputro in association with Allen & Overy, Hadiputranto, Hadinoto & Partners, a member firm of Baker McKenzie and Hiswara Bunjamin & Tandjung in association with Herbert Smith Freehills. In 2017, Melli Darsa & Co. joined PwC’s global network, while Clifford Chance ended its association with Linda Wiyati & Partners due to the retirement of name partner Linda Widyati.

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