The Indonesian government enacted Law Number 11 of 2020 on Job Creation (“Omnibus Law”) with the main objective of encouraging investments, accelerating economic transformation, synchronizing policies between the central and regional governments, making doing business easier and resolving overlapping regulations. One of the implementing regulations of the Omnibus Law is Presidential Regulation Number 10 of 2021 on Investment Business Activities (“PR10/2021”) which has been amended by Presidential Regulation Number 49 of 2021 on Amendments to Presidential Regulation Number 10 of 2021 (“PR49/2021”). These presidential regulations list the types of business activities that are open for investment. The Omnibus Law and PR10/2021 are intended to ease restrictions on foreign investments in Indonesia.
Restrictions on Foreign Investments in Distribution
One of the activities that plays a significant role in the economy is the distribution of goods. Before the introduction of PR10/2021 and PR49/2021, restrictions on investments in various business activities were imposed under Presidential Regulation Number 44 of 2016 on the List of Business Activities Closed for Investment and Business Activities that are Open with Requirements (“PR44/2016”). PR44/2016 referred to the descriptions of various business activities in the Indonesian Standard Industrial Classifications (Klasifikasi Baku Lapangan Usaha Indonesia – “KBLI”) issued in 2015, while PR10/2021 and PR49/2021 refer to 2020 edition of the KBLI.
In PR44/2016, foreign investment in the distribution of goods which was not affiliated with production (KBLI 00000) was limited to 67%. Now there is no limit under PR10/2021 or PR49/2021 and therefore, foreign investment in distribution can be up to 100%.
With the introduction of PR10/2021 and PR49/2021, large-scale trading (which includes distribution, importing and exporting) is open to 100% foreign investment, subject of course to the requirements that apply to large-scale trading in several types of goods under PR10/2021 and PR49/2021.
Further, under Government Regulation Number 5 of 2021 on Risk-Based Business Licensing (“GR5/2021”) and Regulation of the Investment Coordinating Board Number 4 of 2021 on the Guidelines and Procedure for Risk-Based Licensing and Investment facilities (“BKPM Regulation 4/2021”), any investment in large-scale trade activities must be more than 10 billion Rupiah (not including the value of any land and buildings) for each 4 initial digits of the KBLI code.
The Requirements for Distribution Activities
In addition to the minimum capital requirements above, distribution activities must also comply with the requirements under Government Regulation Number 29 of 2021 on Trading Operations (GR29/2021). GR29/2021, which is also an implementing regulation of the Omnibus Law, requires distributors to comply with the following requirements:
- to obtain a business license as a distributor;
- to possess or control business premises with a correct, permanent and clear address;
- to possess or control a warehouse that has been registered with the correct, permanent and clear address; and
- to have agreements with manufacturers or suppliers or importers on the goods to be distributed.
Unlike distributors with domestic capital, distributors under with foreign investments are required to appoint a domestic company as a distributor, sole-distributor, agent or sole-agent under Regulation of the Minister of Trade Number 24 of 2021 on Agreements on the Distribution of Goods by Distributors or Agents (“Regulation 24/2021”). Regulation 24/2021 is an implementing regulation of GR29/2021. Under Regulation 24/2021, a distributor established as a foreign investment company may not distribute goods to retailers, like domestic distributors normally do.
Distributing different types of goods falls under their own specific KBLI codes, which have their own requirements and specifics under their KBLI codes. The additional licenses or requirements for distributing certain goods are described in the Online Single Submission (“OSS”) system as part of obtaining a business license through the OSS system.
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This article is intended as a brief and general description of distribution activities with foreign investments in Indonesia under the prevailing regulations and may not be used as a legal advice or to replace a legal advice on a specific case. The regulations referred to in this article may no longer be current. We will be pleased to provide legal advice on matters related to this article, and provide our legal services and assistance regarding other legal issues. For more information, please contact us at yusfa@perdanalaw.com.
April 2022
