Effective immediately, the government of Indonesia introduced a new tax incentive that makes it more attractive for companies to revalue their fixed assets. Previously, companies had to pay a ten percent tax on the company's fixed asset growth. As a result, companies tended to refrain from increasing the level of fixed assets resulting in limited tax revenue. The Indonesian Finance Ministry said that companies will only have to pay 3 percent tax on the increased amount, provided that they submit their proposals for fixed asset revaluation before the end of this year.

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The Indonesia Investment Coordinating Board (BKPM) announced on Thursday (22/10) that foreign direct investment (FDI) into Indonesia climbed 18.1 percent (year-on-year) to IDR 92.5 trillion (approx. USD $6.85 billion) in the third quarter of 2015 from the same quarter a year earlier. The Q3-2015 18.1 percentage point growth was almost the same as the 18.1 percent (y/y) increase in FDI posted in the previous quarter. FDI data from the BKPM does not include investment in the country's banking and oil & gas sectors.

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A non-ministerial agency in Indonesia advises the government to open the cinema industry to foreign investment in an effort to boost the local movie industry while encouraging the arrival of more foreign direct investment (FDI) into Indonesia, hence boosting sluggish economic growth in Southeast Asia's largest economy. Currently, FDI in the domestic movie industry is not allowed by a Presidential Regulation issued in 2014. According to this regulation, companies that produce, distribute, or promote movies as well as movie theaters or cinemas have to be fully Indonesian-owned.

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Today, the Indonesian government announced it extended a tax incentive for “pioneering” industries. This term refers to those industries that are considered key industries that cause a multiplier effect in the Indonesian economy (hence boosting economic) and provide employment opportunities for the local population. Examples of such industries are oil refinery, infrastructure, maritime transport, telecommunications, downstream metal production and agriculture processing. The extended incentive is effective per 16 August 2015.

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Indonesian President Joko Widodo wants to drop the regulation that states a foreign worker needs to learn Indonesian. Today (21/08), Cabinet Secretary Pramono Anung said President Widodo (often called Jokowi) requested Hanif Dhakiri, Indonesian Minister of Manpower and Transmigration, to revise this regulation (that was issued in 2013). According to Jokowi the language proficiency requirement would make Indonesia’s investment climate less competitive and could therefore hamper much-needed investment.

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The Indonesia Investment Coordinating Board (BKPM) announced today (27/07) that - in rupiah terms - foreign direct investment (FDI) in Indonesia rose 18.2 percent (y/y) to IDR 92.2 trillion rupiah in the second quarter of 2015, the fastest growth pace recorded since 2013. However, in US dollar terms, FDI fell to USD $7.38 billion in Q2-2015 from USD $7.43 billion in the same quarter one year earlier. The BKPM uses an IDR 12,500 per US dollar exchange rate in 2015 and an IDR 10,500 per US dollar exchange rate in 2014.

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Although the Indonesian government is having difficulty to enhance infrastructure spending, a statement from Indonesia Investment Coordinating Board (BKPM) Chairman Franky Sibarani conveyed a more positive message. On Monday (20/07), Sibarani announced that since October 2014 the BKPM issued about IDR 335 trillion (approx. USD $25 billion) worth of investment licenses for infrastructure projects, triple the figure from the same period one year earlier, implying that President Joko Widodo’s promotional efforts have had success.

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The Indonesia Investment Coordinating Board (BKPM) announced it revoked 6,541 principle investment permits granted to foreign investors that were issued between the years 2007-2012 involving projects that would have had a combined total value of USD $23 billion. These principle permits are the first step for foreign investors to realize their investment commitments in Indonesia (it usually requires several more years for projects to be realized after issuance of these principle permits).

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Japanese investment in Indonesia has declined drastically in 2014 due to concern about the stability of Indonesian politics. Investment realization tumbled to USD $2.7 billion in 2014 from USD $4.7 billion in the previous year. The investment climate of Indonesia in 2014 was plagued by concern about the ‘political year’, referring to the legislative and presidential elections that were organized and the uncertainty they brought about as it was a tight race between market favorite Joko Widodo and controversial candidate Prabowo Subianto.

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On 2 February 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as an update on January inflation and the December 2014 trade balance, foreign direct investment, palm oil export, car sales, a land reclamation project, and more.

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Investment realization in Indonesia in the first quarter of 2015 totaled IDR 124.6 trillion (USD $9.7 billion), up 16.9 percent from the same quarter last year. Domestic direct investment climbed 22.8 percent (y/y) to IDR 42.5 trillion, while foreign direct investment (FDI) rose 14 percent (y/y) to IDR 82.1 trillion in Q1-2015. These data, released by the Indonesia Investment Coordinating Board (BKPM) on Tuesday (28/04), brought some positivity in Indonesia after listed companies’ weak Q1-2015 financial results led to concern and capital outflow.

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The Indonesia Investment Coordinating Board (BKPM) announced that foreign and domestic direct investment realization in Indonesia totalled IDR 463.1 trillion (USD $37 billion) in 2014, a 16.2 percent increase from the previous year and exceeding the target that was set previously. This is a positive result as 2014 was expected to be a rather bleak year in terms of direct investment amid political uncertainties triggered by the (fragmented results) of the country’s legislative and presidential elections.

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A total of 35 American companies are interested to invest a combined USD $61 billion in Indonesia over the next five years according to a survey conducted by the Paramadina Public Policy Institute, the American Chamber of Commerce in Indonesia (AmCham Indonesia), the Indonesian Employers Association (Apindo), and the Indonesian Chamber of Commerce and Industry (Kadin Indonesia). These 35 US companies have already invested a total of USD $65 billion in Indonesia over the period 2004 to 2012.

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The Indonesia Investment Coordinating Board (BKPM) announced that growth of foreign direct investment (FDI) in Indonesia has slowed in the first nine months of 2014. In the first three quarters Indonesia saw the influx of IDR 228.3 trillion (USD $18.7 billion) worth of FDI, a 14.6 percentage point increase year-on-year (y/y). However, this growth pace is much lower than the 21.3 percent point growth of FDIs in the first nine months of 2013. In US dollar terms the decline was even greater as the rupiah has been depreciating.

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Establishment of a company in Indonesia is done through a foreign investment and is subject to specific establishment requirements. A foreign investment is by law 25 of 2007 (Investment Law) defined as an investing activity conducted by a foreign investor for running a business inside Indonesia (including company establishment). Such foreign investment can be conducted either by using 100% foreign capital (which is subject to certain restrictions) or by partially using domestic capital. A foreign investor can be a foreign person, a foreign company or a foreign government body.

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A Foreign Representative Office (Kantor Perwakilan Perusahaan Asing [KPPA]) is a more general form of representative office than the foreign trade representative office and the foreign construction services representative office as we covered in previous columns. The Foreign Representative Office is regulated by BKPM, whereas the aforementioned representative offices are regulated by respectively the ministry of trade and the ministry of public works. Due to the general nature of a Foreign Representative Office, it is typically set up to provide managerial support to the parent company abroad.

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A foreign construction service representative office in Indonesia is established by foreign overseas parent companies, specifically for conducting business activities in the field of construction services. Construction services can be defined as consultancy services in planning of construction work, construction implementation services, and consultancy services regarding the supervision of construction work.

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A foreign trade representative office in Indonesia can be set up by overseas companies quickly and with relative ease. In general, a foreign trade representative office is established with the purpose to take care of the interests of the parent company abroad and/or for preparation of the establishment and development of foreign investment activities in Indonesia. Due to their purpose the scope of activities is limited to representation of the overseas company and is therefore not allowed to directly be engaged in sales and related activities.

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On Tuesday (21/01), the Indonesia Investment Coordinating Board (BKPM) announced that investments in Indonesia grew 27 percent to IDR 398.6 trillion (USD $33 billion) in 2013, thus exceeding the target that was set at the start of the year (IDR 390 trillion). This result, which is a new record high for Southeast Asia's largest economy, was supported by a 39 percent increase in domestic direct investment (IDR 128.2 trillion) and a 22 percent increase in foreign direct investment (IDR 272.6 trillion).

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According to a survey of the Japan Bank for International Cooperation (JBIC), 44.9 percent of respondents assessed Indonesia as the most promising investment destination for the next three years. The respondents in this survey involved 500 Japanese companies that engage in international businesses. For Indonesia it is the first time in 21 years that it forms the preferred choice of overseas investments for Japanese companies, thus replacing China. In 2013, Japan already dominates foreign direct investment in Indonesia.

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