LAW No. 1 / 1967
on FOREIGN INVESTMENT
THE PRESIDENT OF THE REPUBLIC OF INDONESIA
C0NSIDERING:
| a. |
that, throughout the territory of this
country, as blessing of God, potential economic resources
are found abundantly which have not yet been transformed
into real economic strength because of among other things,
a lack of capital, experience and technology. |
| b. |
that Pancasila is the spiritual basis for the development
of the Indonesian economic system and should always be
reflected in economic policy. |
| c. |
that economic development requires transformation of
potential economic resources into real economic strength
through investment, utilization of technology, expansion
of knowledge, improvement of skills, and increases in
organizational and managerial ability. |
| d. |
that efforts to overcome economic decline and further
develop our economic potential should be based on the
capabilities and capacities of the Indonesian people themselves.
|
| e. |
that nevertheless this principle of relying on our
own capability and capacity should not lead to reluctance
to make use of foreign capital, technology and skill,
so long as these are truly devoted to serving the economic
interests of the people without causing dependence on
foreign countries. |
| f. |
that foreign capital should be utilized to maximum
advantage in order to accelerate the economic development
of Indonesia, as well as utilized in other fields and
sectors, where Indonesian capital for the time being is
not yet being employed. |
| g. |
that it is imperative to device clear regulations in
order to fill the need for capital for national development,
as well as to avoid uncertainty on the part of foreign
investors. |
IN OBSERVANCE OF:
1. Article 5 section (1), article 20 section
(1), article 27 section (2) and article 33 of the Constitution.
2. Decree of the Provisional People's Consultative Assembly
of the Republic of Indonesia No. XXIII/MPRS/1966, concerning
the reform of the basic policies on the Economy, Finance and
Development.
3. Note 1 of the MPRS of 1966 concerning Foreign Policy based
on Pancasila.
4. Law No. 5 of 1960 concerning the Basic of Agrarian Regulation.
5. Law No. 37 Prp. of 1960 on Mining, and Law No. 44 Prp.
of 1960 on Oil and Natural Gas.
6. Law No. 32 of 1964 concerning Regulations on Foreign Exchange
Transactions.
With the approval of the Gotong Royong People's
Representative Council, has decided:
To enact:
THE LAW CONCERNING
FOREIGN INVESTMENT
Article 1
Investment in this Law denotes
only direct investment of foreign capital made in accordance
with or based upon the provision of this Law for the purpose
of carrying on the enterprise in Indonesia, with the understanding
that the owner of the capital directly bears the risk of the
investment.
Article 2
Foreign investment in this Law means:
a. foreign exchange that does not form a part of the foreign
exchange resources of Indonesia, and which with the approval
of the Government is utilized to finance an enterprise in
Indonesia.
b. equipment for an enterprise, including rights to technological
development and materials imported into Indonesia, provided
the said equipment is not financed from Indonesian foreign
exchange resources.
c. that part of the profits which in accordance with this
Law is permitted to be transferred, but instead is utilized
to finance an enterprise in Indonesia.
Chapter II
LEGAL FORM, DOMICILE
AND AREA OF AN ENTERPRISE
Article 3
(1) An enterprise as instead by Article
2, which is operated wholly or for the greater part in Indonesia
as a separate business unit, must be a legal entity organized
under Indonesian Law and have its domicile in Indonesia.
(2) The Government shall determinated whether an enterprise
is operated entirely or for the greater part in Indonesia
as a separate business unit.
Article 4
The Government shall determine the operating
area for foreign capital enterprise in Indonesia, in accordance
with national and regional economic developments, the type
of enterprise, the amount of capital to be invested and the
desires of the capital owner.
Chapter III
FIELDS OF ACTIVITY
FOR FOREIGN INVESTMENT
Article 5
(1) The government shall determine the fields
of activity open to foreign investment, according to an order
of priority, and shall decide upon the conditions to be met
by the investor of foreign capital in each such field.
(2) The order of priority shall be determined whenever the
Government prepares medium and long-terms development plans,
taking into consideration developments in the economy and
technology.
Article 6
(1) Fields of activity, which are closed
to foreign investment exercising full control, are those of
importance to the country and in which the lives of a great
deal of people are involved, such as the following.
a. harbors;
b. production, transmission and distribution of electric power
for the public;
c. shipping;
d. telecommunications;
e. aviation;
f. drinking water;
g. public railways;
h. development of atomic energy;
i. mass media.
(2) Industries performing a vital function in national defense,
among others, the productions of arms, ammunition, explosive,
and war equipment, are absolutely prohibited to foreign investment.
Article 7
In addition to those mentioned
in Article 6 Section (1), the Government may determine certain
fields of activity in which foreign capital may no longer
be invested.
Article 8
(1) Foreign investment in the field of mining
shall be carried out in cooperation with the Government on
the basis of a Working Contract (Kontrak Karya) or other from
in accordance with prevailing regulations.
(2) The system of cooperation on the basis of working contract
or other form can be implemented in other field of activity
which will be determined by the Government.
Chapter IV
MANPOWER
Article 9
The owner of foreign capital
has full authority to appoint the management of the enterprise
in which his capital is invested.
Article 10
Foreign capital enterprise are required
to meet their needs for manpower with Indonesian nationals,
expert in cases mentioned in Article 11.
Article 11
Foreign capital enterprises are allowed
to bring and employ foreign managerial and expert personnel
in position, which cannot yet be filled by Indonesian nationals.
Article 12
Foreign capital enterprises are required
to conduct and/or provide regular and systematic training
and educational facilities in Indonesia and/or abroad for
Indonesian nationals with the aim of gradually replacing foreign
employees by Indonesian nationals.
Article 13
The Government shall supervise the execution
of the provisions of Article 9, 10, 11 and 12.
Chapter V
USE OF LAND
Article 14
To meet the requirements of
foreign capital enterprise, land may be provided, with the
right of construction, the right of exploitation and the right
of use in accordance with prevailing regulations.
Chapter VI
CONCESSION ON TAXES
AND OTHER LEVIES
Article 15
Foreign capital enterprises are granted
the following concessions on taxes and other levies:
a. Exemption from:
1. Company tax on profits during a specified period not exceeding
five years from the moment the enterprise commences production.
2. Dividen tax on that part of accrued profits paid to shareholders,
as long as these profits are earned during a period not exceeding
five years from the moment the enterprise commences production.
3. Company tax on profits referred to in Article 19 subsection
(a) which are reinvested in the enterprise in Indonesia, for
a specified period not exceeding five years from the time
of reinvestment.
4. Import duties at the time of entry into Indonesia of fixed
assets such as machinery, tools or instruments needed for
the operation of said enterprise.
5. Capitals stamp duties on the issuance of capital originating
from foreign investment.
b. Relief:
1. In the levy of company tax through a proportional rate
of not more than 50% for a period not exceeding five years
after expiration of the exemption period as intended by section
(a) sub 1 above.
2. by off-setting loses suffered during the period of exemption
intended by section (a) sub 1, against profits subject to
tax following the period mentioned above.
3. by allowing accelerated depreciation of fixed assets.
Article 16
(1) The concessions on taxes and other levies
mentioned in Article 15 shall be granted after consideration
of the priority on fields of activity as intended by Article
5.
(2) Besides the concessions on taxes and other levies referred
to in section (1) of this article, additional privileges may
be granted by Government Regulations to any foreign capital
enterprise, which is extremely important for economic development.
Article 17
Execution of provision of Article 15 and
16 shall be stipulated by the Government.
Chapter VII
DURATION OF FOREIGN
INVESTMENT,
RIGHT OF TRANSFER AND REPATRIATION
Article 18
Every permit for investment of foreign capital
shall specify the duration of its validity, which shall not
exceed 30 (thirty) years.
Article 19
(1) Foreign capital enterprise shall be
granted the right of transfer in the original currency of
the invested capital at the prevailing exchange rate, for:
a. profits accruing to capital subtraction of taxes and other
financial obligations in Indonesia;
b. costs related to the employment of foreign personnel working
in Indonesia;
c. other cost which shall be subsequently determined;
d. depreciation of fixed assets;
e. compensation in case of nationalization.
(2) Transfer procedure shall be subsequently determined by
the Government.
Article 20
Transfer constituting capital repatriation
can not be permitted as long as the concessions concerning
taxes and other levies as mentioned in Article 15 remain in
effect. The implementation of this article shall be further
regulated by the Government.
Chapter VIII
NATIONALIZATION AND
COMPENSATION
Article 21
The Government shall not undertake a total
nationalization/revocation of ownership right of foreign capital
enterprises nor take steps to restrict the rights of control
and/or management of the enterprises concerned, except when
it shall be declared by law that the interest of the State
requires such a step.
Article 22
(1) In case of the measures referred to
in Article 21, the Government has the obligation to provide
compensation, the amount, type and method of payment of which
shall have been agreed upon by parties, in accordance with
valid principles of international law.
(2) If no agreement can be reached between the two parties
with regard to the amount, type and method of payment for
compensation, arbitration shall take place which shall be
binding on both parties.
(3) The arbitration board shall consist of three persons:
One appointed by the Government, one by the owner of the capital,
and a third person as chairman selected jointly by the Government
and the owner of the capital.
Chapter IX
COOPERATION BETWEEN
FOREIGN AND NATIONAL CAPITAL
Article 23
(1) In the fields of activity open to foreign
capital, cooperation may be effected between foreign and national
capital, with due consideration to the provision of Article
3.
(2) The Government shall further determine the fields of activity,
forms and methods of cooperation between foreign and national
capital, utilizing foreign capital and expertise in the fields
of export and the production of goods and services.
Article 24
Profits obtained by foreign enterprises
resulting from cooperation between foreign capital and national
capital as mentioned in Article 23, after subtraction of taxes
and other obligations payable in Indonesia, are permitted
to be transferred in the original currency of the foreign
capital invested.
Article 25
The provisions of this law regarding tax
concession and guarantees regarding nationalization and compensation
are also valid for foreign capital mentioned in Article 23.
Chapter X
OTHER RESPONSIBILITIES
OF THE FOREIGN INVESTOR
Article 26
Foreign capital enterprises
are obligated to manage and control their enterprises in accordance
with the principles of good business administration without
harming the interest of the State.
Article 27
(1) Enterprises mentioned in Article 3 of
which the capital is entirely foreign, are obligated to provide
opportunities for participation by national capital, following
specified period and in proportions to be determined by the
Government.
(2) When participation as intended by section (1) of this
article is effected by selling pre-existent shares, the proceeds
of such can be transferred in the original currency of the
foreign capital concerned.
Chapter XI
OTHER PROVISIONS
Article 28
(1) Provisions of this Law shall be implemented
by coordinating among the Government agencies concerned in
order to ensure harmonization of Government policies regarding
foreign capital.
(2) Procedures for such coordination shall be subsequently
determined by the government.
Article 29
Provisions of this Law shall apply to investment
of foreign capital effected after this Law comes into force,
either in new enterprises of in already existing enterprises
for expansion and/or modernization.
Chapter XII
TRANSITIONAL PROVISION
Article 30
Matters not yet regulated in this Law shall
be subsequently stipulated by the Government.
Chapter XIII
FINAL PROVISION
Article 31
This Law shall take effect on the
day of its enactment. In order that every person may be informed,
promulgation of this Law is ordered through publication in
the State Gazette of the Republic of Indonesia.
Promulgated
in Jakarta
on January 10, 1967
STATES SECRETARY OF THE
REPUBLIC OF INDONESIA
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