A Domestic Investment, further refereed to as PMDN (Penanaman Modal Dalam Negeri), is the investment implemented within the territory of the Republic of Indonesia by an Indonesian enterprise. The enterprise can either be one of the "National Economic Actors," namely fully private company which usually take the form of a Limited Liability Company and is subject to the Indonesian Corporate Laws, denoted as PT (Perseroan Terbatas); Cooperative or Koperasi, or State-Owned Enterprise or BUMN (Badan Usaha Milik Negara).

The PMDN is governed by Law No. 6/1968 on Domestic Capital Investment, as amended by Law No. 12/1971. In addition to the Domestic Capital Investment Law No. 1/1967, the PMDN enterprises are still subject to sectoral policies applied by the corresponding Departments, such as those stipulated in Law No. 5/1984 on Industry, Law No. 5/1967 on Forestry, Law No. 12/1992 on Agricultural System, etc.

A domestic enterprise running a PMDN project which is already commercially operational is allowed to sell its shares to foreign companies, PMA companies, and/or foreign individuals through direct placement or through domestic stock exchange. The purchased company in this case retains its corporate status. In addition, total purchase of the domestic company's shares is allowed only for those company whose line of business is open for the Foreign Direct Investment (FDI), that is not included in the DNI (Daftar Negatif Investasi - Negative List of Investment) as stipulated in the Presidential Decree No. 54/1993 which has been revoked by Presidential Decree No. 31/1995 on the List of Sectors Closed for Investment.

Foreign Investment

Foreign Capital Investment Law No. 1/1967

Foreign investment, further referred to as PMA (Penanaman Modal Asing), means the direct investment of foreign capital in Indonesia to establish an enterprise here. The fundamental law primarily governing the foreign investment is Law No. 1/1967 on Foreign Capital Investment, as amended by Law No. 11/1971, which referred to generally as the Foreign Investment Law.

Foreign capital is broadly defined to include:

• all foreign exchange that is not part of Indonesia's reserves;
• imported goods and services that are not financed by such reserves; and
• reinvested earnings.

The new company formed from such investment must be domiciled in and operated wholly or for the greater part in Indonesia and must be a legal entity established under Indonesian Laws.

In addition to the Foreign Investment Law No. 1/1967, the PMA companies as well as other companies are still subject to sectoral policies applied by the corresponding Departments, such as those stipulated in Law No. 5/1984 on Industry, Law No. 5/1967 on Forestry, Law No. 12/1992 on Agricultural System, etc.

Under the Foreign Investment Law No. 1/1967, a PMA company maybe established as a joint venture scheme between foreign and Indonesian partners. A Joint Venture Foreign Investment is an investment undertaken by a joint venture enterprise, that is an enterprise established as a joint venture between foreign and Indonesian partners. The foreign partners may be foreign nationals/individuals and/or foreign legal bodies (companies); whereas the Indonesia partners may be Indonesian nationals/individuals, existing joint venture PMA companies, existing PMDN companies, non-PMA/PMDN private companies, state-owned enterprises (BUMN - Badan Usaha Milik Negara), regional-owned companies (BUMD - Badan Usaha Milik Daerah), and Cooperatives. Alternatively, a PMA company can be wholly owned by foreign company or foreign individuals.
PMA entity shall take the form of a Limited Liability Company subject to the Indonesian Corporate Laws, denoted as PT (Perseroan Terbatas). There is no requirement on the minimum amount of investment (equity plus loan). The amount is for the parties concerned to determine, based on their economic of scale and business considerations.

A PMA company which has been commercially operational is allowed to set up new PMA companies under the same ownership. It is allowed to buy - through direct placement or through domestic stock exchange - the shares of an existing domestic company already commercially operational, as long as the line of business concerned is open for the foreign investment, meaning that it is not included in the Negative List of Investment (DNI) as stipulated in the Presidential Decree No. 31/1995 on the List of Sectors Closed for Investment.

In the framework of financial rescue and export drive, foreign enterprises and foreign citizens may buy the shares of existing PMA or domestic companies through direct placement or through domestic stock exchange, as long as the line of business concerned is open for foreign investment, that is not included in the DNI.

PMA companies in infrastructure projects such as seaports; generation and transmission as well as distribution of electricity for public use; telecommunications; shipping; airlines; pottable water; public railways; atomic energy reactors; and mass media should be established by way of joint ventures between foreign and Indonesian partners provided that the Indonesian share is maintained at least 5%.

Government Regulation No. 20/1994

As of the issuance of the Government Regulation No. 20/1994, a PMA company may be established as a straight investment or Foreign Direct Investment (FDI), namely with 100% foreign ownership, either by foreign nationals/individuals and/or foreign legal bodies (companies). It is required, that not later than 15 years of commercial operation, the company starts to be divested by selling some of its shares to Indonesian individuals and/or business entities, through direct placement and/or indirectly through domestic stock exchange. Thus, there are two kinds of PMA, namely Joint Venture as originally governed by Law No. 1/1967 and 100% Foreign Ownership as the result of deregulation contained in the Government Regulation No. 20/1994.

Guarantee and Protection

By virtue of the Foreign Investment Law, foreign investors are given a certain number of investment guarantees and protections. The law guarantees that after-tax profits, depreciation of capital assets and proceeds from the sale of share to Indonesian persons may be repatriated in the original investment currency at the rate of exchange prevailing at the time of repatriation.

The law prohibits nationalization or revocation of ownership rights except by statute in the national interest, and against payment of compensation "in accordance with the principles of International Law." Investment guarantee agreements have been concluded with Australia, Belgium, Canada, Denmark, France, Germany, Hungary, the Republic of Korea, the Netherlands, Norway, Sweden, Switzerland, Tunisia, the United Kingdom, the United State of America, Vietnam, and the Islamic Conference nations. The agreements generally provide for compensation in case of nationalization or expropriation, losses due to war, revolution or insurrection, and losses resulting from the inconvertibility of the Rupiah (the Indonesian currency).

To provide security for foreign investment, the Government of the Republic of Indonesia concludes Investment Guarantee Agreement (IGA) with ASEAN governments and 19 other foreign governments. To deal with foreign investment disputes, the Government of Indonesia has participated in and signed the Convention of the Settlement of Investment Disputes between states and nationals of other states. Consequently, disputes which may arise from foreign investment ventures in the country can be referred to the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C. Whilst, in dealing with non-commercial investment risk, Indonesia joint the Multilateral Investment Guarantee Agency (MIGA).

The legal aspects concerning intellectual property rights are also being improved. Recently, laws on copyright and trademarks have been modified to become more compatible with internationally accepted standards. On 1 August 1991 and 28 August 1992, the newly established Patent Law and Trademark Law became effective.

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