With the issuance of Presidential Regulation No. 10 of 2021 on Investment Sectors (“PR 10/2021”), the Indonesian government presents a new era with more flexibilities for foreign investment, by relaxing foreign ownership restrictions in wholesale distribution and certain retail businesses. In addition, the government also decided to relax other trading-related businesses, such as, warehousing and commission agency. Because of this relaxation foreign investors can now directly own shares up to 100% in majority of sectors that were previously subject to foreign ownership restriction or prohibition. This is something that foreign investors would welcome as a positive update given that the sectors, particularly retail trading business, had been restricted for many years.
For your ease of reference, we list down some selected business activities in trading sector and the permissible foreign ownership level under the Omnibus Law era (compared to that set out under the 2016 Negative List).
| Business Activity | 2016 Negative List | PR 10/2021 |
| Wholesale distribution (not affiliated with production)
(Business classification codes or “KBLI” with initial code of 45 – 46 (depends on the product)) |
Max. 67% | No foreign ownership restriction |
| Supermarkets
(more than 400sqm) (KBLI 47111) |
Closed if the selling space area is below 1,200sqm | No foreign ownership restriction |
| Department stores
(more than 400sqm) (KBLI 47191) |
Max. 67%
|
No foreign ownership restriction |
| Minimarkets
(below or equal to 400sqm) (KBLI 47111) |
Closed | Closed |
| Retail trading conducted by post and internet (E-Commerce)
(KBLIs 47911, 47912, 47913, 47914) |
Open but must be in partnership with Micro, Small, and Medium Enterprises (SMEs) | No foreign ownership restriction |
| Commission agent
(KBLI 46100) |
Closed | No foreign ownership restriction |
| Retail of spare parts and accessories for cars, motor vehicles and commercial vehicles
(KBLIs 45302, 45406) |
Closed | No foreign ownership restriction |
As indicated by the table, not all types of retail trading are open for foreign ownership. Minimarkets, for instance, a type of retail store with selling floor area of up to 400sqm, remained closed for foreign ownership.
We would also like to highlight that, notwithstanding the foreign ownership relaxation, other (technical) restrictions may still exist, such as in the form of added requirements, with which foreign investors must comply. The additional requirements may not be necessarily set out in PR 10/2021 but in different regulations. For example, pursuant to Government Regulation No.29 of 2021 on Implementation of Trading Sector (“GR 29/2021”), department stores owned by foreign-owned Indonesian limited liability companies (or commonly known as “PMA”) cannot be a standalone store but must be integrated with a shopping centre. It is therefore recommended to check with your local counsel in order to better understand all the requirements that may be applicable to the relevant sector that you are looking into.
Wholesale distribution business: Requirement to appoint Local Distributor still exists?
Prior to the enactment of the Omnibus Law and GR 29/2021, only locally-owned trading companies (“PMDN”) were allowed to distribute goods to retailers (who would then further sell the goods to end consumers). Thus, despite being approved to undertake wholesale distribution business PMA still had to appoint a PMDN to either act as its local distributor or agent to on sell the products.
Following the enactment of the Omnibus Law, it is unclear whether PMA distributor companies are still required to appoint local distributors as regulated by Minister of Trade Regulation No. 11/M-Dag/PER/3/2006 (“MOT Regulation 2006”). The Omnibus Law and GR 29/2021 did not expressly reconfirm, nor did they expressly revoke this specific requirement. Therefore, this situation has led to different interpretations as to whether the requirement still exists. In our view, on the basis that the spirit of the Omnibus Law and GR 29/2021 is to encourage more direct foreign investments in Indonesia and minimize protectionism to local-owned businesses (unless the businesses are categorized as SMEs), the obligation of PMA distribution companies to appoint local distributors should therefore be considered no longer relevant. However, until the government officially annuls the MOT Regulation 2006, the unclarity remains unresolved from a strictly legal perspective.
Retail Businesses: Other Key Requirements
Similarly, notwithstanding the relaxation in retail trading sector, there are other key requirements that investors must observe in undertaking retail trading activities. They include:
- location of stores and compliance with local zoning rule;
- partnership with SMEs in securing supply of stocks;
- obligation to sell local products in store; and
- limitation on number of outlets.
The specific rules on these issues will be further set out in regulations to be issued by the Minister of Trade. Please reach out to us at info@wplaws.com or any of our lawyers if you have any question on the above.