Indonesian Law No. 25 of 2007 on Capital Investment (Investment Law)

LAW OF THE REPUBLIC OF INDONESIA NUMBER 25 OF 2007 CONCERNING INVESTMENTS

BY THE GRACE OF GOD ALMIGHTY

THE PRESIDENT OF THE REPUBLIC OF INDONESIA

Considering:

a. that to realize a just and prosperous society that is based on Pancasila and the 1945 Constitution of the State of the Republic of Indonesia, it is necessary to make sustainable national economic development founded on economic democracy in pursuit of the state’s goals;

b. that consistent with the mandate seth forth in Decree of the People’s Consultative Assembly of the Republic of Indonesia Number XVI/MPR/1998 concerning Economic Policy in the context of Economic Democracy, investment policies should at all times underlay the people’s economy that commits itself to the enhancement of micro, small and medium enterprises, and cooperatives;

c. that to accelerate national economic development and to realize Indonesian political and economic sovereignty it is necessary to step up investments in order to turn economic potentials into real economic strength by use of funds derived from both home and abroad;

d. that to deal with global economic changes and Indonesia’s participation in diverse international cooperations it is necessary to create investment climate to be conducive, promoting, giving legal certainty, justice and efficiency with due regard to the interest of national economy;

e. that Law Number 1 of 1967 concerning Foreign Investments, as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967 concerning Foreign Investments, and Law Number 6 of 1968 concerning Domestic Investments, as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments need replacement for no longer being consistent with the need of accelerated national economic enhancement and law development, most notably, in the field of investment;

f. that having due regard to item a, item b, item c, item d, and item e it is necessary to make a Law concerning Investments.

Bearing in mind:

Article 4 section (1), Article 5 section (1), Article 18 section (1), section (2), and section (5), Article 20, and Article 33 of the 1945 Constitution of the State of the Republic of Indonesia;

With the Joint Consent of:

THE HOUSE OF REPRESENTATIVES OF THE REPUBLIC OF INDONESIA

and

THE PRESIDENT OF THE REPUBLIC OF INDONESIA

HAS DECIDED:

To enact: LAW CONCERNING INVESTMENTS.

GENERAL ELUCIDATION

One of the goals of establishing state governance is to further public welfare. This mandate has been set forth, interalia, in Article 33 of the 1945 Constitution of the State of the Republic of Indonesia, and is a constitutional mandate that underlies the making of all economic laws and regulations. The Constitution has mandated that national economic development must be founded on the democratic principle that is capable of realizing the sovereignty of the Indonesian economy. A link between economic development and people’s economic actors has been affirmed by Decree of the People’s Consultative Assembly of the Republic of Indonesia Number XVI/MPR/1998 concerning Economic Policy in the Context of Economic Democracy as substantive legal authority. Therefore, enhancement of investments in micro, small and medium enterprises, and cooperatives is made a part of major policies of investments.

In connection therewith, investments must be made a part of the conduct of national economy and be positioned in an effort to increase the national economic growth, to create job opportunities, to improve sustainable economic development, to improve the capacity and capability of national technology, to foster people’s economic development, as well as to realize public welfare, in a competitive economic system.

The purposes of the conduct of investments are only reachable if supporting factors that obstruct investment climate can be contained through, inter alia, improving coordination among agencies of the Central Government and regions, establishment of efficient bureaucracy, certainty of the investment law, highly-competitive economic costs, conducive business climate in labor, and business security. With the improvement of such various supporting factors, it is hoped that realization of investments will be better-situated in a significant manner.

The spiritual atmosphere in the making of Law on Investments is built upon the spirit to create conducive investment climate, and therefore the Law concerning Investments regulates important-judged matters, namely, inter alia, those related to the coverage of the law, major investment policies, forms of business entity, treatment of investments, business sectors, as well as a link between economic development and people’s economic actors, of which is to be realized in the regulation on enhancement of investments in micro, small and medium enterprises, and cooperatives, investor’s rights, obligations, and responsibilities as well as investment facilities, validation and permission, coordination and implementation of investment policies in which it governs institutions, administration of investment affairs, and provisions governing dispute settlements.

This Law embraces all direct investments in all sectors. This Law also gives an assurance of equitable treatment with respect to investments. In addition thereto, this Law orders the Government to increase coordination among the Government agencies, between the Government agencies and Bank Indonesia, and between the Government agencies and regional governments. Coordination with the regional governments must be in line with the regional autonomy spirits. The regional governments together with private and Government agencies or institutions must be more empowered both in the enhancement of potential investment opportunities in regions and coordination of investment promotion and services. The regional governments implement as extensive autonomy as possible in order to organize and administer themselves the conduct of investment affairs based on the principle of regional autonomy and assignment duties or deconsentration. Therefore, the increased institutional coordination must be measurable through the speed of the granting of licensing and investment facilities at a competitive cost. In order to meet the principle of economic democracy, this Law also orders preparation of laws and regulations concerning business sectors that are closed and open with requirements, including business sectors that must be in partnership or be reserved for micro, small and medium enterprises, and cooperatives.

Key issues that are faced by investors to start a business in Indonesia have been addressed by this Law in which there is regulation on validation and permission, and further, regulation on one-stop integrated services. With this system, it is greatly hoped that the integrated services at the central and in regions can create simplified licensing and speedy administration. In addition to investment services in regions, the Investment Coordinating Board is assigned to coordinate the implementation of investment policies. The Investment Coordinating Board is led by a head that is responsible directly to the President. Detailed major duties and functions of the Investment Coordinating Board are basically to strengthen the board’s roles to contain obstacles to investments, to improve certainty of granting facilities to investors, and to reinforce the investors’ roles. The improvement of investors’ roles must remain within the corridor of the national development policies that are planned by stages, namely, by having due regard to the macroeconomic stability and economic balance among regions, sectors, business actors, and community groups; by supporting the roles of national business; as well as by addressing the code of principles of good corporate governance.

Investment facilities are granted by taking into account the levels of economic competitiveness and the state’s financial condition, and should be more promoting by comparison with facilities granted by other countries. The importance of certainty of these investment facilities has encouraged more specific regulation on the forms of fiscal facility, land title facility, immigration facility, and import permission facility. In addition, the granting of these investment facilities is also made in an effort to bolster worker absorption, a link of economic development and people’s economic actors, export orientation and more beneficial incentives to investors that use domestic production capital goods or machines or equipment, as well as facilities associated with locations of investments in less developed areas and in limited-infrastructure areas to be regulated more thoroughly by provisions of laws and regulations.

Having due regard to the foregoing, this Law also gives latitude to the Government to make a policy to anticipate various subsisting international treaties, and at the same time to encourage other international cooperation to broaden the opportunities of regional and international markets for Indonesian good and service products. Enhanced economic policies in specified regions are positioned as part to lure the potential international markets and as the impetus to increase the appeal for growth in a special economic zone or area that is strategic in nature for national economic enhancement. In addition, this Law also governs the rights to transfer assets and the rights to transfer and repatriate with due regard to legal responsibilities, fiscal obligations, and social obligations that should be settled by investors. A possible outbreak of a dispute between an investor and the Government is also anticipated by this Law through regulation on dispute settlements.

An investor’s rights, obligations, and responsibilities are regulated specifically to give legal certainty, to affirm investors’ obligations to apply the code of principle of sound corporate governance, to respect the community’s cultural traditions, and to fulfill corporate social responsibility. Regulation on responsibilities of investors is necessary in order to encourage fair business competition climate, to broaden responsibility for the environment, and to address worker rights and obligations, as well as to make an effort to urge investors to comply with laws and regulations.

The world economy is marked with tight competition among countries, thus pushing investment policies to create competitiveness of the national economy in order to encourage the integration of Indonesian economy into global economy. The world economy is also rife with trade blocks, common markets, and free trade treaties founded on the synergy of interest among the parties or countries to treaties. Indonesia’s participation in diverse international cooperation with respect to investments, whether bilateral, regional or multilateral (World Trade Organization/WT0) has also posed various consequences to be faced and complied with.

With the above-mentioned considerations and bearing in mind the investment law that has already been in place for about 40 (forty) years, the need of a Law on Investments in lieu thereof is urgent to replace Law Number 1 of 1967 concerning Foreign Investments, as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967 concerning Foreign Investments, and Law Number 6 of 1968 concerning Domestic Investments, as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments, which until the present have become the legal basis of investment activities in Indonesia but no longer keep pace with the challenges and needs to expedite national economic enhancement through constructing the national law development in the field of investment in order to be competitive and to side with the national interest.

CHAPTER I

GENERAL PROVISIONS

Article 1

In this Law:

1. “Investment” means any form of investing activity by both domestic investors and foreign investors to do business in the territory of the state of the Republic of Indonesia.

2. “Domestic investment” means an investing activity to do business in the territory of the state of the Republic of Indonesia that is carried out by a domestic investor by use of domestic capital.

3. “Foreign investment” means an investing activity to do business in the territory of the state of the Republic of Indonesia that is carried out by a foreign investor both by use of all of foreign capital and by engagement in a joint venture with a domestic investor.

4. “Investor” means an individual or a business entity that makes an investment, who may be a domestic investor and a foreign investor.

5. “Domestic investor” means an Indonesian national, an Indonesian business entity, the state of the Republic of Indonesia, or a region that makes an investment in the territory of the state of the Republic of Indonesia.

6. “Foreign investor” means a foreign national, a foreign business entity, and/or a foreign government that makes an investment in the territory of the state of the Republic of Indonesia.

7. “Capital” means an asset that is owned by an investor in the form of money or another form which is non-money, bearing economic value.

8. “Foreign Capital” means capital that is owned by a foreign state, a foreign national, a foreign business entity, a foreign legal entity, and/or an Indonesian legal entity, of which the capital is in part or in whole is owned by a foreign party.

9. “Domestic Capital” means capital that is owned by the state of the Republic of Indonesia, an Indonesian national, or a business entity of a legal entity or nonlegal entity form.

10. “One-Stop Integrated Service” means an administrative activity of licensing and non-licensing with delegation or referral of authority from an institution or agency with licensing and non-licensing authority, the administrative process of which begins from the stage of application to the stage of issue of documents, which is done in one place.

11. “Regional Autonomy” means a right, authority, and obligation of an autonomous region to administer and organize itself the local government and public affairs in accordance with provisions of laws and regulations.

12. “Central Government,” hereinafter called “Government,” means the President of the Republic of Indonesia that holds power over governing the state of the Republic of Indonesia as intended by the 1945 Constitution of the State of the Republic of Indonesia.

13. “Regional Government” means the governor, regent or mayor and the regional body as an element that conducts regional administration.

Article 2

The provisions of this Law shall apply to investments in all sectors in the territory of the state of the Republic of Indonesia.

Elucidation of Article 2:

“Investments in all sectors in the territory of the state of the Republic of Indonesia” means direct investments, not including indirect or portfolio investments.

CHAPTER II

PRINCIPLES AND PURPOSES

Article 3

(1) Investments shall be conducted based on the principles of:

a. legal certainty;

Elucidation of Article 3 section (1) subsection a:

“Principle of legal certainty” is the principle that the rule of law state lays down law and provisions of laws and regulations as the foundation of any investment policy and measure;

b. transparency;

Elucidation of Article 3 section (1) subsection b:

“Principle of transparency” is the principle of receptiveness to the public right to have access to true, honest, and nondiscriminatory information on investment activities;

c. accountability

Elucidation of Article 3 section (1) subsection c:

“Principle of accountability” is the principle that provides every activity and end result of the conduct of investments must be accountable to the public or people as the holder of the supreme sovereignty in accordance with provisions of laws and regulations;

d. equitable and nondiscriminatory treatment against country of origin.

Elucidation of Article 3 section (1) subsection d:

“Principle of equitable and nondiscriminatory treatment against country of origin” is the principle of a nondiscriminatory service treatment between domestic investors and foreign investors, or between investors of one foreign country and investors of another foreign country based on provisions of laws and regulations.

e. togetherness;

Elucidation of Article 3 section (1) subsection e:

“Principle of togetherness” is the principle that which all investors are encouraged to take on their business roles together in the realization of public welfare.

f. efficiency in justice;

Elucidation of Article 3 section (1) subsection f:

“Principle of efficiency in justice” is the principle that underlies the conduct of investments by taking primacy of efficiency in justice in order to realize just, conducive and competitive business climate.

g. sustainability;

Elucidation of Article 3 section (1) subsection g:

“Principle of sustainability” is the principle that in a planned manner seeks a continuous development process through investments to ensure welfare and progress in all aspects of life, both in the present day and the future.

h. environmentally-sound;

Elucidation of Article 3 section (1) subsection h:

“Environmentally-sound principle” is the principle in which an investment is made by having due regard to and accentuating the environmental protection and conservation.

i. independence; and

Elucidation of Article 3 section (1) subsection i:

“Principle of independence” is the principle in which an investment is made by taking primacy to the potentials of nation and state by not being unreceptive to the inflows of foreign capital in order to realize the economic growth.

i. balanced advancement and national economic unity;

Elucidation of Article 3 section (1) subsection j:

“Principle of balanced advancement and national economic unity” is the principle that seeks maintenance of a balance of economic advancement among regions within the national economic unity.

(2) The purposes of the conduct of investments shall be, inter alia:

a. to increase growth in national economy;

b. to create job opportunities;

c. to improve sustainable economic development;

d. to augment the capability of competitiveness of the national business world;

e. to increase the capacity and capability of national technology;

f. to foster the enhancement of the people’s economy;

g. to turn economic potentials into real economic strength by use of funds derived from both home and abroad; and

h. to improve public welfare.

CHAPTER III

MAJOR INVESTMENT POLICIES

Article 4

(1) The Government shall adopt major investment policies:

a. to encourage creation of conducive national business climate for investments in order to strengthen the competitiveness of the national economy; and

b. to expedite the increase of investments.

(2) In the adoption of major policies as intended by section (1) the Government shall:

a. accord equitable treatment to domestic investors and foreign investors with due regard to the national interest;

Elucidation of Article 4 section (2) subsection a:

“Equitable treatment” is that the Government does not discriminate treatment against investors having invested in Indonesia, unless provided otherwise by provisions of laws and regulations.

b. ensure the legal certainty, business certainty, and business safety for investors starting from the licensing process to termination of investment activities in accordance with provisions of laws and regulations.

c. give opportunities to the enhancement of and give protection to micro, small and medium enterprises, and cooperatives.

(3) Major investment policies as intended by section (1) and section (2) shall be reflected in a General Plan for Investments.

CHAPTER IV

FORMS OF BUSINESS ENTITY AND DOMICILE

Article 5

(1) Domestic investments may be made in the form of a business entity in the form of a legal entity, nonlegal entity or sole proprietorship in accordance with provisions of laws and regulations.

(2) Foreign investments must be in the form of a limited liability company under Indonesian law, and domiciled within the territory of the state of the Republic of Indonesia, unless provided otherwise by law.

(3) Domestic and foreign investors who make an investment in the form of a limited liability company shall:

a. subscribe for shares at the time the limited liability company is established;

b. purchase shares; and

c. take another method in accordance with provisions of laws and regulations.

CHAPTER V

TREATMENT AGAINST INVESTMENTS

Article 6

(1) The Government shall accord equitable treatment to all investors of any countries that carry out investment activities in Indonesia in accordance with provisions of laws and regulations.

(2) Treatment as intended by section (1) shall not apply to investors of a country that has acquired privileges by virtue of a treaty with Indonesia.

Elucidation of Article 6 section (2):

“Privilege” is, inter alia, a privilege related to customs units, free trade zones, common markets, monetary units, institutions of a similar kind, and bilateral, regional, or multilateral agreements between the Government of Indonesia and the government of a foreign country concerning particular privileges in the conduct of investments.

Article 7

(1) The Government shall take no measures of nationalization or expropriation against the proprietory rights of investors, unless provided by law.

(2) Where the Government takes measures of nationalization or expropriation against the proprietory rights as intended by section (1), then the Government shall pay compensation the amount of which shall be established by market value.

Elucidation of Article 7 section (2):

“Market value” means value that is established in accordance with the internationally-accepted methods adopted by an independent appraiser named by the parties.

(3) If both parties fail to reach an agreement of compensation or damages as intended by section (2), the settlement thereof shall be made through arbitration.

Elucidation of Article 7 section (3):

"Arbitration" is a method of settling a private dispute outside the court of law based on a written agreement made by parties to a dispute.

Article 8

(1) Investors may transfer assets they own to parties the investors desire in accordance with provisions of laws and regulations.

(2) Assets not counting assets as intended by section (1) shall be assets that are determined by law as assets controlled by the state.

(3) Investors shall be granted the following rights to transfer and repatriate in foreign currencies, inter alia:

a. capital;

b. profits, bank interest, dividends, and other income;

c. funds that are needed:

1. to purchase raw materials and components, intermediate goods or finished goods; or

2. to replace capital goods in order to protect the viability of the investments.

d. additional funds that are needed for investment financing;

e. funds for repayment of loans;

f. royalties or fees that are payable;

g. income of foreign nationals who work for an investment company;

h. proceeds of the sale or liquidation of an investment;

i. compensation for damages;

j. compensation for acquisitions;

k. payments made in connection with technical assistance, fees payable for technical and management services, payments made under a project contract, and payments related to intellectual property rights; and

l. proceeds of the sale of assets as intended by section (1).

(4) The rights to transfer and repatriate as intended by section (3) shall be exercised in accordance with provisions of laws and regulations.

(5) The provision as intended by section (1) shall not detract from:

a. the power of the Government to effect provisions of laws and regulations that require reporting of fund transfers;

b. the rights of the Government to draw taxes and/or royalties and/or other Government revenues from investments in accordance with provisions of laws and regulations.

c. enforcement of law to protect the rights of creditors; and

d. enforcement of law to avoid losses to the state.

Elucidation of Article 8 section (5) subsection d:

Where there is a loss to the state, the Government may institute a legal act through, inter alia, warning, freezing, revocation of business permit, claim of damages, and other sanctions in accordance with provisions of laws and regulations.

Article 9

(1) Where there is a legal responsibility not yet settled by investors:

a. an investigator or the Minister of Finance may request banks or other institutions to defer the right to transfer and/or repatriate; and

b. the court shall have jurisdiction to order deferment of the right to transfer and/or repatriate following a claim.

(2) A bank or other institution shall execute a deferment order following a court order as intended by section (1) subsection b until investors have discharged all the responsibilities.

CHAPTER VI

LABOR

Article 10

(1) In addressing their labor need, investment companies must give precedence to Indonesian national workers.

(2) Investment companies shall be authorized to engage foreign-national experts for specified office and expertise in accordance with provisions of laws and regulations.

(3) Investment companies must improve the competency of Indonesian-national workers through job training in accordance with provisions of laws and regulations.

(4) Investment companies that employ foreign workers must conduct training and transfer technology to Indonesian-national workers in accordance with provisions of laws and regulations.

Article 11

(1) Industrial relations dispute settlement must be exhausted to be made on a deliberation between an investment company and workers.

(2) If no result of settlement as intended by section (1) is reached, the settlement thereof must be exhausted through a tripartite mechanism.

(3) If no result of settlement as intended by section (2) is reached, an investment company and workers shall settle the industrial relations dispute through an industrial relations court.

CHAPTER VII

BUSINESS SECTORS

Article 12

(1) All business sectors or business types shall be open to investment activities, except for business sectors or business types that are declared to be closed and open with requirements.

Elucidation of Article 12 section (1):

Business sectors or business types that are closed and open with requirements are provided for by Regulation of the President in a list based on the standard for classification of business sectors or business types applicable in Indonesia, to wit classification based on Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) and/or the Internasional Standard for Industrial Classification (ISIC).

(2) Business sectors that are closed for foreign investors shall be:

a. production of weapons, ammunition, explosive devices, and armaments; and

b. business sectors that are explicitly declared to be closed by law.

Elucidation of Article 12 section (2)

"Explosive devices" are devices used in the interests of defense and security.

(3) The Government by virtue of Regulation of the President shall establish business sectors closed to investments, both to foreign investments and domestic investments, based on the following criteria: soundness, morals, culture, the environment, national defense and security, as well as other national interests.

(4) Criteria and requirements of business sectors that are closed and open with requirements as well as a list of business sectors that are closed and open with requirements shall be regulated by Regulation of the President, respectively.

(5) The Government shall establish business sectors that are open with requirements based on the national interest criteria, to wit protection of natural resources, protection and enhancement of micro, small and medium enterprises, and cooperatives, supervision of production and distribution, increase of technology capacity, domestic capital participation, as well as cooperation with business entities named by the Government.

CHAPTER VIII

ENHANCEMENT OF INVESTMENTS IN MICRO, SMALL AND MEDIUM ENTERPRISES, AND COOPERATIVES

Article 13

(1) The Government must establish business sectors that are reserved for micro, small and medium enterprises and cooperatives, as well as business sectors that are open to large businesses on condition that they cooperate with micro, small and medium enterprises, and cooperatives.

Elucidation of Article 13 section (1)

“Business sectors that are reserved” are business sectors that are for the special benefit of micro, small and medium enterprises and cooperatives in order to be capable and equitable to other economic actors.

(2) The Government shall guide and enhance micro, small and medium enterprises, and cooperatives through partnership programs, increase of the competitiveness, inducement of innovation and market expansion, as well as wide dissemination of information.

CHAPTER IX

RIGHTS, OBLIGATIONS, AND RESPONSIBILITIES OF INVESTORS

Article 14

Every investor shall be entitled to enjoy:

a. certainties of right, law, and protection;

Elucidation of Article 14 item a:

"Certainty of right" means the Government ensures investors have access to rights provided that the investors have fulfilled specified obligations.

"Certainty of law" means the Government ensures to place law and provisions of laws and regulations as the basic foundations in every measure and policy for investors.

"Certainty of protection" means the Government ensures investors have access to protection when carrying out investment activities.

b. transparent information about business sectors engaged;

c. right to services; and

d. various forms of simplified facility consistent with provisions of laws and regulations.

Article 15

Every investor shall have obligations:

a. to apply the principle of good corporate governance;

b. to implement corporate social responsibility;

Elucidation of Article 15 item b:

"Corporate social responsibility" means a responsibility mounted in every investment company to keep creating relationship which is in harmony, in balance and suitable to the local community’s neighborhood, values, norms, and culture.

c. to make a report on investment activities and submit it to the Investment Coordinating Board;

Elucidation of Article 15 item c:

An investment report that contains an update of investments and obstacles an investor faces is submitted periodically to the Investment Coordinating Board and the regional government responsible for the field of investment.

d. to respect the cultural traditions of the community around the location of investment business activities; and

e. to comply with all provisions of laws and regulations.

Article 16

Every investor shall be responsible:

a. to ensure the capital availability derived from sources not against provisions of laws and regulations;

b. to assume and settle any obligation and damage in accordance with provisions of laws and regulations if an investor ends or leaves or abandons his/her business activities in a unilateral manner;

c. to create fair competition business climate, to prevent monopolistic practices, and other matters that are detrimental to the state;

d. to keep the environment sustainable;

e. to create workers’ safety, health, amenity, and welfare; and

e. to comply with all provisions of laws and regulations.

Article 17

Investors engaged in a nonrenewable natural resource business must allocate funds by progressive stages for location recovery in compliance with the standard environmental feasibility, the implementation of which shall be regulated in accordance with provisions of laws and regulations.

Elucidation of Article 17:

This provision is intended to anticipate environmental damage that results from investment activities.

CHAPTER X

INVESTMENT FACILITIES

Article 18

(1) The Government shall grant facilities to investors who make investments.

(2) Investment facilities as intended by section (1) may be granted to an investment:

a. that expands its business; or

b. that makes a new investment.

(3) An investment to receive facilities as intended by section (2) shall be an investment that meets at least one of the following criteria:

a. absorbs many workers;

b. falls under a high priority scale;

c. is engaged in infrastructure constructions;

d. transfers technology;

e. is engaged in a pioneer industry;

Elucidation of Article 18 section (3) subsection e:

"Pioneer industry" is an industry that has wide-ranging links, gives added values and high externality, introduces new technology, as well as has strategic values for the national economy.

f. is located in a remote area, a less-developed area, a contiguous area, or another area deemed needy;

g. keeps the environment sustainable;

h. conducts research, development, and innovation activities;

i. is in partnership with micro, small and medium enterprises or cooperatives; or

j. is engaged in an industry that uses domestically-produced capital goods or machines or equipment.

(4) Facilities to be granted to an investment as intended by section (2) and section (3) may be in the form of:

a. income tax through a reduction of net income to a specified extent of the total investments made within a definite period;

b. exemptions or relief on import duty of production capital goods, machines, or equipment not yet produced at home;

c. exemptions or relief on import duty of production raw materials or components for a definite period and with specified requirements;

d. exemptions or deferment of Value-Added Tax for a definite period on import of production capital goods or machines or equipment not yet produced at home;

e. accelerated depreciation or amortization; and

f. relief on Land and Buildings Tax, particularly for specified business sectors in specified regions or areas or zones;

(5) Exemptions or reductions of corporate income tax in a definite amount and period may only be granted to a new investment which is a pioneer industry, to wit an industry that has wide-ranging links, gives added values and high externality, introduces new technology, as well as has strategic values for the national economy.

(6) Ongoing investments that are replacing machines or other capital goods may be granted facilities in the form of customs duty relief or exemptions.

(7) Further provisions on the granting of fiscal facilities as intended by section (4) through section (6) shall be regulated by Regulation of the Minister of Finance.

Article 19

Facilities as intended by Article 18 section (4) and section (5) shall be granted based on a national industry policy adopted by the Government:

Article 20

Facilities as intended by Article 18 shall not apply to foreign investments of non-limited liability company form.

Article 21

In addition to facilities as intended by Article 18, the Government shall provide simplified services and/or permission to investment companies to obtain:

a. land titles;

b. immigration service facilities; and

c. import permission facilities.

Article 22

(1) Simplified services and/or permission of land titles as intended by Article 21 item a may be granted and extended all at once in advance, and is renewable at the investor’s request for the following:

a. Right to Cultivate may be granted for a period of 95 (ninety-five) years by being granted and extended all at once in advance for a period of 60 (sixty) years, and renewable for a period of 35 (thirty-five) years;

Elucidation of Article 22 section (1) subsection a:

Right to Cultivate is acquired by being granted and extended all at once in advance for a period of 60 (sixty) years, and renewable for a period of 35 (thirty-five) years;

b. Right to Build may be granted for a period of 80 (eighty) years by being granted and extended all at once in advance for a period of 50 (fifty) years, and renewable for a period of 30 (thirty) years;

Elucidation of Article 22 section (1) subsection b:

Right to Build is acquired by being granted and extended all at once in advance for a period of 50 (fifty) years, and renewable for a period of 30 (thirty) years;

c. Right to Use may be granted for a period of 70 (seventy) years by being granted and extended all at once in advance for a period of 45 (forty-five) years, and renewable for a period of 25 (twenty-five) years;

Elucidation of Article 22 section (1) subsection c:

Right to Use is acquired by being granted and extended all at once in advance for a period of 45 (forty-five) years, and renewable for a period of 25 (twenty-five) years.

(2) Land titles as intended by section (1) may be granted and extended all at one in advance for the following investment activities, inter alia:

a. an investment that is made for a long term and linked to structured changes in the Indonesian economy aimed at improving competitiveness;

b. an investment with an investment risk level that requires a long-term return on capital based on the types of investment activities carried out;

c. investments that need no large areas;

Elucidation of Article 22 section (2) subsection c:

"Large area" is a land size that is needed for investment activities by considering population densities, business sectors, or business types specified by laws and regulations.

d. investments with the state land title; and

e. investments that do not undermine a sense of public justice and does not harm the public interest.

(3) A land title is renewable upon evaluation that the land remains in good use and cultivation conforming to the condition, nature, and purpose the title is granted.

(4) The granting and extension of land titles that are granted all at once in advance and renewable as intended by section (1) and section (2) may be terminated or cancelled by the Government if an investment company abandons the land, harms the public interest, uses or cultivates land inconsistent with the objectives and purposes of the granting of its land titles, as well as violates the provisions of laws and regulations concerning land.

Article 23

(1) Simplified services and/or permission in connection with immigration facilities as intended by Article 21 item b may be granted:

a. for investments that need temporary foreign workers to realize investments;

b. for investments that need temporary foreign workers to service machines, other production aids, and after-sales service; and

c. to prospective investors to explore possibilities for investments.

(2) Simplified services and/or permission in connection with immigration facilities to be granted to investments as intended by section (1) item a and item b shall be granted after investors have received recommendation from the Investment Coordinating Board.

Elucidation of Article 23 section (2):

Recommendation is given after an investment has complied with the provisions of foreign worker employment in accordance with the provisions of labor laws and regulations.

(3) A foreign investor shall be granted the following facilities:

a. the granting of a non-permanent residence permit to a foreign investor for a period of 2 (two) years;

b. the granting of a change in the status of non-permanent residence permit to an investor into the status of permanent residence permit after the investor has resided in Indonesia for a period of 2 (two) consecutive years;

c. the granting of a multiple re-entry permit to the holder of non-permanent residence permit with a validity period of 1 (one) year for a period of not exceeding 12 (twelve) months counted from when the non-permanent residence permit is granted;

d. the granting of a multiple re-entry permit to the holder of non-permanent residence permit with a validity period of 2 (two) years for a period of not exceeding 24 (twenty-four) months counted from when the non-permanent residence permit is granted; and

e. the granting of a multiple re-entry permit to the holder of permanent residence permit for a period of not exceeding 24 (twenty four) months counted from when the permanent residence permit is granted.

(4) A non-permanent residence permit for a foreign investor as intended by section (3) item a and item b shall be granted by the Directorate General of Immigration on the recommendation of the Investment Coordinating Board.

Article 24

Simplified services and/or permission in connection with import permission facilities as intended by Article 21 item c may be granted for import of:

a. goods to the extent not against the provisions of laws and regulations that govern trading in goods;

b. goods that bear no negative impact on safety, security, health, the environment, and morals of the nation;

c. goods for the purpose of plant relocation from abroad to Indonesia; and

c. capital goods or raw materials for own production needs.

CHAPTER XI

COMPANY VALIDATION AND LICENSING

Article 25

(1) Investors who make investments in Indonesia must comply with the provisions of Article 5 of this Law.

(2) Validation of establishment of a domestic investment business entity in the form of a legal entity or nonlegal entity shall be made in accordance with provisions of laws and regulations.

(3) Validation of establishment of a foreign investment business entity in the form of a limited liability company shall be made in accordance with provisions of laws and regulations.

(4) An investment company to carry out business activities must obtain a license/permit in accordance with provisions of laws and regulations from an authorized agency, unless provided otherwise by law.

(5) A license/permit as intended by section (4) shall be obtained through one-stop integrated services.

Article 26

(1) One-stop integrated services are aimed at helping investors have access to simplified services, fiscal facilities, and information on investments.

(2) One-stop integrated services shall be carried out by an authorized investment institution or agency that has assumed delegation or assignment of authority from an institution or agency authorized in licensing and non-licensing at the central level, or from an institution or agency authorized to issue a license or non-license in provinces or districts/cities.

(3) Provisions concerning procedures and implementation of one-stop integrated services as intended by section (2) shall be regulated by Regulation of the President.

CHAPTER XII

COORDINATION AND IMPLEMENTATION OF INVESTMENT POLICIES

Article 27

(1) The Government shall coordinate investment policies amongst the Governmental agencies, between the Governmental agencies and Bank Indonesia, between the Governmental agencies and the regional governments, and amongst the regional governments.

(2) Coordination of the implementation of investment policies as intended by section (1) shall be made by the Investment Coordinating Board.

(3) The Investment Coordinating Board as intended by section (2) shall be led by a head and shall be directly responsible to the President.

Elucidation of Article 27 section (3):

“Directly responsible to the President” means that the Investment Coordinating Board, in the performance of its duties, assumes functions and takes direct responsibility to the President.

(4) The Head of the Investment Coordinating Board as intended by section (3) shall be appointed and dismissed by the President.

Article 28

(1) In regard to coordination of the implementation of investment policies and services, the Investment Coordinating Board shall have the following duties and functions:

a. to perform duties and coordinate the implementation of investment policies;

b. to study and propose investment service policies;

c. to establish values, standards and procedures for the implementation of investment activities and services;

Elucidation of Article 28 section (1) subsection c:

In regard to establishment of values, standards and procedures, the Investment Coordinating Board coordinates with the relevant departments/agencies.

d. to enhance investment opportunities and potentials in regions by empowering business entities;

e. to make an Indonesian investment map;

f. to promote investments;

g. to enhance investment business sectors through investment guidance, by, inter alia, increasing partnership, increasing competitiveness, creating fair business competition, and disseminating as widely as possible information on the conduct of investment activities;

h. to help contain various obstacles and give consultation on problems investors face in the conduct of investments.

i. to coordinate domestic investors that conduct their investment activities outside the territory of Indonesia; and

j. to coordinate and implement one-stop integrated services.

(2) In addition to coordinating duties as intended by Article 27 section (2), the Investment Coordinating Board shall have a duty to perform investment services based on provisions of laws and regulations.

Article 29

In the performance of its duties and functions as well as one-stop integrated services, the Investment Coordinating Board must directly involve the representatives from every sector and relevant regions together with the competent and authorized officials.

CHAPTER XIII

ADMINISTRATION OF INVESTMENT AFFAIRS

Article 30

(1) The Government and/or the regional governments shall ensure the business certainty and security in the conduct of investments.

(2) The regional governments shall administer investment affairs that fall under their authority, except for the administration of investment affairs that become the Government’s affairs.

(3) Administration of the governing affairs in the field of investment which is mandatory affairs of the regional governments shall be based on the criteria of externality, accountability, and efficiency in carrying out investment activities.

(4) The conduct of investments the scope of which is across provinces shall become the Government’s affairs.

(5) The conduct of investments the scope of which is across districts/cities shall become the provincial government’s affairs.

(6) The conduct of investments the scope of which is within one district/city shall become the district/city government’s affairs.

(7) The governing affairs that become the power of the Government in the field of investment shall be:

a. investments related to nonrenewable natural resources with a level of high environmental damage risk;

b. investments in industries with national high priority scale;

c. investments linked to the functions of uniting and linking regions, or the scope of which is across provinces;

d. investments linked to the implementation of a national defense and security strategy;

e. foreign investments and investors that use foreign capital derived from the government of another country based on a treaty entered into by the Government and the government of another country; and

f. other investment fields that by law become the Government’s affairs.

(8) In regard to the governing affairs in the field of investment that become the power of the Government as intended by section (7), the Government shall administer itself, delegate it to the governor in his/her capacity as the representative of the Government, or assign the district/city government.

(9) Provisions on distribution of the governing affairs in the field of investment shall be regulated further by Regulation of the Government.

CHAPTER XIV

SPECIAL ECONOMIC ZONES

Article 31

(1) To expedite economic enhancement in specified regions that are strategic for national economic development, and to maintain a balance of advancement of a region, a special economic zone may be established and developed.

(2) The Government shall have the power to establish separate investment policies for special economic zones.

(3) Provisions on special economic zones as intended by section (1) shall be governed by law.

CHAPTER XV

DISPUTE SETTLEMENTS

Article 32

(1) Where an investment dispute arises between the Government and an investor, then such parties shall first settle the dispute through deliberation to reach a consensus.

(2) Where a dispute settlement as intended by section (1) fails, such a dispute settlement may be made through arbitration or alternative dispute resolution or a court of law in accordance with provisions of laws and regulations.

(3) Where an investment dispute arises between the Government and a domestic investor, then such parties may go to arbitration for settlement based on an agreement of the parties, and if a dispute settlement through arbitration is not agreed on, then the dispute settlement shall be made in a court of law.

(4) Where an investment dispute arises between the Government and a foreign investor, then such parties shall settle the dispute through international arbitration that must be agreed on by the parties.

CHAPTER XVI

SANCTIONS

Article 33

(1) Domestic investors and foreign investors who make investments in the form of a limited liability company are prohibited from entering into an agreement and/or making a statement asserting that share ownership in a limited liability company is for and in the name of another person.

Elucidation of Article 33 section(1):

The purpose of this section is to prevent a situation where a company is formally owned by a person, but in actuality or in substance the owner of the company is someone else.

(2) Where a domestic investor and a foreign investor enter into an agreement and/or make a statement as intended by section (1), such an agreement and/or statement is declared to be void by operation of law.

(3) Where an investor who carries out business activities by virtue of an agreement or a cooperation contract with the Government has committed corporate crimes in the forms of criminal tax offense, recovery cost markup, and other forms of cost markup which diminish profits resulting in losses to the state upon findings or audits by authorized officials, and who has obtained a final and binding court decision, the Government shall terminate the agreement or the cooperation contract with the investor concerned.

Elucidation of Article 33 section(3):

“Criminal tax offense” means information regarding reports in connection with tax collection by submission of tax returns, the content of which is untrue or incomplete, or appending false statements that may lead to the state’s loss and other crimes as provided for by the laws governing taxation.

“Recovery cost markup” means an expense incurred in advance by an investor, the amount of which is unreasonable and will subsequently be calculated as expenditure for investment activities at the time of determining the Government’s share.

“Findings by authorized officials” means findings with indications of criminal elements upon results of examination made by the Audit Board or other parties authorized to examine, after which the findings are followed up in accordance with laws and regulations.

Article 34

(1) Business entities or sole proprietorships as intended by Article 5 that fail to fulfill obligations as provided for by Article 15 may be imposed administrative sanctions in the form of:

a. a written warning;

b. a restriction of the business activity;

c. freezing of the business activity and/or investment facilities; or

d. closure of the business activity and/or investment facilities.

(2) Administrative sanctions as intended by section (1) shall be imposed by an authorized agency or institution in accordance with provisions of laws and regulations.

(3) In addition to administrative sanctions, business entities or sole proprietorships may be imposed other sanctions in accordance with provisions of laws and regulations.

CHAPTER XVII

TRANSITIONAL PROVISIONS

Article 35

International treaties on investments, whether bilateral, regional, or multilateral, the Government of Indonesia has signed before this Law is in effect shall remain to be valid until the treaties have expired.

Article 36

Draft international treaties on investments, whether bilateral, regional, or multilateral, the Government of Indonesia has not yet signed at the time this Law is in effect must be adjusted to the provisions of this Law.

Article 37

(1) At the time this Law is in effect, all provisions of laws and regulations that constitute implementing regulations of Law Number 1 of 1967 concerning Foreign Investments, as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967 concerning Foreign Investments, and Law Number 6 of 1968 concerning Domestic Investments, as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments, are declared to remain valid to the extent not in conflict with and not yet regulated by new implementing regulations under this Law.

(2) Investment approval and operating permits the Government has granted under Law Number 1 of 1967 concerning Foreign Investments, as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967 concerning Foreign Investments, and Law Number 6 of 1968 concerning Domestic Investments, as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments, are declared to remain valid until the investment agreement and the operating permit have expired.

(3) Applications for investments and other applications with respect to investments that have been filed with the authorized agencies, and on the date this Law is ratified have not yet obtained Government approval, must be adjusted to the provisions of this Law.

(4) Investment companies that have been granted a business permit by the Government under Law Number 1 of 1967 concerning Foreign Investments, as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967, and Law Number 6 of 1968 concerning Domestic Investments, as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments, and the permanent business permit of which has expired, may be granted extension under this Law.

CHAPTER XVIII

CONCLUDING PROVISIONS

Article 38

Upon the effectiveness of this Law:

a. Law Number 1 of 1967 concerning Foreign Investments (State Gazette of the Republic of Indonesia Number 1 of 1967, Supplement to State Gazette of the Republic of Indonesia Number 2818), as amended by Law Number 11 of 1970 concerning Amendments and Supplement to Law Number 1 of 1967 (State Gazette of the Republic of Indonesia Number 46 of 1970, Supplement to State Gazette of the Republic of Indonesia Number 2943); and

b. Law Number 6 of 1968 concerning Domestic Investments (State Gazette of the Republic of Indonesia Number 33 of 1968, Supplement to State Gazette of the Republic of Indonesia Number 2853), as amended by Law Number 12 of 1970 concerning Amendments and Supplement to Law Number 6 of 1968 concerning Domestic Investments (State Gazette of the Republic of Indonesia Number 47 of 1970, Supplement to State Gazette of the Republic of Indonesia Number 2944),

are revoked and declared to no longer be valid.

Article 39

All provisions of laws and regulations that are directly related to investments must be founded on and adjusted to this Law.

Article 40

This Law shall take effect from the date it is promulgated.

In order that every person may know of it, the promulgation of this Law is ordered by placement in the State Gazette of the Republic of Indonesia.

Ratified in Jakarta

on April 26, 2007

PRESIDENT OF THE REPUBLIC OF INDONESIA

sgd.

DR. H. SUSILO BAMBANG YUDHOYONO

Promulgated in Jakarta

on April 26, 2007

MINISTER OF LAW AND HUMAN RIGHTS OF THE REPUBLIC OF INDONESIA

sgd.

HAMID AWALUDIN

STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 67 OF 2007

SUPPLEMENT TO STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 4724.