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Investing in the New Capital – What should investors know? (Indonesia)

NO&T Asia Legal Review

*Please note that this newsletter is for informational purposes only and does not constitute legal advice. In addition, it is based on information as of its date of publication and does not reflect information after such date. In particular, please also note that preliminary reports in this newsletter may differ from current interpretations and practice depending on the nature of the report.


After the announcement of capital relocation plan from Jakarta to Ibu Kota Nusantara (“IKN”), the government has explained that the total estimated cost for the relocation will be around IDR 460trillion (approximately USD 30billion). It is expected that 20% of the total cost will be funded by state budget and the remaining 80% will be sourced from investment, either investment fully made by investors or through a public private partnership between investors and the government.

To create the legal basis for the acceleration of development of IKN, the government has issued Government Regulation No. 12 of 2023 on the Granting of Business License, Ease of Doing Business, and Investment Incentives for Business Actors in IKN (“GR 12/2023”). The GR 12/2023 is not only addressed to business actors that engage in business within the IKN, but also for investors that engage in business activities within certain regions of Kalimantan Island as part of the IKN economic superhub (“Partner Regions”). The list of Partner Regions will be later determined by the Head of IKN Authority.

Business License for Business Actors conducting business within the IKN and Partner Regions

Article 2 of the GR 12/2023 provides that any business actors that wish to engage in business within IKN and/or Partner Regions must obtain business license from the IKN Authority. To obtain such business license, business actors are first required to (i) fulfil basic licensing requirements, and (ii) secure sectoral business license.

Fulfilment of basic licensing requirement shall include:

  • 1. Conformity of spatial utilization activity, specifically, evidence of the conformity of business locations with the spatial plan of IKN;
  • 2. Environmental approvals, which refer to the Environmental Impact Analysis of IKN; and
  • 3. Building approvals and building worthiness certificate, which are issued for certain periods upon the fulfilment of 1. and 2. above.

After obtaining the basic licensing requirement, the business actor shall apply for sectoral business license depending on the line of business conducted, namely:

  • 1. Marine and fisheries;
  • 2. Agriculture;
  • 3. Environment and forestry;
  • 4. Energy and mineral resources;
  • 5. Nuclear power;
  • 6. Industry;
  • 7. Trade;
  • 8. Public works and housing;
  • 9. Transportation;
  • 10. Health, medicines, and food;
  • 11. Education and culture;
  • 12. Tourism;
  • 13. Religion;
  • 14. Postal service, telecommunication, broadcasting and electronic systems and transactions;
  • 15. Defense and security;
  • 16. Manpower;
  • 17. Finance; and
  • 18. Other priority sectors as determined by the IKN Authority.

After securing the sectoral license, business actors shall apply for the IKN Business License through the OSS System. The IKN Authority will verify all submitted documents. Once all documents and applications are approved, the IKN Authority will issue the IKN Business License to the relevant business actor.

One benefit for investors under Article 5 of GR 12/2023 is foreign ownership restriction under the relevant laws and regulations shall not be applicable to businesses conducted within IKN and Partner Regions, hence all line of businesses are open for foreign investment in the IKN and Partner Regions.

Ease of Doing Business

Ease of doing business measures introduced by the government and the IKN Authority for business actors conducting business within the IKN and Partner Regions include the granting of land rights and utilization of foreign workers.

Under GR 12/2023, investors can be granted land rights in the form of (i) right to build certificate (“HGB”), (ii) right to cultivate certificate (“HGU”), or (iii) right to use certificate (“HP”), depending on the purpose of utilization.

The HGU can be granted for a maximum of 35 years, which can be extended and renewed for maximum 25 years and 35 years, respectively. While the HGB and HP can be granted for maximum 30 years, which can be extended and renewed for maximum 20 years and 25 years, respectively. However, different from common practice where the extension and renewal are given immediately before the expiry, the land rights within the IKN and Partner Regions can be granted at one time, provided that such plot of land has been utilized for the period of 5 years. For example: A landowner is granted HGB for a period of 30 years. After 5 years of utilization, such landowner may directly apply for extension and renewal simultaneously so that the total validity of HGB is 80 years (“First Cycle of Land Rights”). Before the expiry of First Cycle of Land Rights, the landowner may apply for the second cycle of land rights for another maximum 80-year period. The land rights granted within the IKN and/or Partner Regions are transferrable and can be mortgaged.

In addition to the benefit related to the validity of land rights, the GR 12/2023 also stipulates that there will be no fees or taxes relating to land rights acquisition in connection with grant and transfer of land rights within the IKN and/or Partner Regions.

With respect to the utilization of foreign workers, companies which are carrying out business activities within the IKN are allowed to employ foreign workers and will be exempted from the obligation to pay the compensation funds for the use of foreign workers for a certain period. The validity of foreign workers employment plan (RPTKA) is given for the period of 10 years and can be extended. The foreign workers can also be granted residency permits for a maximum period of 10 years which can be extended depending on the employment agreement between the foreign worker and the employer.

Investment Facilities

Additionally, the government will provide investment facilities especially related to taxation matters. For example, with respect to corporate income tax (“CIT”), the government has reduced the CIT for domestic taxpayers and for the establishment and/or transfer of head offices and/or regional offices, as well as income tax from salary received by the employees working and living at the IKN will also be exempted. In addition, the government will not collect value added tax within the IKN and exempt luxury goods sales tax (PPnBM) for release of taxable goods.

Current Updates and Conclusion

The development of IKN has been conducted with an initial focus on building the presidential palace, toll roads, and housing for civil servants. The President aims that the first stage of the development of IKN will be completed by 2024, by which time the construction of major buildings such as presidential palace, ministerial offices, and housing for ministers would be completed and ready to use.

Through the issuance of GR 12/2023, the government has provided the legal basis to facilitate the development of IKN through private investment, either investment fully made by investors or through a public private partnership between investors and the government. In order to attract investment from foreign investors in the development of the IKN, the guideline introduces special treatment and relaxations which would not be available if such investors carry out business outside of the IKN or Partner Regions.

This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.

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