Most private parties engaging in mining business activities in Indonesia do so in the form of a limited liability company. In respect of foreign investment, Law 25/2007 requires a joint venture company to be established in the form of a limited liability company.
Local Entity Requirements
A foreign investment company carrying out mining exploration activities can be 100 percent foreign-owned at its establishment, subject to a divestment requirement as stipulated in Law 4/2009 on Coal and Mineral Mining (Law 4/2009). Government Regulation 23/2010 provides that operation production mining permit (IUP) and special mining permit (IUPK) holders must begin to divest the shares owned by foreign shareholders after five years of production, so that by the 10th year of production 51 percent of the shares are held by Indonesian participants.
Based on article 6(3) of the draft Amendment to Law 4/2009, the central government will set foreign ownership limitations for foreign investment companies engaging in mining business activities. This may be an indication of the government’s intention to limit foreign ownership in mining companies from the outset in addition to the divestment obligation for foreign investment mining companies.
Bilateral Investment and Tax Treaties
The government has entered into bilateral investment treaties with many countries and the investment structure or cooperation arrangement between the government and its partners may vary from one treaty to another. Nevertheless, the government has entered into a number of bilateral investment treaties with the countries of origin of mining investors in Indonesia (eg, India, Australia and South Korea) and these generally contain similar provisions.
This first appeared in the Lexology GTDT Mining 2020 global guide. You can find the full chapter here.
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