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Indonesia: Compliance vs Regulations - A Delicate Balance for Foreign Investment Companies

In today’s business landscape, compliance with regulations is a critical issue for foreign investment companies operating in Indonesia. As international organizations, these companies are required to not only comply with the laws and regulations of their parent company’s country of origin but also with relevant Indonesian laws and regulations.

Compliance Requirements for Foreign Investment Companies

Under the Capital Investment Coordinating Board (BKPM), which supervises all foreign investment activities in Indonesia, foreign investment companies are subject to stricter scrutiny than wholly owned Indonesian companies. To operate in the country, foreign investment companies must obtain BKPM approval for certain actions such as:

• Share transfers
• Capital increases
• Business expansions

Reporting Requirements

Furthermore, these companies must submit an investment activities report to the BKPM on a quarterly or semi-annual basis, depending on their business status. The report provides insight into the company’s operations and financial performance in Indonesia.

Laws and Regulations Governing Compliance

However, there is no single legal instrument governing compliance in Indonesia. Instead, various laws and regulations contain provisions on compliance. For instance:

• Article 4 of Law No. 40 of 2007 regarding Limited Liability Companies stipulates that companies must comply with the Articles of Association or bylaws of such companies as well as other applicable Indonesian laws and regulations.
• Article 15 of Law No. 25 of 2007 regarding Investment sets forth requirements for companies operating in Indonesia, including:
  • Implementing good corporate governance principles
  • Carrying out corporate social responsibility programs
  • Honoring cultural traditions

Audit Committee Guidelines

The Capital Market Supervisory Board (Bapepam), now carried out by the Financial Services Authority (OJK), has also issued guidelines on the formation of audit committees by listed companies. The audit committee is responsible for reviewing a company’s compliance with relevant laws and regulations.

Good Corporate Governance Principles

Good corporate governance principles are another key aspect of compliance in Indonesia. While there is no single legally binding instrument, the National Committee of Governance Policy (KNKG) has issued general guidance on Indonesian good corporate governance principles.

Challenges for Foreign Investment Companies

However, the absence of a unified legal instrument listing all compliance obligations for companies in Indonesia means that businesses must identify and adhere to relevant regulations themselves. This can be a challenging task, especially for foreign investment companies without extensive knowledge of Indonesian laws and regulations.

Conclusion

In conclusion, compliance with regulations is a critical issue for foreign investment companies operating in Indonesia. While there are various laws and regulations governing compliance, the lack of a single legal instrument means that businesses must navigate these complexities themselves. Understanding the different requirements and obligations can be challenging, but it is essential for companies to ensure they are complying with relevant laws and regulations to avoid potential penalties and reputational damage.

Contact Information

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