GASIFICATION TECHNOLOGIES CONFERENCE 2015 INDONESIA-CURRENT OUTLOOK FOR FOREIGN INVESTMENT Richard Cant-North American Director October 12 th, 2015 www.dezshira.com
About Dezan Shira & Associates We are a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinational companies investing in Asia. The firm was founded in 1992 in Hong Kong. A founding member of the Leading Edge Alliance of Global Auditors, we won its the highest accolade Most Innovative Firm of the Year award in 2012. Dezan Shira & Associates has served clients from over 80 countries. October 2015 www.dezshira.com 2
Dezan Shira & Associates Services Pre-Investment and Entry Strategy Advisory Payroll and HR Service Corporate and Tax Structuring Tax and Compliance ERP and Financial System Advisory Treasury Administration Accounting and Reporting Audit, Financial Review, and Due Diligence October 2015 www.dezshira.com 3
Our Global Presence Offices across China, Hong Kong, India, Singapore, and Vietnam. Liaison offices in Germany, Italy, and the United States. Dezan Shira Asian Alliance offices in Indonesia, Malaysia, the Philippines, and Thailand October 2015 www.dezshira.com 4
I N D O N E S I A CURRENT OUTLOOK FOR FOREIGN INVESTMENT
Overview With population total 254.5 million (World Bank, 2014) multicultural Indonesia has over 300 local languages, and its various peoples cultural identities have developed over centuries of interaction with Arabic, Chinese, Indian, and European settlers. Nearly twenty thousand islands covering a huge expanse. Indonesia is ASEAN s largest economy, with its $889 billion GDP in 2014 representing close to 40% of ASEAN s total. The Indonesian economy was ranked 16 th in the world in 2014, politically sound and as the only permanent SEA member of the G20, well positioned to influence global and regional initiatives. Indonesia has a diversified trading economy. Oil and gas is the country s largest export category, followed by coal (and other mining products), palm oil, agricultural products, electrical machinery and equipment, minerals and fish. October 2015 www.dezshira.com 6
ASEAN ASEAN MEMBERS COUNTRIES The Association of Southeast Asian Nations (ASEAN), was established in 1967 in Thailand with the signing of the ASEAN Declaration (Bangkok Declaration) by Indonesia, Malaysia, the Philippines, Singapore and Thailand. October 2015 www.dezshira.com 7
ASEAN Comprises of 10 Asian Countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Free Trade Zone of 600 million people, with zero tariffs on all products and services by 2015. GDP: USD 1.8Trillion (2011 est.) ASEAN FTA by 2015, creates a market in total of 3.8 billion consumers, including 700 million of middle class standard ASEAN has FTA s with Australia, India, New Zealand, China, Japan and South Korea Impact of Trans Pacific Partnership (TPP) Impact of Asian Infrastructure Investment Bank 2015/10/21 www.dezshira.com 8
ASEAN October 2015 www.dezshira.com 9
INVESTMENT CLIMATE
Investment Climate Indonesia at a crossroads Over reliance on resources & energy sector Over reliance on China both for FDI and resource exports Often ambivalence to foreign investors Persistent signs of overt protectionism New president in 2014 led to high expectations for reform and major infrastructure investment. Not entirely being borne out New streamlined process for FDI-one stop approvals In August 2015, new tax incentives for FDI announced Proposed significant cut to corporate tax rate (25% to 18%) for 2016?
Investment Climate 2015/10/21 www.dezshira.com 12
Investment Climate Big investment in coal fired power plants Infrastructure and other transportation projects Celanese Indonesia USD 2.5b gasification project announced in 2013 (???) Mitsui announces in 2015 a number of potential gasification investments in partnership with Indonesian & foreign investors IHI Corporation gasification pilot plant commenced in 2015 A number of local ethanol & fertilizer gasification projects have been proposed 2015/10/21 www.dezshira.com 13
ECONOMIC UPDATE
Economic Snapshot Nominal GDP USD870 billion GDP growth 2015 4.7% (est) GDP per capita USD 3,500 (approx) Inflation 6.83% (Sept 2015) Currency IDR 14,500 (devaluing sharply against USD in 2015) Ease of Doing Business 114 th out of 180 (World Bank)
Economic Overview Indonesia Gross Domestic Product (GDP) was worth US$889 billion in 2014, and has represents 1.43% of the world economy. About 50% of ASEAN October 2015 www.dezshira.com 16
Investment Destination October 2015 www.dezshira.com 17
Economic Growth of Indonesia Percentage 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Growth Percentage 6.5% 6.1% 6.23% 5.58% 5.02% 5.20% 2010 2011 2012 2013 2014 2015 Year 2015/10/21 www.dezshira.com 18
Economic Activities Economic Activities 2014 Financial, Ownership, & Business Services Transportation & 7.65% Communication 7.39% Services 10.98% Trade, Hotel, & Restaurant 14.60% Agriculture, Livestock, Forestry, & Fishery 14.33% Construction 10.05% Electricity, Gas, & Water Supply 0.80% Manufacturing Industry 23.71% Mining & Quarrying 10.49% Source: Central Statistic Bureau, Economic Growth Research 2014
Foreign Investment
New Negative List 2014 In 2014 the government has updated the List of Business fields which are closed for Investments, known as the Investment Negative List. The Investment Negative List provides list of certain business fields that are open with certain requirements, including the maximum foreign shareholding percentage in the company carrying activities in such business field. Business sectors that are not specifically mentioned are completely open to foreigners. This is a major change as the opposite was the case Investment regime more difficult Trend towards better conditions for ASEAN investors Significant tightening of investment rules for resources & energy sector Unaffected by changes retail, banking & finance Areas made easier to invest pharma, broadcasting, healthcare, electricity generation
New Negative List Energy, Resources & Trade Import and distribution as main distributors (now 33%, previously 100%); Storage, warehousing (now 33%, previously 100%); Data communication system services (now 49%, previously 95%); Content services and call centres and other value added telephony services now have a specific maximum foreign capital ownership of 49%; Internet interconnection services (network access point) (now 49%, previously 65% Power plants 1-10 MW (now have a specific maximum foreign capital ownership of 49%, rather than being categorized as requiring a partnership (without a specific maximum foreign capital ownership level, but deemed as permitting up to 100% foreign ownership); Offshore oil and gas drilling (now 75%, previously 95%); 2015/10/21 www.dezshira.com 22
New Negative List Energy & Resources sectors that now confirmed closed Onshore/on land oil and gas drilling (now closed, previously 95%); Oil and gas well operation and maintenance (now closed, previously not specifically regulated); Oil and gas design and engineering service (now closed, previously not specifically regulated); Electricity utilization and installation (now closed, previously 95%); Installation of offshore oil and gas upstream production (now closed, previously unregulated); Onshore pipe line installation for oil and gas (now closed, previously unregulated); Installation of onshore oil and gas storage and marketing (now closed, previously unregulated); Inspection and testing of electrical power installations (now closed, previously unregulated); Oil and gas technical inspection service (now closed, previously unregulated); 2015/10/21 www.dezshira.com 23
Investment Structures Representative Office There are two types of Representative Offices which can be incorporated in Indonesia, namely: Foreign Company Representative Office Foreign Company Trade Representative Office An RO cannot conduct the following activities: Participate in managing the foreign company, its subsidiary, or its branches in Indonesia. Generate revenues in Indonesia. Engage in any agreement or sale and/or purchase transaction of goods and services with an Indonesian company or Indonesian nationals. There are no minimum financial investment requirements to set up an RO. 2015/10/21 www.dezshira.com 24
Investment Structures Limited Liability Company (Perseroan Terbatas / PT) The most common form of legal entity used for foreign investment into Indonesia. Shareholders have limited liability. A PT company formed with a foreign shareholder in accordance with the requirements of the Foreign Investment Law is referred to as a Foreign Capital Investment, or Penanaman Modal Asing (PMA), company. Can be fully owned by foreign shareholders or exist as a joint venture between local and foreign shareholders. A joint venture PT is also referred to as a PMA company. Any PT with a domestic investment status from the BKPM will be categorized as a Domestic Capital Investment, or Penanaman Modal Dalam Negeri (PMDN), company. Minimum capital investment requirement of US$100,000. 2015/10/21 www.dezshira.com 25
Foreign Investment Market Challenges Investment climate getting more difficult Complex bureaucratic & regulatory environment Time consuming to enter market (Note: One stop effectiveness unknown) Deregulation has successfully reduced some barriers, but non-tariff barriers remain wide-spread and the bureaucracy can still be cumbersome. Laws are often opaque or conflicting. Uncertain tax system often arbitrarily enforced. Corruption is still an issue. Indonesia ranked 107th on Transparency International s Corruption Perceptions Index 2014 having moved up 7 spots from 2013. Competition from 3rd country firms such as Singapore, China, Japan, Australia, Korea, and other regional players is intense. Very difficult labor market. Asia s most difficult labor regulations Lack of infrastructure 2015/10/21 www.dezshira.com 26
Taxes Corporate Income Tax 25% (Note: Rate to be lowered to 17.5/18% in 2016) Indirect Tax 10% VAT on all goods, services & imports Individual Income Tax up to 30% 2015/10/21 www.dezshira.com 27
Taxes A. Tax Holiday Priorities are given to five business sectors : basic metals industry, petroleum refinery industry, basic organic chemicals industry derived from petroleum and natural gas, machinery industry, renewable resources industry and telecommunications industry The maximum length was recently extended to 20 years B. Tax Allowance TA is aimed at boosting downstream investment. Around 129 business sectors are eligible to this incentive, including infrastructure and renewable energy C. Special Economic Zones Indonesia possesses a number of Special Economic Zones (SEZ) that offer tax incentives and negate the need to pay VAT on imports into the zone. These are useful structures when considering an export manufacturing base in the country as they can attract tax incentives. October 2015 www.dezshira.com 28
Dezan Shira & Associates Dezan Shira & Associates Your Partner for Growth in Asia Gasification Technologies Conference 2015 Presenter: Richard Cant Contact: richard.cant@dezshira.com October 2015 www.dezshira.com/de 29