M&A from an Indonesian regulatory perspective

May 2025  |  SPECIAL REPORT: MERGERS & ACQUISITIONS

Financier Worldwide Magazine

May 2025 Issue

Merger and acquisition (M&A) transactions in Indonesia are primarily governed by Law No. 40 of 2007 on Limited Liability Companies as amended most recently by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (Company Law). However, additional requirements and provisions may apply depending on whether a transaction involves foreign entities or is conducted within a specific business sector. Additionally, if the transaction meets certain criteria, merger control requirements may also apply and the Indonesia Competition Commission (KPPU) must be notified. Furthermore, the recently enacted Law No. 27 of 2022 on Personal Data Protection (PDP) reflects growing recognition of the paramount importance of personal data, thereby imposing novel requirements on M&A in Indonesia.

Permitted foreign shareholding composition

Investment activities in Indonesia are primarily governed by Law No. 25 of 2007 on Investment, as amended most recently by Law No. 6 of 2023 (Investment Law). The Investment Law has stated that all business fields are open for investment activities, as stipulated in article 12 paragraph 1 of the Investment Law. However, there are some exemptions, such as business activities declared closed or reserved by the central government, including the production of weapons, ammunition, explosive devices, and war equipment, narcotics, gambling and casinos, as well as other business sectors explicitly declared closed by law. Prior to 2021, the regulatory framework governing foreign investment in Indonesia was quite stringent. However, in response to the government’s strategic initiative to stimulate foreign investment, the regulatory framework has undergone revision.

Currently, the list of sectors open to foreign investment is further regulated under Presidential Regulation No. 10 of 2021 on Investment Business Fields, as amended by the Presidential Regulation No. 49 of 2021 (PR 10/2021). Most business fields are generally open for foreign investment unless they fall into allocated categories or must be carried out through partnerships between cooperatives and micro small and medium enterprises, and business fields that are either closed or conditionally open to foreign investment. Additionally, certain specific sectors (primarily those under the Bank of Indonesia (BI) or the Financial Services Authority Services (OJK)) have more stringent requirements for prospective shareholders, including the need to pass a fit and proper test. Furthermore, BI’s regulation specifically stipulates that certain minimum percentages of voting rights and a veto right must be held by Indonesian shareholders for payment services providers or payment system infrastructure providers.

It is imperative for an investor to thoroughly examine local laws and regulations prior to making a decision to invest in a particular company. The primary reason for this is to ascertain whether holding shares in such a company is prohibited.

Regulations for specific industries

Specific regulations, such as those under the BI and OJK, have more stringent requirements. This also applies to M&A procedures. Therefore, if an investor intends to invest in companies under the BI or OJK, certain procedures will apply in addition to the general M&A procedures regulated under the Company Law. In general, investors need to obtain approval from either the BI or OJK before they can proceed with the transaction. Prospective shareholders also need to pass a fit and proper test conducted by the BI or OJK. One of the criteria for passing a fit and proper test is maintaining a sound financial condition. In most cases, the OJK may also require shareholders to sign a statement affirming that the funds to be invested are not sourced from a bank facility (or loan) and are not derived from money laundering or terrorism activities.

Merger control

Similar to regulations in foreign jurisdictions, M&A transactions in Indonesia that meet certain thresholds also need to be notified to the Indonesian Business Competition Supervisory Commission (KPPU). The primary regulation governing this is Law No. 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition, as amended by Law No. 6 of 2023. This law was further supplemented by Government Regulation No. 57 of 2010 on Merger or Consolidation of Business Entities and Acquisition of Shares of Companies that May Result in Monopolistic Practices and Unfair Business Competition, and KPPU Regulation No. 3 of 2023 on Assessment of Merger or Consolidation or Acquisition of Shares and/or Assets That May Result in the Occurrence of Monopolistic Practices and/or Unfair Business Competition – collectively referred to as Competition Law. This requirement also applies to asset acquisition transactions.

The Competition Law mandates that M&A transactions, including asset acquisition transactions, that meet certain thresholds must be notified to the KPPU after the transaction becomes legally effective. The thresholds for reporting are: (i) meeting the threshold for combined Indonesian asset value (exceeding US$151m or approximately US$1.2bn for banking sectors) and/or combined Indonesian sales value (exceeding approximately US$302m; (ii) resulting in a change of control; (iii) not constituting a transaction between affiliated business entities; and (iv) involving business entities that have assets or generate sales in Indonesia. For asset transactions, reporting is required if:  (i) the transaction results in an increase in the acquiring business’ ability to control a certain market; and (ii) the transaction is not classified as an exempted acquisition of asset, i.e., a non-bank asset transfer transaction valued at approximately US$15.1m, a bank asset transfer transaction valued at approximately US$151m, the transfer is conducted in the ordinary course of business, or the assets have no relationship with the business activities of the acquiring party.

A fee must be paid by the notifying party to the KPPU, calculated based on the lower of the assets or the sales value. Failure to submit notification will result in fines ranging from 1bn rupiah per day of late reporting, with a maximum cap of 25bn rupiah.

Personal data protection

Following implementation of the PDP Law, a new M&A requirement has been introduced for parties that assume the role of personal data controller under the PDP Law’s definition. The PDP Law mandates personal data controllers (entities responsible for managing personal data) to provide notification to the relevant personal data subjects (individuals who own the data) both prior to and following the M&A transaction. This notification can be communicated directly to the personal data subjects or indirectly through public announcements, which may be made through mass media platforms, both electronic and non-electronic. Failure to comply with this requirement may be subject to administrative sanctions.

Global minimum tax

As a member of the G20, Indonesia recently issued global minimum tax (GMT) regulations under Minister of Finance Regulation No. 136 of 2024 concerning the Imposition of a Global Minimum Tax Based on International Agreements (PMK 136). Generally, the requirements under this regulation will be applicable to entities that are part of a multinational enterprise group maintaining a permanent establishment in another country or jurisdiction, with a minimum annual gross turnover of €750m per year based on consolidated financial statements, and the gross turnover threshold met in two out of four fiscal years preceding the effective fiscal year of Global Base Erosion (GloBE) rules. If the effective tax rate imposed on entities within this multinational group falls below the GloBE minimum tax of 15 percent, these entities will be subject to an additional tax to reach the GloBE minimum tax threshold.

Although this regulation is not directly related to M&A transactions, it is still important to ascertain whether the investors (and the target company) will be subject to GloBE regulations and requirements under PMK 136.

Commentary

To successfully execute an M&A transaction in Indonesia, investors, particularly foreign investors, must carefully consider several applicable laws and regulations. Specifically for foreign investors, the initial step involves reviewing the requirements outlined in the Investment Law and PR 10/2021 to ascertain whether direct investment in the target company is permitted or if specific mechanisms must be employed (e.g., convertible loan agreements, share financing agreements or other similar methods). Subsequently, investors must assess whether the target company is subject to stringent requirements under the BI or OJK. Finally, investors must ensure that the transaction is conducted in accordance with the Company Law and the PDP Law (for PDP controllers), and reported to the KPPU (if certain thresholds are met).

In the case of the GMT, if the acquisition will result in the target company becoming a subsidiary of a qualifying multinational entity group under PMK 136, the target company must ensure compliance with all requirements set forth under PMK 136 concerning GMT.

 

Freddy Karyadi is a partner at Protemus Capital. He can be contacted on +62 818 103 949 or by email: freddy.karyadi@protemus.id.

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BY

Freddy Karyadi

Protemus Capital

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