2016 is considered an exciting time for international investors and dealmakers to do business in Indonesia. After a slow M&A deal market in 2015, Indonesia is expected to revamp the market both in deal volume and value following a series of regulatory and policy reforms introduced by the current Presidential administration in 2016. M&A deals in Indonesia in 2015 were relatively low, with market intelligence firms, among others Deal Street Asia, reporting around US$1.5 to US$3.5 billion deal values that year. The value was significantly lower than in 2014 (around US$5 billion) and even more so compared to 2013 (around US$10 billion). From the macroeconomics perspective, the Chinese economic slowdown and the global commodity price crash, on which the majority of Indonesia’s export depended, have been pinned down as the main contributory factors.

Despite lower M&A deals, investment realisation in Indonesia constantly gains more traction. BKPM recorded that during 2015, investment realisation in Indonesia reached 545,4 trillion rupiah, or an increase of 17.77 per cent from 2014. From that number, foreign investment (PMA) comprised around 67 per cent. During Q-1 of 2016, investment realisation also reached 146.5 trillion rupiah, another increase of 17.6 per cent from Q-1 2015.

The government has moved double time to introduce policy programmes that investors have been longing for for years, under the auspices of the Economic Deregulation Packages (EDPs). The first EDP was launched in September 2015 and since then, there have been around 150 regulations that have been revised or are currently under review to support the objectives of these EDP reforms. The EDPs also address the issue of streamlining the business procedures and investment red tape Indonesia is infamous for. Indonesia’s investment coordinating board, the BKPM, has been in charge of coordinating and ensuring the fastest possible way for investors – as quickly as three hours – to facilitate their investments in the country.

More recent EDPs have brought about more optimism for Indonesia’s investment landscape. The 10th EDP in February 2016 is expected to revise the Indonesian Negative Investment List (which sets out the applicable limitations on foreign ownership in each business sector and industry), which amendment is contemplated under Presidential Regulation No. 44 of 2016. Under this new Regulation, the government opens up business sectors in various industries, with maximum foreign shareholding increased up to 100 per cent of shareholding, such as online marketplace commerce with investment value above 1 billion rupiah, raw materials for pharmaceutical industry, healthcare support services, F&B business and the film industry, which were previously closed to foreign investors or restricted in foreign equity stakes.

The latest 12th EDP, announced at the end of April 2016, specifically addresses the ranking of Indonesia in the World Bank’s Ease of Doing Business, focusing on simpler procedures for incorporating a company and acquiring basic licences. Finally, the government has also decided to strike down or revise more than 3,140 local regulations that are considered as commercial barriers to further boost Indonesia’s economy.


In general terms, the statutory framework for a combination of business through a limited liability company is set out in Law No. 40 of 2007 on the Limited Liability Company (Company Law) and various implementing regulations such as Government Regulation No. 27 of 1998 on Mergers, Consolidation and Acquisition of Limited Liability Companies.

In addition to the aforementioned ‘umbrella’ laws and regulations, the practice and procedure for implementing particular transactions must comply with other specific laws and regulations relating to the status or nature of the business of the target company, and is also regulated by specific bodies. For instance, banks, financial institutions and publicly listed companies are regulated by the Financial Service Authority (OJK). OJK is a body established by virtue of the Financial Authority Law (Law 21/2011) merging the authority previously held by the Capital Market and Financial Institution Supervisory Board or Bapepam-LK (Bapepam) and the bank oversight authority of the Central Bank (BI) to supervise all activities in the financial services industries under one agency. Further, companies with foreign share ownership are regulated by the Capital Investment Coordinating Board (BKPM); and for tax purposes, all companies are subject to the relevant M&A regulations of the Directorate General of Tax and OJK, which also regulate share custodian services and securities broker-dealers. In addition, for M&A in the insurance sector, companies are required to comply with the Insurance Law and its implementing regulations; for M&A in the broadcasting sector, companies are required to comply with the Broadcasting Law and its implementing regulations; and for M&A in the telecommunication sector, companies are required to comply with the Telecommunication Law and its implementing regulations, and other sector-specific regulations to govern the respective M&A in such industry.

In general, the requirements pertaining to M&A in Indonesia are as follows:

  • a announcement of an M&A proposal prepared by the acquirer and the target company or the merging companies, as the case may be, in newspapers;
  • b an extraordinary general meeting of shareholders (GMOS) of the target company or each of the merging companies (as the case may be) in which a quorum of at least 75 per cent of the total number of shares with voting rights are present (unless otherwise stipulated in a specific regulation), and in which approval is obtained from shareholders holding at least 75 per cent of the number of votes cast;
  • c approval from creditors in respect of the proposed M&A transaction and waiver of their rights for claims to be settled prior to the effectiveness of the merger or acquisition;
  • d a valuation of shares to determine the fair market value of the merger shares conversion formula;
  • e approval from third parties, including but not limited to, approval from third parties required by prevailing law as well as pursuant to agreements entered into by the companies involved;
  • f approval from the relevant agencies having jurisdiction over the merging or the acquired company or companies (e.g., OJK, BKPM and the Minister of Law and Human Rights); and
  • g consent from any relevant industry regulator, depending on the nature of target company’s business.

An M&A transaction involves different companies, which can potentially result in a conflict of interest among directors, commissioners, majority shareholders and affiliates. Thus, with regard to the acquisition of a public company, and to provide legal certainty and protection to the shareholders – particularly independent shareholders who have no conflict of interest in particular transactions – Bapepam (now OJK) issued an amendment to Rule No. IX.E.1 dated 25 November 2009. This Rule provides that a publicly listed company conducting an M&A transaction must appoint an institution registered at OJK to appraise the transaction. In the event that OJK finds a conflict of interest, the transaction will require approval by the independent shareholders through a vote at a GMOS. Another related regulation is Bapepam Rule No. IX.E.2, last revised on 28 November 2011. Rule IX.E.2 provides that disclosure of material transactions with a value of between 20 and 50 per cent of the public company’s equity must be published within two business days of signing the transaction documents; if the value exceeds 50 per cent, approval from the GMOS is also necessary. The Rule also requires the results of material business transactions and changes in core business to be reported to Bapepam within two working days of completion.

In the banking sector, banks are subject to Government Regulation No. 28 of 1999 regarding Merger, Consolidation and Acquisition of Banks. Indonesia has acknowledged the single-ownership principle of the Indonesian banking industry, known as the Single Presence Policy, a new rule that has just been enacted pursuant to BI Regulation No. 14/24/PBI/2012 on Single Presence Policy. Pursuant to this Policy, albeit only certain requirements and exceptions, a controlling shareholder of an Indonesian bank is allowed to be the controlling shareholder of only one bank. A controlling shareholder is defined as a legal entity, an individual or a business group that holds 25 per cent or more of a bank’s issued shares with voting rights, or holds less than 25 per cent of a bank’s issued shares with voting rights and exercises control over the bank either directly or indirectly. Bank Indonesia is planning to revise the regulation on bank ownership as well as the required licensing, but to date there is no exact time frame for when the regulation is to be released. Another important regulation of bank ownership is BI Regulation No. 14/8/PBI/2012 on Share Ownership of Commercial Bank. This sets out maximum share ownership over Indonesian banks, around 20 to 40 per cent, differentiated based on the specific nature of the shareholders (whether the shareholder is also a bank, financial institution or an individual), effective as of 1 January 2014. The rule allows ownership that exceeds such limit, subject to BI approval. Further, there is a specific requirement for prospective foreign investors to commit to the country’s economic growth, obtain approval from the authority of the respective country of origin and be subject to certain ratings set out by the Indonesian central bank. These two regulations are expected to promote mergers and consolidation in the banking sector.


In general, the developments in corporate and takeover laws aim to make the process more transparent, taking into consideration concerns of different stakeholders such as creditors, employees, minority shareholders and consumers, and within the framework of environmental protection and fair competition.

The government is concerned about maintaining fair competition among business players in Indonesia. Consequently, regulations governing fair trade practices are frequently issued or amended. In connection therewith, the Business Competition Supervisory Commission (KPPU) recently issued implementing regulations to the Antimonopoly Law, namely KPPU Rule No. 10 of 2010, Rule No. 11 of 2010 and Rule No. 13 of 2010, which govern the consultation and post-notification requirements for mergers, consolidations and acquisitions, along with guidelines that, inter alia, provide for scrutiny of contemplated M&A transactions. These rules were issued as the implementing regulations of Government Regulation No. 57 of 2010 on the Merger or Consolidation and Acquisition of Enterprise Share which may Result in Monopolistic Practices and Unfair Business Competition, which was recently issued by the government (see Section IX, infra).

In addition, Bapepam-LK issued two regulations on 31 May 2011: Rule No. IX.F.1 regarding Voluntary Tender Offers as an amendment to the previous Rule IX.F.1 dated 3 April 2002, and Rule IX.H.1 regarding Takeover of a Public Company as amendment to Rule IX.H.1, dated 30 June 2008. These rules set out separate procedures and requirements for a mandatory tender offer (MTO) (triggered by a takeover of a public company) and for a voluntary tender offer (VTO) (which can be in the form of a hostile takeover), and therefore the exercise of an MTO no longer refers to procedures under Rule IX.F.1.

The amendment of Rule IX.H.1 clarified several provisions deemed uncertain by market participants, while the amendment of Rule IX.F.1 harmonised the rule with the new procedures for mandatory tender offers that were drastically revised in 2008 by Rule IX.H.1. A significant change in Rule IX.F.1 includes the determination of a VTO price that is now in line with Rule IX.H.1. The new Rule IX.F.1 also incorporates procedures previously stipulated in Rule IX.F.2 regarding Guidelines on the Form and Content of a Tender Offer Statement, and Rule IX.F.3 regarding Guidelines on the Form and Content of Statement of a Target Company and Other Persons

OJK can grant an extension of the time period for a refloat of shares to a public company not only when a stock exchange is closed and trading has stopped, but also in the following circumstances: the Jakarta Composite Index in Stock Exchange is down more than 10 per cent in three consecutive days; the share value in refloat period is volatile or the refloat price is higher than the tender offer value (made by the public company previously); and the new controlling company has made efforts to conduct the refloat of shares, but has been unsuccessful.

Further, upon completion of the M&A deal of a public company, one must be aware of the rule concerning the submission of annual reports for public companies, pursuant to Bapepam Rule X.K.6, amended in August 2012. Pursuant to the amended Rule, a mandatory annual report must contain the identity of the ultimate shareholder, which therefore affects the structure of beneficial ownership of an Indonesian public company.


Foreign direct investment in Indonesia is regulated by Law No. 25 of 2007 on Capital Investment (Investment Law) and its implementing regulations issued by BKPM. As the appointed regulator of direct capital investment in Indonesia, BKPM has mainly focused on the efforts of the government to attract foreign investors and build an international economic environment.

Most recently in 2016, the government issued Presidential Regulation No. 44 of 2016, which determines what business sectors are open or closed for foreign investors and if open, to what extent FDI is permitted (Negative List). The Negative List is the first and most important regulation that any foreign investor contemplating investment in Indonesia should consult. If the business of the companies in the contemplated M&A falls under the list of business fields that are closed to foreign investment as provided in the Negative List, then the foreign investor cannot make investment in such business field in Indonesia. If the business falls under the list of business fields that are conditionally open for investment, however, then foreign investment in such business is permitted, but the contemplated M&A involving foreign investors will be limited to the level of foreign ownership of shares allowed in the Negative List. As a consequence of the involvement of foreign investors in an M&A transaction, the Indonesian company will be required to convert its status from a domestic company into a foreign investment company in the framework of the Investment Law.

The following are representative examples of general application of current Negative List provisions regarding foreign investment, which are also subject to other specific regulations:

  • a finance companies: maximum foreign ownership is 85 per cent;
  • b insurance: maximum foreign ownership is 80 per cent; and
  • c plantation: maximum foreign ownership is 95 per cent.

Most private foreign direct capital investments in Indonesia are administered and supervised by BKPM. Consequently, most matters relevant to M&A transactions must be reported to and will require approval of the chair of BKPM.

Public companies, on the other hand, are regulated by OJK. Unlike private companies, unless specifically provided under a separate regulation, publicly listed companies have no restriction on foreign ownership of shares if such investment involves foreign passive portfolio investors and not strategic or controlling foreign investors. Moreover, the provisions under the Negative List are not applicable to a public company whose shares are acquired by foreign investors in portfolio transactions made through the domestic capital market.


From an industry-specific perspective, Indonesia still relies substantially on the energy and mining sector, being a strong force in the oil and gas business and the world’s largest exporter of thermal coal. The rise of the middle class means rising consumer spending, and therefore consumer sectors such as retail, consumer goods, transportation (including aviation) and property are the main targets.

With the resource and commodity sector slowing down, the financial services industry rose to be the main target of M&A deals in 2015, accounting up to 53 per cent of all M&A deals during the year, compared to 11 per cent of total M&A deals in 2014 (pursuant to Deal Street Asia). The minority acquisition of PT Bank Tabungan Pensiunan Nasional, Tbk (BTPN) by Sumitomo Corp for US$460 million was the highlight 2015 deal, which led to the total holding of 20 per cent equity of BTPN. Meanwhile, the affiliate of Sumitomo Corp, Sumitomo Banking Corporation held a 40 per cent equity stake at BTPN, thereby collectively controlling 60 per cent of the bank. This triggered OJK’s single presence policy, because these shareholders also control PT Bank Sumitomo Mitsui Indonesia, pursuant to which the market will expect the merger between BPTN and Bank Sumitomo Mitsui Indonesia. Another notable deal within the sector was the minority purchase of PT Bank Mayapada Internasional Tbk by Cathay Financial Holding.

In comparison, the most active sector in 2014 was still resources and commodities, comprising up to 45 per cent of all M&A deals during that year, the most notable of which was the 19 per cent minority stake purchase of Indonesia’s mining giant, PT Kaltim Prima Coal by China Investment Corp.

Another hot industry is Indonesia’s online and e-commerce business, which has attracted significant attention of policymakers after the aggressive activities of several foreign venture capitals. There has been reported investment into Indonesian tech startups, including Tokopedia, Go-Jek, and Bukalapak, as part of a journey to find Indonesia’s first ever ‘unicorn’ (a startup with over US$1 billion valuation).


As in other jurisdictions, the financing of M&A in Indonesia is generally derived from internal cash flow, bank loans (provided such financing is not intended for investment in speculation on shares), issuance of new shares (share swaps) and issuance of financial derivative instruments.

Various regulations are applicable depending on the nature of the financing scheme, including the reporting requirement to Bank Indonesia for foreign currency-denominated loans from offshore banks or entities; submission of registration statements to OJK if the transaction involves conducting a rights issue; and approval of the BKPM for increases of equity to finance expansion (growth by acquisition instead of organic growth).

The prevailing regulations that affect the financing of M&A are as follows:

  • a Bank Indonesia Regulation No. 12/24/PBI/2010, regarding Offshore Debt Reporting Obligation;
  • b Bank Indonesia Regulation No. 12/10/PBI/2010 regarding Offshore Borrowing of a Non-Bank Corporation; Bank Indonesia Regulation No. 10/28/PBI/2008 regarding the Purchase of Foreign Currency Against Rupiah through Banks; and
  • c Bank Indonesia Regulation No. 14/16/PBI/2012 regarding Short-Term Financing Facility for Commercial Banks, which, inter alia, prescribes reporting and credit rating requirements in some cases.

Bank Indonesia also issued Bank Indonesia Regulation No. 7/1/PBI/2005 regarding Offshore Borrowing of Banks, which has been further amended by Regulation No. 13/7/PBI/2011, Regulation 15/6/PBI/2013 and Regulation 16/7/2014, containing, inter alia, an obligation for banks to limit the daily balance of short-term offshore borrowing to a maximum of 30 per cent of capital.

Another key regulation on the matter is BI Regulation No. 16/21/PBI/2014 on Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank Corporations to make improvements to BI Regulation No. 16/20/PBI/2014, which previously regulated the same. The Regulation aims to prevent foreign loans and excessive foreign debt from hampering macroeconomy stability by providing guidelines for non-bank corporations to implement prudent principles in managing their loans with foreign parties. In managing foreign loans, companies must implement prudential principles by complying with the prescribed hedging and liquidity ratios, and credit ratings. Hedging and liquidity ratios are based on foreign-currency assets (receivables) and liabilities (obligations) from forwards, swaps, and options transactions.

Mandatory use of the rupiah as the transaction currency is another hot regulatory topic in Indonesia. On 28 June 2011, the government issued Law No. 7 of 2011 on Currency. Article 21(1) of the Currency Law provides that the Indonesian rupiah shall be used in every payment transaction, fulfilment of other monetary obligations or other financial transactions within Indonesian territory, with exceptions as set out in Article 21(2) of the Currency Law, which are as follows:

  • a certain transactions for the implementation of the state budget;
  • b grants to or from other countries;
  • c international trade transactions;
  • d foreign currency bank deposits; and
  • e international financing transactions.

Article 23 of the Currency Law provides that a person is prohibited from refusing to receive rupiah for payment or fulfilment of an obligation to be fulfilled in rupiah or for other financial transactions within Indonesian territory unless there is doubt regarding the authenticity of the rupiah; and that the foregoing is exempted for foreign currency payments or fulfilment of obligations that have been agreed in writing.

Since the Currency Law is still new and untested, it is uncertain how it will be interpreted or applied. In early 2015, BI issued BI Regulation No. 17/3/PBI/2015 on the Mandatory Use of Rupiah within the Republic of Indonesia. The Regulation basically strengthens the Currency Law, and provides clearer guidance that the Law applies to both cash and non-cash transactions. The new Regulation also explains in detail the five exceptions to the rule. However, the regulation is not well accepted among companies as it creates more regulatory burdens in transaction structuring and regular financial reporting.


Law No. 13 of 2003 on Employment (Labour Law) provides the framework for rights of employees and employers in the M&A context. Basically, since M&A is only related to the change in ownership or control over a company, it should not in any way affect employee status. In general, there are two possibilities with respect to an employee’s continuance in the company with new controlling shareholders (in an acquisition) or with the surviving company (in a merger), which could be either the extension or renewal of the employee’s term of employment. In the case of renewal of employment, the employee will have his or her contract terminated from the previous company (before it was merged or acquired) and will then be re-hired by the surviving company under new terms and conditions. Accordingly, there is a requirement under the Company Law for boards of directors of companies undergoing M&A transactions to publish a summary of the proposed M&A in at least one newspaper, and announce it in writing to the employees of the surviving or acquired company no later than 30 days before the invitation of shareholders to the GMOS.

Should an employee not wish to maintain his or her employment with the surviving company, he or she has the right to refuse the new employment. Thus, the employee can resign from the company and demand a special severance payment, long-service payment package and accrued compensation (such as untaken annual leave or housing allowance, if applicable) as set out in the Labour Law, Article 163(1). It should be noted that the Labour Law does not specify the percentage of ownership that triggers the entitlements, but simply refers to a ‘change of ownership’. There is a risk that the employees or their union (if any) will take the position that any change of ownership will qualify under Article 163(1), even where there is less than a 50 per cent change in shareholding. Any substantial change in management and employment policies, however, could also trigger Article 163(1), even though the new shareholder is not a controlling shareholder, as this may directly or indirectly affect the employees.

However, under Article 163(2) of the Labour Law, employers (both the buyer and the seller) also have the right to terminate the employment in the event of a change in a company’s status, a merger or a consolidation, subject to the payment of severance and long-service payment as set out in Article 163(2), which is set at a higher level than under Article 163(1).

In addition to the above, the rights of employees in M&A transactions are also governed by the provisions relating to M&A transactions in a collective labour agreement entered into by and between the company and the company’s labour union. In the event of inconsistency between the provisions of the Labour Law and the collective labour agreement, the provisions that are more favourable to the employees will prevail.


i Corporate income tax in mergers

As in other jurisdictions, the accounting method used in mergers is generally a ‘pooling of interest’ method and a book value transfer approach.

Article 1(3) of Minister of Finance Decree No. 43/PMK.03/2008 of 13 March 2008 on the Use of Book Value for Transfer of Assets in Relation to Merger, Consolidation or Spin-off (MOF Decree 43/2008) defines a ‘business merger’ as a merger of two or more taxpayer entities with capital divided into shares in a manner that maintains the existence of one of the companies having no residual loss or having a smaller residual loss.

Furthermore, Article 2 of MOF Decree 43/2008 provides that taxpayers conducting a merger using book value must fulfil the following requirements: submission of an application to the Director General of Tax including the reason and purpose for conducting the merger or spin-off; payment of all tax owed by each of the companies involved; and the fulfilment of requirements of the ‘business purpose test’ (described below).

In addition, Article 3 of MOF Decree 43/2008 provides that a taxpayer conducting a merger using book value may not compensate the loss or residual loss of the merged taxpayer.

Article 3(2) of Regulation No. PER-28/PJ/2008 of 19 June 2008 on Requirements and Procedure to Use Book Value for Transfer of Assets in a Merger, Consolidation or Takeover, issued by the Director General of Taxation (DGT Regulation) provides that the request for a merger with book value should be submitted to the head of the regional office of the Directorate General of Taxation overseeing the tax office at which the applicant is registered no later than six months after the realisation of the business merger (the date when the merger becomes effective) with the proviso that in the event of a business merger or consolidation, the application should be submitted by the taxpayer who is receiving the transferred assets (the surviving entity).

Article 5 of the DGT Regulation provides that the ‘business purpose test’ requirement is fulfilled when:

  • a the main purpose of the merger is to create a strong business synergy and strengthen the company’s capital structure, and not for tax evasion;
  • b the business operation of the taxpayer that transfers assets (the dissolving company) continues to exist until the effective merger date;
  • c the business operations of the taxpayer that transfers assets before the merger are continued for at least five years after the effective merger date by the taxpayer that received assets;
  • d the business activities of the taxpayer who receives assets in the merger continue for at least five years after the effective merger date;
  • e the business activities of the taxpayer who receives assets in a spin-off continue for at least five years after the effective date of the spin-off; and
  • f the transferred assets owned by the taxpayer who received the transfer are not transferred or sold for a minimum of two years after the effective merger or spin-off date.

If the surviving entity sells or transfers the assets (having received the approval for a merger with book value) to another entity before the minimum period of two years after the effective date of the merger, the surviving entity must submit a written statement with supporting documents to the head of the regional office of the Directorate General of Taxation explaining and providing evidence that the company must sell the assets in order to improve the efficiency of the company’s operations.

Upon submission of the complete application for a merger with book value and supporting documents by the taxpayer, the head of the regional office of the Directorate General of Taxation, after conducting a survey and confirmation, will issue a letter of approval or rejection of the merger with book value no later than one month after receipt of the application.

If, within a period of five years after the issuance of the approval for a merger with book value, the Director General of Taxation finds or receives any evidence through audit or verification that shows that the said merger did not fulfil the business purpose test, then the tax office will recalculate the transferred assets in the framework of the merger based on the market value.

Pursuant to the aforementioned tax regulations, one could conclude that there will be no capital gains tax (corporate income tax) if the Directorate General of Taxation has issued the approval for the merger with book value. In the event that the transfer of assets using book value is not approved by the Directorate General of Taxation, then the transfer of assets shall be valued at the market price, and the difference between the book value and the market value (capital gains) will be subject to corporate income tax at the rate of 25 per cent in 2012 (flat rate).

ii Value added tax

The transfer of assets is subject to VAT at 10 per cent of the market value, pursuant to Articles 4(1) and 7(1) of Law No. 42 of 2009 on Value Added Tax and Sales Tax on Luxury Goods.

The VAT should be imposed by a ‘taxable business entity’ on the delivery of assets, the initial purpose of which is not to be traded, except assets on which the VAT cannot be credited because the acquisition of such assets has no direct relation to the business activity, and for the acquisition and maintenance of sedan or station wagon motor vehicles when made for a trading inventory or for rental purposes.

iii Tax on transfers of land

Articles 4 and 8 of Government Regulation No. 71/2008, dated 4 November 2008, provide that the disposal of land and buildings is subject to final income tax at the rate of 5 per cent of the taxable value of the property (NJOP) or the transfer amount that is stated in the merger deed, whichever is higher (the transferor’s tax obligation).

Moreover, the transfer of land or buildings in a merger is subject to land or building title acquisition duty (BPHTB) of 5 per cent of the taxable value (NPOP) (the surviving entity’s tax obligation). The NPOP in the merger is the market value or the same as the NJOP.

The taxpayer who carries out the merger and obtains approval for the use of book value for the merger from the Director General of Taxation may apply for a 50 per cent reduction in the BPHTB.

iv Sale of shares

Law No. 17/2000 on Income Tax was amended by Law No. 36/2008, which came into effect on 1 January 2009. Article 17 of Law No. 36/2008 provides that the maximum tax rate for individual taxpayers is 30 per cent and the tax rate for corporate taxpayers is a flat rate of 25 per cent, which is still the current rate in 2012. Public companies that satisfy a minimum listing requirement of 40 per cent along with other conditions are entitled to a tax discount of 5 per cent off the standard rate, giving them an effective tax rate of 20 per cent.

For transfers of shares in general, the difference between the acquisition of shares and the selling price of shares will be subject to capital gains tax at a rate of 30 per cent (maximum) if the seller is an individual, and at a rate of 25 per cent in 2012 (flat rate) if the seller is a corporate taxpayer in Indonesia.

If the seller of the shares is a non-Indonesian taxpayer, then the capital gains tax from the selling of the shares will be regulated based on the applicable tax treaty between the seller’s country of domicile and Indonesia.

For transfers of shares of a publicly listed company, a final tax of 0.1 per cent of the transaction value will be applicable to the seller and 0.5 per cent tax on the founder shares (if the seller is holding the shares from the initial public offering).


Certain provisions of Law No. 5 of 1999 on the Ban on Monopolistic and Unfair Business Practices (Antimonopoly Law) deal specifically with M&A. Essentially, pursuant to Article 28 of the Antimonopoly Law, M&A transactions in Indonesia are prohibited if they result in monopolistic or unfair trade practices. Therefore, all efforts should be made to ensure that any contemplated M&A transaction does not give rise to a monopolistic or unfair practice.

The Antimonopoly Law uses a market share standard as a parameter for ascertaining the presumption of a monopoly (if a business player has more than a 50 per cent market share), for ascertaining the presumption of an oligopoly (if a group of business players has more than a 75 per cent market share) and for determining the dominant position (if a business player has more than a 50 per cent market share and as a group, those business players have more than a 75 per cent market share unless the dominant position is not abused).

In July 2010, the government issued GR 57/2010 followed by KPPU Rules No. 10 of 2010, No. 11 of 2010 and No. 13 of 2010, the latter of which was revised by virtue of KPPU Rule No. 11 of 2011, (collectively, KPPU Rules) as the mandate of the Antimonopoly Law. There are certain new provisions related to consultation and pre-notification of M&A transactions, which have replaced previous provisions.

Pursuant to the previous KPPU rules, the parties involved in an M&A transaction may provide a pre-notification to the KPPU, the nature of which was voluntary. Currently, there is no longer such pre-notification, since the new KPPU Rules have replaced this rule with the more stringent requirements for a consultation procedure and post-notification within 30 days of completion of the contemplated deal.

GR 57/2010 and the KPPU Rules provide that companies conducting an M&A transaction with the following criteria shall fulfil such post-notification: the total value of assets of the companies concerned is more than 2.5 trillion rupiah, or the total turnover of the companies concerned is more than 5 trillion rupiah.

In addition, GR 57/2010 provides that a bank conducting an M&A transaction shall submit a post-notification of such transaction to the KPPU if the total value of assets of the bank concerned is more than 20 trillion rupiah. Any noncompliance with this requirement will be imposed with administrative penalties.

After receiving a post-notification, the KPPU will conduct an assessment to determine whether the transaction has violated the Antimonopoly Law, taking into account:

  • a market concentration;
  • b market entry barriers;
  • c potential for unfair trade;
  • d efficiency; or
  • e whether an M&A transaction is necessary to prevent a company’s bankruptcy.

It should further be noted that pursuant to Article 47(2.E) of the Antimonopoly Law, the KPPU has the authority to cancel an M&A transaction if such transaction has elements of monopolistic or unfair trade practices. Moreover, the Antimonopoly Law may affect foreign entities that are not doing business in Indonesia, but that have entered into agreements with Indonesian entities that may result in monopolistic or unfair trade practices within Indonesia. Hence, it would be advisable for investors contemplating an M&A transaction to file for a consultation prior to the completion of the contemplated transaction with the KPPU to avoid a later cancellation of the transaction.

Two important antitrust regulations were enacted in 2012 to further govern M&A deals. First, the KPPU enacted Regulation No. 4 of 2012 on Guidelines for the Imposition of Fines for the Delay in Notifying a Merger, Consolidation or Acquisition to further address the issue previously covered under KPPU Regulation No. 10 of 2011. Regulation No. 4 sets a 30-day limit to report an M&A deal to KPPU, the commencement date of which depends on the nature of the companies involved. KPPU can impose a fine of 1 billion rupiah for each day of delay, up to a maximum of 25 billion rupiah. Another important regulation is KPPU Regulation No. 3 of 2012 on Guidelines for Completing Mergers, Consolidations or Acquisitions that might result in Monopolistic Practices and Unfair Competition (Amendment) to implement Article 29 (1) of Law 5/1999. The Amendment effectively replaces Regulation No. 13 of 2010 and its first amendment, Regulation No. 10 of 2011. Pursuant to the new rule, subscription to newly issued shares (capital increase) shall also be deemed to be an acquisition.


After seeing political stability and sound capability in managing macroeconomic turbulence, business players are expected to execute their plans on M&A deals in 2016. Recent policy decisions by the new government provided new optimism for Indonesia’s potential growth, as there is massive untapped potential for M&A in Indonesia, given its consumer market catering to the needs of the rising middle class. Natural resources (coal, palm oil, natural gas, petroleum and mineral resources) remain an important sector, but telecommunications, retail, property, construction, IT and financial services have proven to be the sectors that have led the market.

As a democratic country that has undergone significant reform in the last decade, challenges remain. Bureaucratic red tape and corruption have become the main obstacles to the country’s sustainable growth. The World Bank’s ease of doing business index still places Indonesia in a low rank with regard to law and institutions; however, several reform initiatives have been introduced to restore confidence in the country’s business climate. Financial and securities regulations, as well as corporate governance rules, have been set up to provide a more sophisticated and modern regulatory environment for foreign investors. Better-defined and clearer rules of government-related projects, including tender and bidding processes, have been enacted to support infrastructure development. At the same time, global fluctuations such as the weakening exchange rate and the lower crude oil commodity price are also affecting cross-border transactions. In light of the foregoing, it appears that recent economic developments show confidence in the market that the government will continue to maintain and improve transparency, the certainty of stakeholders’ involvement and fair competition, as well as a more foreign investment-friendly environment.


1 Yozua Makes is the managing partner at Makes & Partners Law Firm.