The Mergers & Acquisitions Review: Indonesia

Overview of M&A activity

Despite the growing concerns resulting from the covid-19 pandemic, Indonesia's economic recovery efforts have been showing positive signs, especially since the second quarter of 2021, when the country gained positive growth amounting to 7.07 per cent (year-on-year) for the first time since the outbreak. This growth has resulted in Indonesia's real GDP exceeding the real GDP value of the end of 2019, before the pandemic. The Ministry of Investment and Investment Coordinating Board (BKPM) also reported a 16.2 per cent increase in investment realisation during the first half of 2021, compared to the similar period last year.

While there is no public registry that keeps track of private M&A deals, the Indonesian Competition Supervisory Commission (KPPU) tracks M&A deals that result in post-M&A asset valuation of more than 2.5 trillion rupiah or when the sales value exceeds 5 trillion rupiah. The KPPU reported 108 M&A notifications up to July 2021, a slight increase from the previous year.

President Joko Widodo also continues the push to accelerate deals and transactions by enacting 51 implementing regulations to the Omnibus Act 11/2020 on Job Creation (the Job Creation Law). Two notable implementing regulations are the risk-based licensing rules managed by the One Single Submission (OSS) system, and the new presidential regulation on the investment sector that sets out foreign investment restrictions and foreign direct investment priorities. President Joko Widodo also established the Indonesian Investment Authority, the first ever Indonesian sovereign wealth fund tasked with managing the investments of the central government and optimising economic growth.

General introduction to the legal framework for M&A

In general terms, the statutory framework for the combination of businesses through a limited liability company is set out in Law No. 40 of 2007 on the Limited Liability Company the Company Law2 and various implementing regulations such as the Government Regulation No. 27 of 1998 on Mergers, Consolidation and Acquisition of Limited Liability Companies and Government Regulation No. 28 of 1998 on Mergers, Consolidation and Acquisition of Banks.

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 Law3 merging the authority previously held by the Capital Market and Financial Institution Supervisory Board or Bapepam-LK and the bank oversight authority of the central bank, Bank Indonesia to supervise all activities in the financial services industries under one agency with the exception of payment services that are still under Bank Indonesia. Further, companies with foreign share ownership are regulated by the 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 that industry.

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

  1. the 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;
  2. an extraordinary general meeting of shareholders 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;
  3. the approval of creditors in respect of the proposed M&A transaction and a waiver of their rights for claims to be settled prior to the effectiveness of the merger or acquisition;
  4. a valuation of shares to determine the fair market value of the merger shares conversion formula;
  5. the approval of third parties, including but not limited to the approval of third parties required by prevailing law as well as pursuant to agreements entered into by the companies involved;
  6. the approval of the relevant agencies having jurisdiction over the merging or acquired company or companies (e.g., OJK and the Minister of Law and Human Rights); and
  7. the consent of any relevant industry regulator, depending on the nature of the target company's business.

An M&A transaction that involves a public company can potentially result in a conflict of interest between the interest of that public company and the interest of directors, commissioners, substantial shareholders, controlling shareholders or their affiliates. Thus, with regard to the acquisition of a public company, to provide legal certainty and protection to shareholders – particularly independent shareholders who have no conflicts of interest in particular transactions – the OJK, under Regulation 42/POJK.04/2020 and Regulation No. 17/POJK.04/2020 requires a publicly listed company conducting an M&A transaction to appoint a professional registered at OJK to appraise the transaction. If the transaction falls into a conflict of interest transaction, under Regulation 42/POJK.04/2020, the transaction will require approval from the independent shareholders through a vote at a general meeting of shareholders. OJK Regulation No. 17/POJK.04/2020 requires disclosure of transactions considered material as defined in the regulation.

Developments in corporate and takeover law and their impact

In general, 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.

With respect to acquisitions of public companies (also known as takeovers), OJK has issued OJK Regulation No. 9/POJK.04/2018 regarding Takeover of a Public Company. Like in previous public company regulation (Bapepam-LK Rule No. IX.H.1), this regulation has the concept of the mandatory tender offer (MTO), which is triggered by a takeover of a public company. Further, the Rule requires a refloating obligation of 20 per cent of the shares obtained as a result of an MTO. However, OJK can grant an extension of the time period for a refloat of shares to the Stock Exchange in certain cases. Additionally, OJK also introduced OJK Regulation No. 54/POJK.04/2015 on Voluntary Tender Offer, which can be a tool for acquisitions for public companies with no controlling or simple-majority shareholders, amending the previous Bapepam Rule IX.F.1 of 2011.

In December 2016, OJK introduced a revision to the regulation concerning mergers and consolidations for public companies by virtue of OJK Regulation No. 74/OJK.04/2016 as amended by OJK Regulation No. 58/POJK.04/2017.

The regulation provides new paper requirements for OJK approval in the event of the merger or consolidation of public companies. The new requested documents include, among others, corporate shareholding and management documents, appraisal reports, business plans, notes on the new controller and management analysis reports. This regulation is aimed at further promoting investor protection and information disclosure.

More recently, the OJK also issued new regulations that highly affect M&A for listed companies. In April 2020, the OJK issued a new regulation on Material Transactions and Change of Main Business Line by virtue of OJK Regulation 17/P.OJK.04/2020. The new regulation was an update of the same regulation issued in 2011. The new regulation introduces a new scope of what constitutes a material transaction, which would require independent public appraisal, information disclosure, or general meeting of shareholders (GMS) approval. In July 2020, the OJK also issued POJK 42/P.OJK.04/2020 on Affiliated Transaction and Conflict of Interest, an update of the same regulation issued in 2009. The new regulation introduces a threshold for affiliated transaction that requires GMS approval, and affiliated transaction that may affect the business continuity of the company. The OJK may also designate affiliated transaction that requires approval of independent shareholders. Following the covid-19 outbreak, the OJK also issued POJK 16/P.OJK.04/2020 for electronic GMS that allows remote GMS through electronic means.

A major development was adopted within the banking sector. The OJK, at the end of 2019, issued Regulation 41/POJK.03/2019 on the Merger, Consolidation, Acquisition, Integration and Conversion of Commercial Banks, revoking the previous rule enacted in 1999. A merger, consolidation, acquisition, integration or conversion may be initiated by the relevant Indonesian bank or a foreign bank branch, following the OJK's instructions. Similar to the previous rule, approvals from the OJK and GMS of the target bank are also required to be obtained. However, the new procedures now encompass greater involvement of the OJK, which should now be consulted from the outset in the preparation of the plan for the proposed merger, consolidation, acquisition or integration.

Foreign involvement in M&A transactions

As the appointed regulator of direct capital investment in Indonesia, the Ministry of Investment/BKPM has mainly focused on the efforts of the government to attract foreign investors and manage the administration of investment affairs. One of the new changes brought by the Job Creation Law is the new approach to investment regulations, contemplated in the Presidential Regulation No. 10/2021 (later revised in No. 49/2021) on Investment Sectors (PR on Investment Sectors).

First, the PR on Investment Sectors identifies a list of sectors considered as priorities. These sectors are fully open to investors, and are eligible for fiscal supports including tax allowance, tax holiday, investment credits, and customs and excise incentives; as well as non-fiscal incentives such as infrastructure supports.

The PR on Investment Sectors also determines certain areas allocated only for small and medium enterprises. Finally, the presidential regulation reduces the number of sectors that are restrictive for foreign investments from 350 business fields to 46 business fields. The restrictions vary from foreign shareholding cap to special licensing requirements. For example, retail sales and wholesale distributors have been taken out from the restriction list. The online marketplace is also now open for foreign investments (previously there was a minimum threshold of 100 billion rupiahs investment before it could be owned 100 per cent by foreign investors).

Publicly listed companies are subject to further regulations of OJK. Unlike private companies, unless specifically provided under a separate regulation, publicly listed companies have no restriction on foreign ownership of shares if that 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.

Significant transactions, key trends and hot industries

KPPU's M&A notification system shows that the majority of M&A transactions in Indonesia cover the construction, property, tourism, telecommunication and digital sectors. This may indicate the number of M&A deals in the respective sectors, but not the size.

The Ministry of Investment, on the other hand, has laid out four priority sectors in 2021; namely, agriculture, tourism, renewable energies and digital economy.

Digital banking is another area that has received a lot of attention recently. Notable deals include the acquisition of Bank Jago by Go-Jek at the end of 2020, the acquisition of Bank BKE by SEA Group in February 2021, while similar tech companies have also been rumoured to have acquired smaller banks. Akulaku, another digital finance firm, is also completing the acquisition of Bank Neo Commerce this year.

State-owned enterprise consolidation continues to be the government's main priority. Most notable in 2021 was the creation of the Indonesian Financial Group (IFG) formed by the M&A of several state-owned insurance, investment and guarantee companies.

Financing of M&A: main sources and developments

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

Various regulations are applicable depending on the nature of a financing scheme, including a reporting requirement to Bank Indonesia for foreign currency-denominated loans from offshore banks or entities; the submission of registration statements to OJK if a transaction involves conducting a rights issue; and approval of BKPM for an increase 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:

  1. Bank Indonesia Regulation No. 16/22/PBI/2014 regarding Reporting of Foreign Exchange Activity and Reporting of Application of Prudential Principles in relation to an Offshore Loan Management for Non-Bank Corporation, as amended by Bank Indonesia Regulation No. 21/2/PBI/2019;
  2. Bank Indonesia Regulation No. 18/18/PBI/2016 regarding the Purchase of Foreign Currency Against Rupiah through Banks; and
  3. Bank Indonesia Regulation No. 19/3/PBI/2017 regarding Short-Term Financing Facility for Commercial Banks, as amended by Bank Indonesia Regulation No. 22/15/PBI/2020 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 and Other Obligations of Banks in Foreign Currency, which was last amended by Regulation No. 21/1/PBI/1/2019, containing, among other things, 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 the Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank Corporations as amended by Bank Indonesia Regulation No. 18/4/PBI/2016. The Regulation aims to prevent foreign loans and excessive foreign debt from hampering macroeconomic 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 or options transactions, or a combination thereof.

The mandatory use of the rupiah for a transaction's currency is another hot regulatory topic in Indonesia. On 28 June 2011, the government issued Law No. 7 of 2011 on Currency (Mata Uang). Article 21(1) of Law No. 7/2011 provides that the Indonesian rupiah shall be used in every payment transaction, for the fulfilment of other monetary obligations or for other financial transactions within the Indonesian territory, with certain exceptions. In 2015, Bank Indonesia issued 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 of the rule.

Employment law

The Labour Law4 provides the framework for the rights of employees and employers in the M&A context. Basically, because mergers and acquisitions are only related to the change in ownership or control over a company, they should not in any way affect employees' status. In general, there are two possibilities with respect to an employee's continuance in a company with new controlling shareholders (in an acquisition) or with a surviving company (in a merger), which could be either the extension or renewal of the employee's term of employment. In the case of a renewal of employment, the employee will have his or her contract terminated from the previous company (before it was merged or acquired) and then be rehired 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 a proposed merger or acquisition in at least one newspaper, and to 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 general meeting of shareholders.

Should an employee not wish to maintain his or her employment with the surviving company, then he or she has the right to refuse the new employment. Thus, the employee can resign from the company and demand a severance payment, long-service payment package and accrued compensation (such as untaken annual leaves or housing allowance, if applicable). The Labour Law does not specify the percentage of ownership that triggers these entitlements, but simply refers to a change of ownership.

Under the original Labour Law, there is a risk that the employees or their union (if any) will take the position that any change of ownership will trigger termination compensation, even where there is less than a 50 per cent change in shareholding.

Article 154 A of the Job Creation Law does attempt to tackle this ambiguity by eliminating 'change of status' as one of the triggers for termination compensation. The practical implementation of this new provision, however, remains to be seen.

The Job Creation Law also revises the rule when the employers (both the buyer and the seller), instead of the employees, want to terminate employment as a result of the M&A. Previously, the payment of severance and long-service payment under Article 163(2) of the Labour Law was set at a higher level than when the employee decides not to maintain employment, as mentioned above. Under the new rule in the Job Creation Law, the treatment for both events is the same.

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.

Tax law

i Corporate income tax in mergers

Generally, assets transferred in business mergers are conducted at market value, which may result in a taxable gain. The assets could be transferred at book value on tax-neutral mergers based on the approval of the Directorate General of Tax as stated below.

Article 1 Paragraph (2) of the Minister of Finance Decree No. 52/PMK.010/2017 as last amended by the Minister of Finance Decree No. 56/PMK.010/2021 on 4 June 2021 regarding the Use of Book Value on the Transfer of Assets in Relation to Merger, Consolidation, Dissolution, Spin-off or Acquisition (MOF Decree 205/2018) stipulates that for tax purposes, a taxpayer may use the book value in transferring assets in the framework of Merger, Consolidation, Dissolution, Spin-Off or Acquisition upon receiving approval from the Directorate General of Tax (MOF Decree 205/2018).

Furthermore, Article 1 Paragraph (3) of the same Decree stipulates that the book value on business merger as mentioned in Article 1 or Paragraph (2) above refers to:

  1. a merger of two or more domestic taxpayer entities with capital divided into shares by way of transferring all of the assets and liabilities to one of the companies having no residual loss or having a smaller residual loss and then dissolving the taxpayer that transferred the said assets and liabilities; or
  2. a merger of offshore taxpayer entities with domestic taxpayer entities with capital divided into shares by way of transferring all of the assets and liabilities from the offshore entities to the domestic taxpayer entities and then dissolving the offshore taxpayer that transferred the said assets and liabilities.

Furthermore, Article 2 Paragraph (1) of MOF Decree 205/2018 provides that taxpayers that receive or transfer assets in the framework of a merger, dissolution, spin-off or acquisition by using the book value must fulfil the following requirements:

  1. submission of an application to the Director General of Tax within six months of the effective date of the merger, dissolution, spin-off or acquisition including the reason and purpose for conducting the merger, dissolution, spin-off or acquisition;
  2. fulfilment of the business purpose test; and
  3. obtainment of the tax clearance letter from the Directorate General of Tax for each of the related domestic taxpayer and the relevant permanent establishment.

In addition, Article 11 Paragraph (1) of the MOF Decree 205/2018 provides that a taxpayer conducting a merger using the book value approach (a 'tax-neutral merger') may not compensate the loss or the residual loss of the dissolving corporate taxpayer.

In general, one could conclude that there will be no capital gains tax (corporate income tax) if the Directorate General of Tax has issued an approval for a merger with book value. In the event that a transfer of assets using book value is not approved by the Directorate General of Tax, 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 a rate of 22 per cent (flat rate).

ii Value added tax

Transfer of taxable goods in the framework of merger, dissolution, spin-off or acquisition is not subject to 10 per cent VAT with the condition that either taxpayers that receive or transfer the assets are VAT entrepreneurs, pursuant to Article 1A Paragraph (2) Point (d) of the VAT Law.5

iii Tax on transfers of land

Article 6 Letter (e) of Government Regulation No. 34 of 2016 stipulates that the transfer of land and buildings in the framework of merger, dissolution or spin-off as regulated by the Minister of Finance to utilise the book value are not subject to 2.5 per cent final income tax.

In addition to the above, under Articles 85 and 87 of the Law No. 28 Year 2009 regarding Regional Tax and Retribution, as amended by Law No. 11 of 2020 on Job Creation Law regulates that the transfer of land or buildings in a merger transaction is subject to land or building title acquisition duty (BPHTB) of 5 per cent of the acquisition value (NPOP) (the surviving entity's tax obligation). The acquisition value (NPOP) in a merger transaction shall be the lower value between its market value and its tax object sale value (NJOP) as used in calculating the land and building tax, in the year when it is acquired.

Furthermore, the taxpayer who carries out the merger and obtains the tax neutral merger approval from the Director General of Tax may apply for a 50 per cent reduction on the BPHTB.

iv Sale of shares

Article 17 of Law No. 36/2008 provides that the maximum income tax rate for individual taxpayers is 30 per cent and the income tax rate for corporate taxpayers is a flat rate of 25 per cent. However, Article 5 Paragraph (1) of the Government Regulation in Lieu of Law No. 1 of 2020 (PERPU No. 1) has adjusted the income tax rate for corporate taxpayers. For fiscal years 2020 and 2021, the tax rate for corporate taxpayers is at a flat rate of 22 per cent, and for fiscal year 2022, the tax rate for corporate taxpayers is at a flat rate of 20 per cent.

Furthermore, Article 5 Paragraph (2) of PERPU No. 1 stipulates that public companies that satisfy the minimum listing requirement of 40 per cent along with other specified conditions are entitled to a tax discount of 3 per cent off the standard rate, giving them an effective tax rate of 19 per cent for fiscal years 2020 and 2021. Thus, for fiscal year 2022 the effective tax rate would be 17 per cent.

Generally, in a share transfer transaction, the difference between the selling price of the shares and its acquisition price will be subject to capital gains tax at a rate of 30 per cent (maximum) for an individual or at a rate of 22 per cent (flat rate) for a corporate taxpayer in Indonesia for the fiscal years 2020 and 2021.

If the seller of the shares is a non-Indonesian taxpayer, then the capital gains tax from the sale 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 (an additional) 0.5 per cent tax on the founder shares (if the seller is a shareholder at the time of the initial public offering).

Competition law

Certain provisions of the Antimonopoly Law6 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).

To implement the Antimonopoly Law, the government issued GR 57/2010, followed by various rules issued by KPPU, most recently KPPU Regulation No. 3/2019 and its 2020 Implementation Guidelines. GR 57/2010 and the KPPU rules provide that companies conducting an M&A transaction with the following criteria shall fulfil the post-notification requirement: the total value of assets of the companies concerned is more than 2.5 trillion rupiahs; or the total turnover of the companies concerned is more than 5 trillion rupiahs. In the 2020 Guidelines, asset-based transactions are now subject to merger control rules. Exemptions apply to non-bank assets valued at less than 250 billion rupiahs and bank assets less than 2.5 billion rupiahs.

Subscription to newly issued shares (capital increase) shall also be deemed an acquisition.

KPPU provides a consultation procedure and post-notification within 30 days of completion of a contemplated deal. In addition, GR 57/2010 provides that a bank conducting an M&A transaction shall submit a post-notification of such transaction to KPPU if the total value of the assets of the bank concerned is more than 20 trillion rupiahs. Any non-compliance with this requirement will incur administrative penalties.

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

  1. market concentration;
  2. market entry barriers;
  3. potential for unfair trade;
  4. efficiency; and
  5. whether an M&A transaction is necessary to prevent a company's bankruptcy.

Further, pursuant to Article 47(2.E) of the Antimonopoly Law, KPPU has the authority to cancel an M&A transaction if that 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 have entered into agreements with Indonesian entities that may result in monopolistic or unfair trade practices within Indonesia. Hence, it is advisable for investors contemplating an M&A transaction to file for a consultation with KPPU prior to the completion of the contemplated transaction to avoid the later cancellation of a transaction.


The new cabinet line-up formed by the second-termer President Widodo would have been more focused on bringing new M&A and investment deals. Various plans have been devised to trigger growth, especially in selected sectors such as technology and telecommunications, manufacturing and tourism. The government has introduced economic reform overhauls through a series of omnibus bills, the first being on job creation. The entire business stakeholders, including most branches of the government as well as industry groups are likely to focus on ensuring consistent implementation of the Job Creation Law through its implementing regulations and agency enforcements. These initiatives are critical to maintain positive momentum for the country.


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

2 Law No. 40 of 2007 on the Limited Liability Company, as lastly amended by Law No. 11 of 2020 on Job Creation.

3 Financial Authority Law (Law 21/2011).

4 Law No. 13 of 2003 on Employment.

5 Law No. 42 of 2009 on Value Added Tax and Sales Tax on Luxury Goods.

6 Law No. 5 of 1999 on the Ban on Monopolistic and Unfair Business Practices.

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