INDONESIA Law and Practice Contributed by: Emir Nurmansyah, Mahatma Hadhi, Kenny Poltak and Atika Rizka, ABNR Counsellors at Law
Indonesian entity. In these cases, the applicability of withholding tax and other levies generally requires further analysis, particularly in light of Indonesia’s tax treaties with the relevant foreign jurisdiction. Typical - ly, transaction restructuring also involves a detailed review of potential tax exposure, which is commonly analysed by professional tax consultants to ensure compliance and optimise the tax position of the par - ties involved. 5. Mining Investment and Finance 5.1 Attracting Investment for Mining Government’s Downstreaming Policy The amended Mining Law in 2020 includes policies that encourage investment, such as mineral down - streaming and tax incentives. The mineral down - streaming policy, among other things, encourages investment in building local smelters and/or process - ing facilities due to the ban on the export of raw miner - als. The focus on downstream activities such as nickel smelters and EV battery production aligns with the increasing global demand for strategic commodities As elaborated in 4.2 Tax Incentives for Mining Inves- tors and Projects , mining investors and projects may be eligible for certain tax incentives in the form of Tax Holiday and Tax Allowance. 5.2 Foreign Investment Restrictions and Approvals in the Exploration and Mining Sectors Currently, a foreign investor is permitted to acquire up to 100% shares in an Indonesian mining company, but subject to the divestment obligation. such as nickel. Tax Incentives A foreign investment mining company holding an IUP in the production operation stage must gradually divest at least 51% of its shares owned by foreign shareholders in a sequential order to the central gov - ernment, regional government, State-owned enter - prises (BUMN), regionally owned enterprises (BUMD) and/or domestic private companies, starting from the production phase. As such, although it is possible for a foreign entity to acquire a controlling interest in a
mining company, such foreign entity must divest its ownership gradually to Indonesian party(ies) as of the production phase. The divestment schedule varies by mining method and integration with processing facilities, with the fast - est completion in 15 years for non-integrated open-pit operations and the longest completion in 25 years for integrated underground operations. The parties that are offered the divested shares must co-ordinate internally and state their interest in the offer within 90 calendar days of the offer. If the central government, regional government, BUMN and BUMD are not interested in or do not respond to the offer, the divested shares can be offered to national pri - vate business entities by way of auction. If no one is interested in the auction, the divested shares can be offered through the Indonesian Stock Exchange (IDX). Any capital increase in the IUP holder after the divest - ment may not cause the divested shares to be dilut - ed below the share percentages allowed under the divestment requirement. It is also important to note that an IUP holder with more than 49% of its shares owned by a foreign inves - tor is allowed to transfer the foreign-held shares to a third party prior to the divestment requirement, pro - vided that the IUP holder first offers the shares to a BUMN. The BUMN must provide a written response to the offer within 75 calendar days. If such BUMN is not interested in or provides no written response to the offer, the IUP holder may submit an application to the MEMR for approval of the share transfer to a third party. 5.3 International Treaties Related to Exploration and Mining There are no international treaties between Indonesia and other country(ies) specifically relating to explo - ration and mining in Indonesia. However, Indonesia is party to treaties that provide protection to invest - ments across various sectors, including mining and commodity trade, namely the following: • ASEAN Comprehensive Investment Agreement (ACIA): ACIA is an instrument that aims to shape a
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