Requirement to Appoint Local Trading Company under Indonesia’s Omnibus Law

Prior to the enactment of Law No. 11 of 2020 on Employment Creation (the “Omnibus Law”) on November 2, 2020 and issuance of its implementing regulation, the Government Regulation No. 29 of 2021 on Implementation of Trading Sector (“GR No. 29”)^[1], a foreign wholesale distribution investment company (“PMA Distributor Company”) had to appoint a 100% locally-owned trading company (“Local Trading Company”) to act as its local distributor or agent to sell its products. This was because only such a Local Trading Company was allowed to distribute goods to retailers (which would then sell the goods to consumers).

With the enactment of Omnibus Law and issuance of an implementing regulation that comprises a new priority list of investments,^[2] the Indonesian government now allows foreign parties to invest and hold up to 100% of shares in several trading- and retail-related sectors that were previously subject to foreign ownership restrictions or prohibitions. These sectors include wholesale distribution (if such distribution is unrelated to a company’s core business) and retail of spare parts and accessories for cars, motor vehicles and commercial vehicles. 

ZeLo, a Foreign Law Joint Enterprise has received many questions as to whether, after the enactment of the Omnibus Law, a PMA Distributor Company still is required to appoint a local distributor pursuant to Minister of Trade Regulation No. 11/M-Dag/PER/3/2006 on Guidelines and Procedures of Registration of Agent and Distributor of Good and/or Services (“MOT Regulation No. 11/2006”). Neither the Omnibus Law nor GR No. 29 expressly address this issue or revoke the requirement to appoint a Local Trading Company.

However, if implementation by Indonesia’s government in this respect is consistent with the main purpose of the Omnibus Law, which is to encourage more direct foreign investment in Indonesia and lower protections for domestically-owned companies (other than micro, small, and medium enterprises), the requirement of PMA Distributor Company to appoint a local distributor should no longer be relevant.

Nonetheless, until the government revokes the MOT Regulation No. 11/2006 or issues a specific regulation to address this otherwise, foreign parties are strongly advised to confer with the appropriate Indonesian investment and trading regulators before investing, especially if the foreign parties intend to sell directly to retailers.

Generally, even though certain foreign shares ownership is now more flexible, as indicated above, there are other technical requirements in trading sectors that are not expressly addressed in the Omnibus Law, which foreign parties may need to observe depending on the type of trading business sectors involved.  

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Click here for the Japanese translation article.

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[1] GR No. 29 is effective as of February 2, 2021.

[2] Presidential Regulation No. 10 of 2021 on Investment Sectors, effective as of March 4, 2021.

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The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.