New Regulation Boosts Investment Incentives in Indonesia's New ...

Indonesia’s government issued Government Regulation 29 of 2024 (GR 29/2024) in August to enhance incentives for investors in Indonesia’s new capital, Nusantara.

Key changes include extended land rights duration, revised environmental approval considerations, expanded powers of the IKN Authority, and new regulations on employing foreign workers. These amendments aim to attract more investment by providing clearer, more attractive terms and conditions for businesses operating in IKN.

Nusantara is estimated to cost US$35 billion to construct and the central government is expected to begin operations in the new city later in 2024. Public funds would only be used for 20 percent of the project with the remainder from foreign investors. The presidential palace was finished in time for the country’s Independence Day anniversary on August 17.

Extended land rights

The government offered investors land rights lasting a maximum of up to 95 years. This would have been given over three stages; granting of the land rights (max 35 years), the extension of the land right (max 25 years), and the renewal of the land rights (max 35 years).

GR 29/2024 removes the three-stage process and so businesses are given maximum land rights of up to 95 years from the start of their operations.

The length of the land right is dependent on the type of land title.

Right to use (Hak Pakai – HP)

Businesses that obtain the right to use land title will be given 80 years and extendable for another 80 years. This title refers to the right to use or harvest the land owned by the state or private persons.

Right to cultivate (Hak Guna Usaha – HGU)

The right to cultivate title (HGU) gives the user the right to work/cultivate the land for a specific period. This type of land title is usually granted for agricultural activities, such as plantations. In Indonesia’s new capital, holders of the HGU title will be allowed to cultivate the land for 95 years, which can then be extended for another 95 years, totaling 190 years.

This is a huge increase compared to other parts of Indonesia where the HGU title is valid for 35 years and extendable for another 35 years upon expiration.

Right to build (Hak Guna Bangunan – HGB)

The right to build title (HGB) is granted to Indonesian citizens and foreign companies to erect a building on the land. HGB title holders will be eligible to hold the title for 80 years, which can be extended for another 80 years, totaling 160 years.

Outside of Nusantara, HGB title holders can only hold the title for 30 years, and extendable for 20 years. 

Environmental approvals

GR 29/2024 establishes new criteria for granting environmental approvals, a prerequisite for obtaining business licenses. These criteria include an environmental feasibility decision, supported by impact analysis documents or management efforts, and a commitment to environmental oversight. Further details on these approval processes are to be specified in future regulations by the Head of the IKN Authority, which have not yet been issued.

Expanded powers and responsibilities of the IKN Authority

Under GR 29/2024, the Nusantara Capital City (IKN) Authority is now permitted to use funds from the IKN budget to hire certified institutions or experts to validate business licensing. The IKN Authority is a government body established by the Indonesian government to oversee and manage the development of Indonesia’s new capital.

The regulation expands the Authority’s powers over land management, adding planning, security, maintenance, and supervision to its existing roles. It also broadens its authority to provide investment facilities, including special levies and infrastructure support. Additional details on these investment facilities will be outlined in future regulations by the Head of the IKN Authority, which are yet to be issued.

Employing foreign workers

GR 29/2024 clarifies that businesses in Nusantara can only employ foreign workers if their business activities are conducted in the new capital.

Further, businesses in Nusantara that employ foreign workers must appoint an Indonesian worker as a ‘companion worker’ to the foreign worker. The local worker must undertake training and upskilling in line with the qualifications and requirements for the position occupied by the foreign worker. The foreign worker must also return to their home country once their employment permit expires.

The regulations on employing foreign workers aim to encourage the transfer of skills and knowledge to local workers, fostering capacity-building within Indonesia’s workforce. By mandating a companion worker and upskilling, the regulation seeks to ensure that foreign expertise benefits local human resources, potentially creating a more skilled and competitive labor market in the long term.

Conclusion

Overall, GR 29/2024 introduces significant changes aimed at boosting investment in Nusantara. While these changes present new opportunities, particularly for long-term investors, the regulatory landscape remains fluid, and future details will be crucial in determining the overall impact of these reforms.