WHAT IS GRANDFATHER CLAUSE?

You may often hear the term grandfather clause, but what exactly does grandfather clause mean when such clause is specifically linked to investment law in Indonesia? Generally, grandfather clause is an exception principle in a contract that allows the previous regulation to be applied into some situation or context that is currently on going when a new regulation was made for all future situations and contexts.

Furthermore, is there any clear legal basis that regulates this grandfather clause in investment law in Indonesia? The grandfather clause is regulated in article 68 paragraph 1 and 2 of the Regulation of the Head of the Investment Coordinating Board Number 1 of 2020 (“PerKa BKPM 1/2020”), which reads as follows:

"(1) At the time this Board Regulation is valid, the provisions in principle permits, Capital Investment registration, investment registration, investment permits, business licenses, or commercial or operational licenses shall remain valid as long as they do not contradict the provisions or are not specifically regulated in this Board Regulation.

(2) The value of investment and capital as referred to in Article 6 paragraph (2) does not apply to PMA Business Actors who have obtained an investment permit that still valid before the enactment of Government Regulation Number 24 of 2018 concerning Electronic Integrated Business Licensing Services as long as there are no changes of business activities."

We can also find other provision related to the Grandfather Clause in Presidential Regulation Number 44 of 2016 concerning List of Business Fields Closed and Business Fields Open with Requirements in the Investment Sector ("Perpres 44/2016"), namely in article 13, which reads as follows:

"The provisions for implementing Investment activities in Business Fields regulated in this Presidential Regulation do not apply to Investments that have been approved in certain business fields prior to the promulgation of this Presidential Regulation, as stated in the Investment license and/or expansion business license, except if the provisionsis more profitable for the said Investment."

This Grandfather Clause is very important to provide guarantee and legal certainty for investors who intends to invest in Indonesia. Investors do not need to be afraid if one day the line of business they are engaging, have a change in regulations and requirements related to investment or capital, since as long as the business sector has received the necessary permits before any regulations related to these changes are enacted, the investors are not obliged to comply with the new regulations.

Suria Nataadmadja & Associates Law Firm

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