Implementing Regulation on Special Economic Zones

Government Regulation No. 2 of 2011 on the Implementation of Special Economic Zones (KEK) (“Regulation”) has been issued to further implement Articles 9 and 12 (6) of Law No. 39 of 2009 on Special Economic Zones (“Law”).

Article 4 (1) states that a formation of an Special Economic Zone can be proposed to the National Committee by business entities, regencies/municipalities, or the provincial government. Only in certain matters can the government designate a region as a Special Economic Zone based on a proposal made by a ministry or a non-ministerial government body (Article 5).

The proposal of a Special Economic Zone location must be in accordance with spatial planning and must not interfere with protected areas, must be supported by the respective provincial government and/or regency and/or municipality, and must be in proximity to an international trade or marine route, as required under Article 7. Further, Article 9 provides that the form of support must at least cover the following items:

In the event the proposal to form a Special Economic Zone is made by business entities, the proposal can only be filed to the provincial government once a recommendation is received from the regency/municipality (Article 12).

Under Article 12 (2) (e), the legal entity proposing the formation of a Special Economic Zone must have at least 30% of the equity necessary to support the investment in the proposed Special Economic Zone, and for that purpose must submit a statement letter alongside with its proposal application.

The National Committee will perform an assessment of the proposal within 45 working days, pursuant to Article 27, after receiving the complete set of application documents.

Pursuant to Article 29, once the National Committee approves the formation of a Special Economic Zone, the Special Economic Zone must be operable within 3 years from the approval date.

After the formation of a Special Economic Zone, the management of the Special Economic Zone is performed by an administrator and a management body (Article 42). Pursuant to Articles 43 through 46, the administrator will generally act as a regulatory body in the Special Economic Zone. And, pursuant to Articles 47 through 49, the management body will generally be the business entity conducting business activities in the Special Economic Zone. If the Special Economic Zone was formed based on a proposal from a business entity, the business entity will be appointed as the management body. Otherwise, the institution proposing the formation of the Special Economic Zone will have the authority to appoint the management body. The business entity will enter into a Special Economic Zone management agreement with the relevant regency/municipality, provincial government, or ministry/non-ministerial institution.

The Regulation has been in force since 5 January 2011.