Follow us

Since Indonesia announced its intention to terminate and replace “all of its 67 bilateral investment treaties” (BITs) in 2014, the State has actively renegotiated several BITs. Starting with some of its largest trading partners in the region, Indonesia signed new BITs with Singapore in 2018 and Australia in 2019.

On 9 March 2021, the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia on the Promotion and Protection of Investments (Indonesia-Singapore BIT) came into force after being ratified by both States.

The treaty provides broad protections for investments, balanced with targeted carve-outs to protect the State’s right to regulate, for example in relation to public health, environmental matters, privacy and data protection. Provisions on corporate social responsibility and anti-bribery and corruption also feature in the new treaty.


The Indonesia-Singapore BIT introduces a number of novel features, and investors operating in Singapore and Indonesia should carefully consider their options as early as possible and certainly before any dispute arises. Several provisions of this carefully drafted treaty can also provide useful assistance to international negotiators of investment treaties, such as the provisions regarding balance of payments, taxation, and most-favoured-nation (MFN) treatment.

As we discuss in greater detail below, the Indonesia-Singapore BIT provides complex mechanisms that would apply in the event of a dispute, including:

  1. Exclusion of dual nationals and permanent residents in certain contexts;
  2. Denial of benefits to mere holding companies or companies controlled by investors from third States;
  3. Jurisdictional limits for investments that do not satisfy the characteristics of an investment under international law;
  4. Limited invocation of most-favoured nation treatment and rights under Indonesia and Singapore’s future investment treaties;
  5. Impact of joint statements issued by tax authorities of Indonesia and Singapore on disputed taxation measures;
  6. Suspension of IP protections through compulsory licensing;
  7. Notice requirements in a serious financial crisis;
  8. Compulsory consultations and mandatory waiting period before submitting the dispute to arbitration;
  9. Request for a factual report in a voluntary mediation;
  10. An investor’s right to request to review an arbitral tribunal’s draft award; and
  11. Mechanisms applicable to costs of the arbitration and third party funding of claims.



Existing investments are protected

The 2005 bilateral investment treaty between Indonesia and Singapore expired in 2016. The entry into force of the new Indonesia-Singapore BIT may come as a relief to many investors given that Singapore was Indonesia’s largest source of foreign investment in 2020. Importantly, the Indonesia-Singapore BIT applies to investments “in existence” as of 9 March 2021, as well as to investments “made, established, acquired or expanded thereafter”.[1]

Investments by permanent residents may be protected

Permanent residents of both Indonesia and Singapore are covered by the definition of protected investors, although they have rights under the Indonesia-Singapore BIT only where both States “recognise permanent residents and accord substantially the same treatment to their respective permanent residents as they accord to their respective nationals in respect of measures affecting investment”.

Further, dual nationals would be deemed to possess “exclusively” the nationality of their dominant and effective nationality.[2] Dual nationals should therefore seek advice on the “dominant and effective nationality” test under international law.

Broad protection for investments with sophisticated carve-outs

Signalling both States’ openness to foreign investment, the Indonesia-Singapore BIT provides broad protection for investments, which are defined broadly as including: “shares, stocks and other forms of equity participation in an enterprise, including rights derived therefrom” and “claims to money or to any contractual performance related to a business and under contract having an economic value”.[3]

The broad definition of investment in the Indonesia-Singapore BIT is limited by a substantive requirement that the “characteristics of an investment include the commitment of capital, the expectation of gain or profit, the assumption of risk or certain duration”. The Indonesia-Singapore BIT also expressly excludes from the definition of protected investments “an order or judgment entered in a judicial or administrative action or an arbitral award made in an arbitral proceeding”. This exclusion appears to signal the States’ concern that an order, judgment or commercial arbitration award in either State could potentially give rise to an investor-State claim.

Separately, holding companies are not entitled to protection if they have “no substantive business operations” in the home State, meaning that investments in Indonesia held via a Singapore-incorporated company with no substantive business operations in Singapore may not be protected, and vice-versa.[4]  Further, investors from third States that do not maintain diplomatic ties with the State in which the investment was made, who own more than 50 per cent interest or hold the power to appoint a majority of the directors of an enterprise, may not be entitled to protection. For example, Indonesia currently has no diplomatic ties with Israel and consequently, investments made by Israeli investors via Singapore may not qualify for protection.

Most-favoured-nation treatment for future BITs

The most-favoured-nation treatment clause of the 2005 Indonesia-Singapore BIT required the host State to extend to investors any more favourable treatment that it gave to investors from third States or to its own investors.[5]  Interestingly, the new Indonesia-Singapore BIT now excludes the privileges of MFN treatment that were contained in the States’ existing BITs or other investment agreements from before 9 March 2021.[6]  This mechanism reflects their desire for a clean break from old BITs and that the privileges contained in terminated BITs should not be revived and invoked by investors under the new Indonesia-Singapore BIT. However, this MFN clause still provides investors a guarantee of any MFN treatment that will be accorded to investors in any future treaties signed by Indonesia or Singapore.

Greater certainty through careful drafting of this MFN clause could offer a useful template for international negotiators of future BITs. Under Article 5(3), an investor may not invoke dispute settlement provisions of BITs with third States; and under Article 5(4), an investor may not claim the right to MFN treatment where “no measures have been adopted or maintained” by the State to accord investors of the third State more favourable “treatment”.



Regulatory space for compulsory licensing, taxation and expropriation for a public purpose

Protection of intellectual property rights for pharmaceuticals have come under significant scrutiny since the Covid-19 pandemic. Article 6(6) of the Indonesia-Singapore BIT is of particular relevance here, as it allows the States to issue compulsory licenses granted in accordance with the Agreement on Trade-Related Aspects of Intellectual Property Rights under the WTO Agreement (TRIPS) without incurring any liability under the Indonesia-Singapore BIT for expropriation.

Claims arising from taxation measures are subject to a special regime. When an investor claims that its investment has been expropriated by a taxation measure, the Indonesian and Singapore tax authorities may agree within six months that such taxation measure is not an expropriation.[7]

Corporate social responsibility and measures against corruption

The Indonesia-Singapore BIT affirms the “importance of encouraging enterprises […] to voluntarily incorporate into their internal policies those internationally recognised standards, guidelines, and principles of corporate social responsibility that have been endorsed or are supported by that Party” and “that bribery and other forms of corruption in any investment activities can undermine democracy and rule of law, discourage foreign investment and adversely affect economic development of the Parties”.

Although such provisions are apparently not designed as enforceable obligations, their inclusion in the Indonesia-Singapore BIT signals the concern of both States that investors should adhere to international standards relating to responsible business conduct. States and investors alike should seek advice as to whether these provisions could be used to prevent or deny a claim by an investor that fails to adhere to these standards.

Balance of payments

As governments across the world incur billions of dollars in budget deficits to ease the financial difficulties caused by the Covid-19 pandemic, safeguarding their balance of payments will become increasingly important.

Reflecting both Indonesia and Singapore’s wish to safeguard their balance of payments and the stability of their currencies against foreign exchange rates, unlike the 2005 BIT, the new Indonesia-Singapore BIT contains a uniquely worded provision to safeguard the macro-economic interests of both States. Article 9 of the Indonesia-Singapore BIT provides as follows:

“…in the event of serious balance of payments and external financial difficulties or threat thereof, or in cases where, in exceptional circumstances, movements of capital cause or threaten to cause serious difficulties for macroeconomic management, in particular, monetary and exchange rate policies, a Party may adopt or maintain restrictions on payments, transfers or capital movements, related to investments.”

Although this safety valve recognises “particular pressures on the balance of payments of a Party in the process of economic development” as well as “the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development”, these measures must “not exceed those necessary to deal with the circumstances”, “be temporary and phased out progressively” and “applied on a non-discriminatory basis”.[8]

Accordingly, any capital restriction measures taken by Indonesia or Singapore to address a financial crisis would be examined in detail by an international arbitral tribunal. Additionally, each State is required to promptly notify the other State Party, which must “promptly agree” to a request for consultation to “review the restrictions adopted by it”.[9]

States and investors alike should seek advice on the process to invoke requests for consultations and managing a financial crisis in light of the international law principles of necessity, proportionality, and non-discrimination.



The Indonesia-Singapore BIT provides a sophisticated, multi-tiered dispute resolution mechanism comprising: (i) mediation; (ii) consultations; and (iii) international arbitration.

Voluntary mediation

Mediation is voluntary and the parties would have to bear their own expenses. Interestingly, a mediator may issue a written factual report upon request, but the “factual report shall not include any interpretation of this Agreement”.[10]  Thus, a mediator may face the creative challenge of assisting the parties to narrow down their dispute by reaching agreement on certain facts, even if they are unable to agree on legal issues.

Compulsory consultations and international arbitration proceedings

Investors must initially seek to resolve their dispute through consultations.[11] The investor is then obligated to wait one year from the date of their request for consultation before the claim can be submitted to an international arbitral tribunal pursuant to the ICSID, ICSID Additional Facility or UNCITRAL Arbitration Rules. The arbitrators must have “experience or expertise in public international law”.[12]

Investors have a new, interventionist right to comment on the arbitral tribunal’s award. A disputing investor has the right to request to review the arbitral tribunal’s draft award, and to submit comments to the tribunal. In the Indonesia-Singapore BIT, this right is limited to the “disputing investor”, in contrast to the 2019 Myanmar-Singapore BIT which provides this right to any “disputing party”.[13]  In addition to the chosen arbitration rules, Article 24(4) of the Indonesia-Singapore BIT provides as follows:

In any arbitration conducted under this Section, at the request of a disputing investor, a tribunal shall, before issuing a decision or award on liability, transmit its proposed decision or award to the disputing parties. Within 60 days after the tribunal transmits its proposed decision or award, the disputing parties may submit written comments to the tribunal concerning any aspect of the proposed decision or award. The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period.” [Emphasis added.]

The arbitral tribunal is obligated to consider the comments within 45 days of receipt. It is uncertain how such comments would feature into considerations of due process at the stage of enforcement of the award before domestic courts.

Article 25 states that the arbitral tribunal “shall order that the costs of the proceedings be borne by the unsuccessful disputing party”. This robust cost-shifting presumption would also apply against a losing State. Conversely, to discourage speculative claims and the risk of the State being unable to claim an award of its legal costs against an unsuccessful investor, Article 18 requires disclosure of third-party funding, and Article 26 provides the arbitral tribunal with express jurisdiction to order security for costs against an investor “if there are reasonable grounds to believe that the disputing investor risks not being able to honour a possible decision on costs issued against it”.



The ratification of the new Indonesia-Singapore BIT brings into force long-awaited protection for investors, which may both give an important boost to the economic recovery of the two countries amid the Covid-19 pandemic and support the potential realisation of USD200 billion annual investment in the region by 2030.

By David Dawborn, Gitta Satryani, Tomas Furlong, Antony Crockett and Christine Sim


[1]       Indonesia-Singapore BIT, Article 2(1)

[2]       Ibid, footnote 7

[3]       Ibid, Article 1

[4]       Ibid, Article 36

[5]       2005 Indonesia-Singapore BIT, Article III

[6]       Indonesia-Singapore BIT, Article 5

[7]       Ibid, Article 43

[8]       Ibid, Article 9

[9]       Ibid, Article 9

[10]      Ibid, Article 16(5)

[11]      Ibid, Article 15

[12]      Ibid, Article 19(3)

[13]      2019 Myanmar-Singapore BIT, Article 18(4)

Gitta Satryani photo

Gitta Satryani

Partner, Singapore

Gitta Satryani
Antony Crockett photo

Antony Crockett

Partner, Hong Kong

Antony Crockett
Tomas Furlong photo

Tomas Furlong

Partner, Singapore

Tomas Furlong

Key contacts

Gitta Satryani photo

Gitta Satryani

Partner, Singapore

Gitta Satryani
Antony Crockett photo

Antony Crockett

Partner, Hong Kong

Antony Crockett
Tomas Furlong photo

Tomas Furlong

Partner, Singapore

Tomas Furlong
Gitta Satryani Antony Crockett Tomas Furlong