- Establishing a foreign investment company is the preferred strategy for international investors looking to have a legal presence in Indonesia.
- Foreign investors are advised to study the Negative Investment List to see which sectors are open to foreign ownership.
- Foreign investment companies are eligible to receive various financial and non-financial incentives, particularly for those engaging in pioneer industries.
Establishing a foreign investment company or PT PMA, is the preferred structure for companies looking to have a legal presence in Indonesia.
Foreign investors will need to have an investment plan of a minimum of 10 billion Rupiah (US$750 thousand) and a minimum paid-up capital equivalent of 2.5 billion Rupiah (US$178 thousand).
Prior to setting up, applicants should study the Negative Investment List (NIL) to see which business sectors are unavailable or restricted for foreign ownership. For business sectors that are restricted, foreign investors will need to engage in a joint venture with a local company.
Set up requirements for a foreign investment company
According to the Indonesian Investment Coordinating Board's (BKPM) Regulation No 5 of 2013, investors looking to incorporate a PT PMA need to adhere to the following requirements:
- A total investment plan of a minimum of 10 billion Rupiah (US$750 thousand) (excluding land and properties);
- A minimum paid up capital of 2.5 billion Rupiah (US$178 thousand or equivalent to 25 percent of the total investment);
- Appointment of two shareholders (these can be foreign individuals or corporations);
- There must be minimum equity of 10 million IDR (US$715) per share;
- The appointment of at least one commissioner and a director (these can be held by foreign individuals); and
- The director will be responsible for running the day to day activities of the company.
Set up process for a PT PMA
- Reserve a company name with the Ministry of Labor (which should not be similar to the name of other companies or use vulgar language);
- Establish a legal entity with the company's activities stated in the Deed of Establishment (this must be done with a local notary and the Deed of Establishment will have to be ratified by the Ministry of Law and Human Rights);
- Obtain a taxpayer identification number from the local tax office and domicile letter from the district government;
- Obtain a Single Business Number (NIB) by applying through the Online Single Submission system (the NIB applies as the company's import identification number, customs ID, and registration certificate; the NIB will also automatically register your company under the government's health and social security scheme); and
- Some companies may need to apply for additional licenses (such as for mining and fintech) based on the type of industry.
Advantages of PT PMAs
There are several advantages to PT PMAs, including:
- Special financial and non-financial incentives, particularly in pioneer industries;
- Incentives for setting up in special economic zones (SEZs);
- Foreign investors can own as little as one percent and as much as 100 percent of the company (depending on the industry);
- Able to participate in government-sponsored business tenders in the country;
- Ease of processing for business licenses;
- Ease of processing for work permits;
- Lower tax and import duties;
- Simple organization structure (requiring only one director, one commissioner, and two shareholders); and
- Ability to sponsor foreign executives and employees.
There are no restrictions on where the PT PMA can set up in the country, but the business can only focus on one specific sector or area.
Moreover, all applicants will need approval from the BKPM and should submit an investment plan (this must show their intended investment realizations).
A note on the local limited liability company
Foreign investors who want to operate a local limited liability company (PT PDMN) should understand that this can carry legal uncertainties as a PT PDMN can only be owned by Indonesian citizens.
According to Article 33 of the Investment Law of 2007, foreign investors are prohibited from making an agreement that states the share/ joint ownership in a company is on behalf of another party. Also known as a 'nominee agreement', foreign investors have used such arrangements to avoid regulations and requirements that apply to them.
This carries inherent risks as the local shareholders will have full control of the business and the foreign investors' rights will not be recognized by the law.
Foreign investors who cannot afford to establish a PT PMA can engage in joint ventures or partnerships with domestic firms. This will also enable investors to enter industries that are restrictive for foreign ownership without having to face the legal ramifications.
Another option would be to buy an established PT PDMN, but this entity would need to be converted to a PT PMA. This would also mean having an investment plan of a minimum 10 billion Rupiah (US$750 thousand) and paid-up capital of 2.5 billion Rupiah (US$178 thousand).
This article was originally published on September 19, 2018, and was updated on January 7, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.