Setting Up a Foreign Direct Investment Company in Indonesia (What You Need to Know)

Indonesia’s investment sector has been seeing rapid growth in recent years. According to the Indonesia Coordinating Investment Board (Badan Koordinasi Penanaman Modal, or BKPM), the number of investments received from both foreign and local economies have reached IDR 692,8 billion (SGD 66 million) – a year-on-year increase of 16.4%.

Currently, a total of 245 infrastructure projects are seeking capital investment of up to IDR 4,000 billion (SGD 381 million). This includes projects in the following sectors:

• Energy
• Electricity
• Toll road
• Railways
• Special Economic Zones

If you are considering to invest in Indonesia as part of your business expansion strategy or a new business idea, Indonesian management consulting firm Easybiz has summarised 10 points which you should know about establishing a Foreign Direct Investment company in Indonesia.

1. Stages of Establishing a Foreign Direct Investment Company (PMA) in Indonesia

“PMA” (Penanaman Modal Asing) is an Indonesian acronym for Foreign Direct Investment. The stages of establishing a PMA company in Indonesia are as follows:

1. Registration of Investment (Pendaftaran Penanaman Modal);
2. Establishment of Limited Liability Company (Perseroan Terbatas, or PT Company): This requires the execution of a Deed of Establishment and approval from the Minister of Law and Human Rights of the Republic of Indonesia;
3. Taxpayer Number (Nomor Pokok Wajib Pajak);
4. Certificate of Domicile (Surat Keterangan Domisili Perusahaan);
5. Company Registration Certificate (Tanda Daftar Perusahaan);
6. 1-Year Temporary Business Licence (Izin Usaha 1 Tahun): This is optional, please see point 10 below; and
7. Permanent Business Licence (Izin Usaha).

Please note that additional technical permits or recommendations from the relevant government institutions may also be required depending on the activities of your PMA company.

2. Limitations on Foreign Ownership of the PMA Company

PMA companies must be established in the form of a limited liability company (i.e. PT companies). Among other requirements, PT companies are required to have at least 2 shareholders.

While foreigners are generally allowed to be the majority or sole owners of PMA companies, certain business fields have limitations on the foreign ownership percentages of PMA companies.

3. Minimum Investment Amount

The proposed amount of investment for your Foreign Investment Company in the Registration of Investment must exceed IDR 10 billion (SGD 953,000) excluding land and buildings, unless otherwise stated by the related ministry/institution.

4. Source of Capital

The source of capital for the minimum investment mentioned above may consist of equity, retained earnings and/or loans.

• Equity

When establishing the PMA company as a PT, the paid-up capital of the company has to be at least IDR 2.5 billion (SGD 229,000) or as determined by the regulatory sector for certain business fields.

Each shareholder of the PMA company will also have to own at least IDR 10 million (SGD 951) worth of shares the PMA company.

• Loans

Apart from equity, the remaining source of investment capital when establishing the PMA company may come from loans. These loans can be either onshore or offshore loans, provided that the total capital is at least IDR 10 billion (SGD 953,000) as stated in point 3 above.

5. Investment Plan

Prior to the establishment of the PMA company and applying for the Registration of Investment, you should prepare an investment plan. This investment plan will be attached to your application for the Registration of Investment.

Your investment plan should include the following information:

1. Business field, project location, production type/capacity to be produced or traded in a year, land area, number of Indonesian workers to be hired and investment value;
2. The amount of fixed capital (modal tetap);
3. The amount of working capital (modal kerja);
4. Annual production and revenue targets;
5. (For PMA companies in the industrial sector) A flow chart of your company’s production process, with detailed explanations on the processes and types of raw materials to be used.
6. (For PMA companies in the service sector) Details on the activities and services to be provided

This article originally was published at SingaporeLegalAdvice dated 25 April 2018

6. Project Location

“Project location” refers to the area(s) in which the production/processing of raw materials into intermediate/finished goods will occur, or the place(s) of activity for your company’s services.

PMA companies engaged in industrial businesses are to be located in industrial estates (except for certain business sectors, in accordance with regulations).

7. Timeline for Issuance of the Registration of Investment

After receiving your application for the Registration of Investment (including the proposed investment plan for your PMA company), BKPM will assess whether you are qualified to invest or start a business in Indonesia.

If your application is approved, then based on the Regulation of the Chairman of Capital Investment Coordinating Board Number 13, Year 2017, on Guidelines and Procedures for Licensing and Investment Facility, BKPM will issue you with the Registration of Investment within 1 working day of receiving your application.

8. Validity of Registration of Investment

The Registration of Investment will be valid for 1 to 5 years as determined by BKPM (subject to the characteristics of the proposed business).

In other words, the PMA company must implement its proposed investment within this stated period of time.

9. Evidence of Realisation of Investment as Requirement for Permanent Business Licence Application

After obtaining the Registration of Investment and establishing the PMA company, the next step is to obtain a Permanent Business Licence.

PMA companies can only start production/operations with a Permanent Business Licence, unless otherwise stated by prevailing regulations.

The Permanent Business Licence can only be obtained after the PMA company has realised more than IDR 10 billion (SGD 953,000) of investment value, as evidenced in the Financial Statement of the Company and Investment Activities Reports submitted to BKPM.

10. Purpose of the Temporary Business Licence

It is optional for PMA companies to obtain the Temporary Business Licence. PMA companies will need to obtain it only if the PMA Company has yet to fulfill the required investment to obtain the Permanent Business Licence.

At the same time, obtaining the Temporary Business Licence will help the PMA Company to process other technical licences, such as its Import Identification Number and Custom Registration.

The Temporary Business Licence is valid for only 1 year, with the possibility of extension for another year. Therefore with the Temporary Business Licence, a PMA company will have up to 2 years to fulfil the requirements for obtaining the Permanent Business Licence.

If your PMA company does not have the Temporary Business Licence but has already fulfilled the requirements for obtaining the Permanent Business Licence, you can directly apply for the Permanent Business Licence for your company without applying for the Temporary Business Licence.