A growing middle class, abundant natural resources, and a large young population are a few factors that attract foreign investors to start businesses in Indonesia. Much like in any other country, foreign investment in Indonesia has a significant impact on various aspects of the nation’s economic growth.
Overview of Foreign Investment in Indonesia
As the name indicates, foreign direct investment (FDI) or simply known as foreign investment, refers to an investment conducted by a foreign company or individual in a business venture, in this case, one that is based in Indonesia.
Foreign investment is essential for developing countries with emerging markets like Indonesia. They offer various advantages to the country, such as follows:
- Human capital development: Local employees gain skills through training and working experience in foreign-owned companies. This can boost the country’s human capital and educational system.
- Technology: Foreign investment often brings much advanced technologies to streamline businesses in the targeted countries. This, of course, benefits the country and local businesses as well, for they get access to the newest technologies.
- Create a healthy competitive market: FDI aids in the development of a competitive market by dismantling domestic monopolies. This encourages innovation by pushing businesses to continually improve their lines of business.
How to Start an FDI Company in Indonesia?
Foreign business owners may establish a business in Indonesia in the form of PMA (Penanaman Modal Asing), which literally translates to a foreign-owned company. The establishment of the legal entity is in accordance with the Law No. 40 of 2007 on Limited Liability Companies.
To start a foreign direct investment company, you must first pay a visit to the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM). It is the investment management body that manages all foreign investments in Indonesia.
To be able to establish a company in Indonesia as a foreign investor, here is what you must do:
- First of all, you will need to apply for the Deed of Establishment that will be approved by the Ministry of Law and Human Rights. This does apply to both local and foreign-owned limited liability companies.
- Obtain your company’s taxpayer ID number (Nomor Pokok Wajib Pajak/NPWP) at the local tax office.
- Apply for the certificate of domicile at the local authority your company will be established.
- Apply for the company registration certificate at a government office.
- Obtain a 12-month temporary business permit; this one is optional.
- Obtain a permanent business permit.
The Minimum Amount of Foreign Investment
Foreign investment in Indonesia can be started at a minimum of IDR10 billion. This is approximately US$660,000 at the current exchange rate. Given this, foreign investors or companies should disclose around 25% of the total minimum investment price. This is for paid-up capital of at minimum US$165,000 or approximately IDR2.5 billion.
However, specific industries may need to request a much more considerable amount. The said industries include manufacturing, mines, and finance. It’s not without reason why the government imposes a minimal amount of investment. The regulation means to help in retaining local companies in all sectors of the economy.
Meanwhile, a more significant minimum investment requirement benefits foreign businesses by helping them focus their investment on major industries. A defined amount of paid-up assets and equity also ensures that companies have the required resources to conduct profitable operations in Indonesia.
The Issuance of Foreign Investment Registrations
The legal process of establishing a foreign direct investment company in Indonesia may take 2-3 months. Suppose the requirements are completed and approved by the BKPM. In that case, you will obtain the certificate of investment within one business day.
This is per the Order of the Chairman of the BKPM No. 13 of 2017 on Regulations and Procedures for Investment and Licensing Facility. Important to note the investment registration for your business is effective for 1 to 5 years. You will need to renew it after expiration.
Now you know what steps to take if you plan to make foreign investment in Indonesia. Prior to selecting industries to invest your money in, make sure to conduct thorough research. If you require assistance establishing the right business in Indonesia, IZIN.co.id is always here for you. We have years of experience assisting over 8,000 in establishing their dream businesses. For further information, don’t hesitate to reach us through email at cs@izin.co.id or via WhatsApp.
