If you’re a foreign investor looking to expand your business in Southeast Asia, Indonesia is an excellent destination. With its vast potential and growing economy, the country offers numerous opportunities for foreign companies to establish a foothold and tap into its market. However, establishing a foreign company in Indonesia can be a complex process that requires a thorough understanding of the legal requirements and regulations.
The Legal Protection to Establish Foreign Company in Indonesia
Under the New Investment Law (Law No. 25/2007), foreign investment in Indonesia is when a foreign investor engages in business activities.
The legal entity that allows foreign individuals, companies, or government bodies to operate a business and generate revenue in Indonesia is the PT PMA, as outlined in the Company Law (Law No. 40/2007). A PT PMA can be owned either wholly or partially by foreign entities, and Company Law regulates the process of establishing one.
It’s crucial to note that not all sectors in Indonesia are open to foreign investment. Some sectors are entirely closed off, while others are partially open, limiting foreign ownership to a certain percentage.
To check which sectors are open and their respective limitations, you’ll need to refer to “Daftar Negatif Investasi” or the Negative Investment List, which is compiled and frequently updated by BKPM, the Indonesia Investment Coordinating Board.
If a sector is partially open, the list will indicate the maximum percentage of foreign ownership allowed. You must partner with a local Indonesian entity to conduct business in that sector.
Two Basic Questions to Consider before Investing in Indonesia
Before investing in Indonesia, there are two crucial questions that foreign investors should ask themselves:
- What type of legal entity is required – a PT PMA (company) or a KPPA (representative office)?
To engage in sales and generate revenue or profit in Indonesia, you must establish a PT PMA. On the other hand, if you’re only interested in exploring business opportunities in Indonesia, such as conducting market research or networking, without taking a part in commercial transactions. Thus, it’s best to set up a representative office. If the analysis yields positive results, you can establish a PT PMA.
- Is the sector you want to invest in open to foreign investment? If yes, what percentage of ownership is allowed for foreign investors?
To find the answer, refer to the Negative Investment List, which will be updated regularly by the BKPM—Indonesia Investment Coordinating Board. You can find the latest revision in Presidential Regulation No. 44/2016. You have to make a partnership with a local entity if the sector you choose need partial domestic ownership.
Procedures to Establish a Foreign Company in Indonesia
If you’ve decided to establish a foreign investment company in Indonesia, you must approach the BKPM, the government agency responsible for foreign investment. However, the process of company registration Indonesia can be complicated and time-consuming, especially for foreign investors new to Indonesia. To simplify the process, many foreign investors opt to engage the services of a local company specialized in PMA company registration or representative office in Indonesia.
The costs and time required for setting up a PT PMA can vary, depending on the sector, but typically cost around USD 3,000 and take about ten weeks to complete. Alternatively, you can acquire an existing PT PMA or PT (Perseroan Terbatas) and convert it into a PT PMA.
Licenses and Documents Required for Establishing Foreign Company in Indonesia
You must obtain several licenses and documents to establish a PT PMA in Indonesia. The following licenses/documents are generally required:
- Principle License & Business License from BKPM
- Legalized Deed of Establishment (Articles of Association) by a Public Notary
- Legal Entity Status Legalization from the Ministry of Law and Human Rights
- Domicile Letter from the Local District Authority
- NPWP—Tax Identification Number and PKP—Taxable Entrepreneur Confirmation from the Tax Office
- TDP—Company Registration Certificate from the BPPT—Agency for Integrated Licensing Services
- Company Welfare & Manpower Report from Ministry of Manpower’s Sub-Department
To set up a PT PMA in Indonesia, foreign investors must comply with the minimum capital requirements for foreign investment, currently set at IDR 10 billion (or equivalent in USD). Typically, paid-up capital is 25% of the minimum capital requirement, or IDR 2.5 billion. However, in some capital-intensive industries, paid-up capital requirements may be higher.
Setting up a foreign company in Indonesia requires careful consideration of legal entity type, sector restrictions, and minimum capital requirements. You’ll need legal advice and assistance from specialized local companies to navigate the procedures at BKPM and other institutions. While the process can be complex, Indonesia offers attractive investment opportunities for those willing to navigate the requirements. 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.
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