• Foreign Ownership
  • Foreign entrepreneurs can set up a foreign direct investment company in Indonesia (commonly known as Penanaman Modal Asing, or PMA) either by setting up:
    • A limited liability company which is 100% foreign owned or
    • A limited liability company through a joint venture with Indonesian partners
      • In the case of a joint venture, the Indonesian partner is required to hold at least 5% of the shares while the foreign owner can have 95% shareholding in the company.
  • Additionally, the Indonesian government regulates the fields of business activity that are open to foreign investment. At present there is a list of business fields:
    • Closed to foreign investment
    • Open to foreign investment with certain conditions
    • Open to foreign investment only by way of a joint venture
    • Open to 100% foreign investment
  • Minimum Statutory Requirements
    • Foreigners who wish to incorporate a company in Indonesia must comply with the following requirements: a local registered address; at least 1 director (need not be a local resident); minimum of 2 and maximum of 50 shareholders (natural persons or corporates) and a commissioner. In addition, there is a minimum authorized capital requirement of USD 1.000.000 while the issued and paid-up capital requirement is 25% of the authorized capital.
  • Incorporation Procedure
    • Company incorporation in Indonesia is tedious and time consuming, taking up to 6 to 10 weeks to complete all formalities. The incorporation process involves the following steps:
      • Submit a company incorporation application along with supporting documents to the Capital Investment Coordinating Board (BKPM). Application processing takes around   2 to 5 weeks, upon which the BKPM will issue an in-principle business license valid for 3 years. During this period the foreign entrepreneur must make the necessary investment and begin commercial operations in Indonesia. Execute a Deed of Establishment (Akte Pendirian) which contains the company’s Articles of Association before a notary. The company is not a limited liability company at this stage. Obtain a Letter of Domicile from the landlord of the office premises and the regional government office (SKDP), which states the address of the company. Register with the tax office for a tax registration number (NPWP) and obtain VAT (an indirect tax of 10% applied to the selling price of goods and services). Submit the executed deed, letter of domicile, tax registration number and bank statement to the Ministry of Law and Human Rights (MOHLR) and receive approval within 4 to 6 weeks. Upon approval the company is considered a limited liability company. Register the approved deed with the Department of Trade (TDP). Obtain other relevant business licenses and permits, if applicable. Open a corporate bank account. Obtain a Business License (IU) from BKPM valid as long as the business viable.
    • Incorporation Time-line
      • In Indonesia it can take anywhere between 4 to 12 weeks to incorporate a company.
  • Annual Filing Requirements
    • In Indonesia, companies must submit annual returns along with audited annual accounts to the Companies Registry. Tax returns along with audited accounts must be filed with the Indonesian tax authority each year.
• Establishing an Indonesian Limited Liability Company (PT PMA)
  • The common type of presence for a foreign investor who wants to invest and engage in business in Indonesia is by establishing an Indonesian incorporated limited liability company, commonly known as a PMA company 

  • A PMA Company must be established in the form of a PT (limited liability company), and as a limited liability company, in line with the Company Law, the PMA Company must have at least 2 (two) founders or shareholders. The decision on whether it will be incorporated as a 100% foreign owned PMA Company or as a JV Company (JV here means cooperation with Indonesian partner) will be based on the business fields the foreign investor will enter, and the above-mentioned Negative List will serve as the guidance for foreign investors in determining their shareholding composition of the PMA Company.
    • Both a 100% foreign owned companies and JV companies must have an approval from BKPM to obtain a principle licence from the BKPM. This principle licence serves as an investment permit that authorises the foreign investor to establish the company 
Once the principle licence has been granted, a deed of establishment (which contains the articles of association of the company) can be drawn up before a notary. Once the deed of establishment has been signed by the founders or shareholders, the PMA company must apply and obtain ancillary licences (i.e., a certificate of company domicile and taxpayer registration number) from the relevant government authorities.
    • The deed of establishment must then be submitted (through the notary) to the MOLHR for approval. Once the deed of establishment has been approved, the PMA company obtains the status of a limited liability company. Next, the PMA company must be registered at the Company Registry Office (at the Ministry of Trade) to obtain a registration certificate. After obtaining the MOLHR’s approval and ancillary licences, the PMA company may open a bank account, and the founders must 
subsequently transfer the nominal amount of the shares they subscribe for to this bank account.
  • Management Structure of a PT. PMA
    • There are not regulations which specifically regulate on the nationality of the persons who hold a seat in the management board of a Joint Venture Company.
Under the Company Law, a PT‘s management structure is a two-tier management structure that comprises the Board of Directors (“BOD”) as the executive board and the Board of Commissioners (“BOC”) as the supervisory board. The BOC does not have an executive function or authority, except in the absence of all of the members of the BOD or in the event that all of the members of the BOD have a conflicting interest with that of the company.
    • The BOD is fully responsible for the management of the company in the interests of the company and in accordance with the purposes and objectives of the company. It is the organ that represents the company in and out of court in accordance with the provisions of its articles of association. The BOC is defined as the company’s organ that has the duty to conduct supervision and provide advice to the BOD.
    • Under Presidential Decree No. 75 of 1995 on the Use of Expatriate Manpower (“PD 75”), foreign nationals from any nationality can serve as members of the BOD or BOC in a foreign wholly owned or joint venture or PT. PMA.
  • Post Incorporation Legal Matters and Compliances Issues
    • Beside the above approvals/documents, there are other licenses/approvals/documents required. The licenses/approvals/documents required are among others, as follows:
      • Approvals for tax and custom facilities (which depend on the line of business the PMA 
Company might be granted) on imports of capital goods or raw materials; 

      • Producer Importer Identification Number (if the PMA Company will be importing goods 
by itself); 

      • Approval of the Foreign Manpower Plan and other related approvals/documents (if the 
PMA Company hires expatriates); 

      • Location Permit (if the PMA Company will be acquiring land); 

      • Nuisance Permit (if the location and the line of business of the PMA Company will cause 
a nuisance to its surroundings); 

      • Building Permit (if the PMA Company is going to erect a building).
    • Please also bear in mind that certain business sectors might require a PMA Company to obtain a business license from the relevant technical ministry having tasks and responsibilities in the business sectors concerned.
  • Representative Office
    • Foreign companies are permitted to establish a representative office in Indonesia. However, unlike a PMA company, a representative office has more restrictions on its activities. A representative office can only perform marketing or promotion activities, market research and review of business opportunities in Indonesia. It cannot engage in any commercial activities or generating revenue in Indonesia.
    • Representative offices are available for foreign companies engaged in certain sectors which include trading, services, oil and gas mining and banking. An exception applies to representative offices of foreign companies engaged in construction services. This type of representative office is allowed to deliver construction services in Indonesia under a joint operation with a local construction company.
    • Branch
      • A branch office is generally not allowed, except for the banking sector.
    • Others
      • Other types of presence for conducting business in Indonesia include a Production Sharing Contract with the Indonesian government. This is common in the oil and gas mining upstream sectors.
A foreign company can also choose an indirect presence by appointing a local company as an agent or as a distributor to market and sell its products in Indonesia.
  • Land Rights
    • Indonesian land legislation does not recognise the concept of freehold land rights. Instead, various rights attached to land are divided into separate elements and areas subject to separate titles. The Basic Agrarian Law recognises several types of land rights:
      • The right of ownership (hak milik) is an inheritable right that can be held only by Indonesian citizens.
    • For a company, including PMA company, there are three main rights where the differences lie in the rights duration of validity, the nature of utilisation, the opportunities to mortgage and proof of title:
      • Right of exploitation (hak guna usaha). This is a right to cultivate state-owned land for agriculture and plantation purposes. The duration is a maximum of 35 years, extendable for another 25 years. 

      • Right of building (hak guna bangunan). This is a right to construct and own buildings. This right can be granted for a maximum of 30 years, extendable for 20 years and may be renewed at the discretion of the local government. 

      • Right of Use (Hak Pakai) Foreign investors who have obtained mining rights from the Minister of Energy and Mineral Resources or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the companies. 

    • All land rights should be registered at the Land Register at the National Land Agency (Badan Pertanahan Nasional – BPN).

PT. BINKA CONSULTING
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