Establishment of a company in Indonesia is done through a foreign investment and is subject to specific establishment requirements. A foreign investment is by law 25 of 2007 (Investment Law) defined as an investing activity conducted by a foreign investor for running a business inside Indonesia (including company establishment). Such foreign investment can be conducted either by using 100% foreign capital (which is subject to certain restrictions) or by partially using domestic capital. A foreign investor can be a foreign person, a foreign company or a foreign government body.
Type of company establishment in Indonesia
Article 5(2) Investment Law stipulates that, unless regulated otherwise, foreign investors can perform a foreign investment in Indonesia by establishing a limited liability company based on law number 40 of 2007 (Company Law) and its implementing regulations. A foreign investment limited liability company is also known as “PT Penamanan Modal Asing”, which is often abbreviated as “PT PMA”. Foreign Investment in Indonesia in the form of PT PMA can be done by taking the shares at the time of the company establishment or buying shares in an already established local PT or PT PMA. This column will focus on foreign investment through company establishment of a PT PMA. The other form of foreign investment, the foreign representative office, is discussed in separate columns.
Important regulations related to a company establishment (PT PMA)
The following regulations should be considered by foreign investors which have an intention to invest in Indonesia:
1. The negative investment list as regulated under President Regulation Number 39 of 2014 (Negative Investment List), which regulates:
a. the list of business fields which are closed to investment (both for domestic and foreign investors); and
b. the list of business fields which are open for foreign investors, however such business fields are subject to certain restrictions.
The business fields in the Negative Investment List are based on the Indonesian Standard Industrial Classification (KBLI), which is further explained in point 2 below. Business fields which are not included in the Negative Investment List are 100% open for foreign investment, unless regulated differently in other regulations.
2. The Indonesian Standard Industrial Classification (KBLI) is regulated by the regulation of the head of the Central Statistic Agency, number 57 of 2009. This regulation describes in detail the scope of each business field based on their KBLI number. This regulation is essential for foreign investors to check whether or not their potential company establishment in Indonesia is subject to restrictions under the Negative Investment List.
3. The guidelines and procedures on licensing and non-licensing of foreign capital investment in Indonesia is regulated by the regulation of the head of the Indonesian Investment Coordinating Board (BKPM), number 5 of 2013 as amended by BKPM regulation number 12 of 2013 (“Perka BKPM”). This regulation includes all norms, standards, procedures and criteria related to licensing and non-licensing for company establishment in the form of a PT PMA in Indonesia, which are required by BKPM. Before a PT PMA can start its operation it is required to fulfill all requirements stated in this regulation.
4. Law number 40 of 2007 regulates the general corporate requirements of a limited liability companies and is therefore applicable to a PT PMA. This law regulates specific company establishment requirements for a PT PMA which are not regulated by Perka BKPM.
The company establishment licenses and documents of a PT PMA
The following licenses / establishment documents are required by a foreign investor for the establishment of a PT PMA in Indonesia:
1. Principle License from BKPM;
2. Deed of Establishment which is legalized by a notary;
3. Minister’s Decree regarding the legalization of the legal entity status of the PT PMA from Ministry of Law and Human Rights;
4. Domicile from the local district authority;
5. Tax registration number (NPWP) and taxable entrepreneur confirmation (PKP) from the tax office;
6. Business License from BKPM;
7. Company Registration Certificate (TDP) from the agency for integrated licensing services (BPPT); and
8. Manpower report and company welfare report from the sub-department of the Ministry of Manpower.
Note: the licenses / establishment documents listed are the general company establishment requirements of a PT PMA. Establishment of PT PMA companies in specific sectors require specific additional establishment licenses and/or establishment documents. Therefore legal advice should be sought by foreign investors before engaging into any investment activity.