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Foreign Direct Investment in Indonesia

Tuesday, 31 May 2016 06:05

Foreign entity or individual wishing to invest into Indonesia shall have to establish an Indonesian limited liability company (with very few exception in, for example, upstream oil and gas industry). A limited liability company (or in Indonesian language as “Perseroan Terbatas” or “PT”) is a legal entity constituting a capital partnership that is divided into shares and is established by at least 2 (two) shareholders based on a “deed of establishment” containing constitutional document called “articles of association”.

An Indonesian limited liability company with foreign equity participation is commonly called as “PT PMA”. PMA stands for “Penanaman Modal Asingor “Foreign Capital Investment”. A PT PMA is therefore an Indonesian limited liability company established within the framework of foreign capital investment.

Any investor wishing to establish a PT PMA shall initially need to verify whether the proposed business activity of the PT PMA is open, open with certain conditions or completely closed for foreign investment. For this purpose, investor shall have to examine the Presidential Regulation on List of Business Sectors Closed and Open with Requirements for Capital Investments (“Negative List”), the Indonesian Standard of Business Classifications (“KBLI”) and may also involve discussions with BKPM. Once it is established that the proposed line of business is allowed for foreign investment, investor may then proceed with the process of establishing of a new PT PMA.

The following describes the usual process of establishing a new PT PMA in Indonesia.

  1. Applying for a Principle License (Izin Prinsip)

    Principle license is basically a license which has to be secured before commencing a business. A Principle License shall be obtained by investors wishing to invest in Indonesia by applying for the same to the Indonesian Investment Coordinating Board (or in Indonesian language as “Badan Koordinasi Penanaman Modalor “BKPM”).

    The application is made by filing a form either by online or manually. Investors shall have to complete the form with the information concerning to the shareholders/investors, which shall include information on the name, address, email of the investors; proposed name, address, telephone and facsimile numbers as well as email of the company to be established. The form will also require information on the investment plan, which include proposed business field, project location, annual production, land area required, number of local employees, value of investment plan, capital plan as well as composition of shareholders and their participation in the company.

    The following are documents that must be attached in applying for the Principle License: 

      a.  Identity documents of the shareholders 

  1. If the shareholder is the Government of another country - a letter from the Government Agency of the relevant country or a letter issued by the Embassy/Representative of the relevant country in Indonesia,;
  2. If the shareholder is a foreign individual - copy of valid passport of which include the name, signature and passport expiration date clearly;
  3. If the shareholder is foreign entity - copy of articles of association/incorporation in English, or its translation in Indonesian language from a certified translator and complete with document of the last composition of the Board of Directors;
  4. If the shareholder is an Indonesian individual - copy of valid Identity Card and copy of Tax Identification Number (may be exempted for Indonesian individual who lives abroad, but he/she must attach copy of passport and/or permanent residence legalized by the relevant Indonesian Embassy);
  5. If the shareholder is an Indonesian entity - copy of deed of establishment and its amendments accompanied with legalization of the articles of association and approval/notification from the Ministry of Law and Human Rights, copy of company’s Tax Identification Number as well as copy of licenses of the company.

      b.  Description of planned activities:

  1. For industrial activities, flow chart of production with a detailed explanation of production process, by stating the type of raw materials, up to the final product.
  2. For service sector activities, a description of activities that will be conducted, detail of investment (if necessary) and a description of services to be produced.

      c.  Power of Attorney to conduct the application for the Principle License.

      d.  Letter of recommendation from the technical ministries or other relevant government agency, if required.

      There are also some important points to note in relation to the application of Principle License:

  •  Total Investment

    It should be noted that under the BKPM regulation, the investment in PT PMA must be higher than Rp. 10,000,000,000 (ten billion rupiah) for each line of business under the 5 digit KBLI Code, excluding land and building. The minimum issued and paid up capital is Rp. 2,500,000,000 (two billion and five hundred million Rupiah), and a shareholder in PT PMA must participate at least Rp. 10,000,000 (ten million Rupiah). Please note, however, that the minimum investment amount may differ depending on each sector and the proposed investment plan submitted by an investor. Accordingly, the higher investment requirements may be imposed by BKPM.
  • Presentation

    Presentation shall have to be made for application of Principle License for certain line of business in service sector before the application is deemed accepted by BKPM. The presentation shall include the following:
    • Description on business activities, among others, work plan, compliance with laws and regulations, KBLI and Negative List;
    • Service Products, among others: the value added, uniqueness, conformity with the expertise of experts of the company, compliance with laws and regulations;
    • Human Resources, among others: competency, experience and background of company’s experts and transfer of knowledge to the local human resources;
    • Business Opportunities, among others: strategy to achieve the capacity and profit;
    • Targeted of Clients, including among others: the commitment of having or being required by the targeted client; and
    • Investment Value, among others: financial capability of the company.

For such presentation, an application shall be submitted to BKPM by enclosing additional document (if any) of the experts to be employed by the company, i.e., curriculum vitae, certificate of diploma and certificate of competency that have been legalized by the Indonesian Embassy/Consulate/ Indonesian Investment Promotion Center (IIPC) in the relevant country.

If all requirements are considered complete by BKPM, an invitation shall be given to applicant and the applicant have to submit presentation material in softcopy (power point) at the latest 1 week before the presentation.

Presentation has to be made by one of the shareholders/directors of the company and may be accompanied by consultants or interpreter. Presentation will be made before a team of evaluator consisting of officers of BKPM, Expert from Academic/Association and related Ministry/Government Agency. Result of presentation will be notified by email to the applicant.

Additionally, it is also important to note that pursuant to the BKPM regulation, the application for Principle License may also be made after the company is established and has been approved by the Ministry of Law and Human Rights (“MOLHR”).

  1. Obtaining the Principle License

    BKPM will issue a Principle License as a license to commence a business in Indonesia. Principle License is issued for a validity period of 1 to 5 years depending on the characteristics of the line of business and may be extended at maximum for the same period of the previous Principle License. During such period, investors shall have to establish PT PMA and start the actual investment in Indonesia.
  1. Establishing the PT PMA

    Prior to establishing the PT PMA, the name of the PT PMA must be first secured from the MOLHR. Once the name is approved by the MOLHR, the investors shall proceed with the execution of the deed of establishment to establish PT PMA containing the proposed company’s articles of association before a notary in Indonesia.
  1. Obtaining Letter of Domicile

    Following to the execution of deed of establishment, PT PMA must obtain letter of domicile (Surat Keterangan Domisili Perusahaan) (“SKDP) from the Sub-District Office (Kelurahan) having jurisdiction of the domicile of PT PMA. For this purpose, PT PMA shall have to initially lease or purchase office space at the domicile of PT PMA.
  1. Obtaining Taxpayer Registration Number (NPWP)

    PT PMA shall further apply to the relevant Tax Office for their Taxpayer Registration Number (Nomor Pokok Wajib Pajak) (“NPWP”).
  1. Obtaining Approval of the Deed of Establishment from the MOLHR

    The deed of establishment shall have to be submitted to the MOLHR for approval. The notary responsible for the drawing up of the deed of establishment of PT PMA must submit the deed to the MOLHR for approval within 60 days after the execution of the Deed of Establishment. Upon issuance of the approval from the MOLHR, PT PMA exists as a legal entity.
  1. Registering at the Company Registry of MOLHR and Announcing in State Gazette

    Following to the approval of the deed of establishment by the MOLHR, the approved deed of establishment of PT PMA shall be registered in the Company Registry of MOLHR as well as published in the State Gazette of the Republic of Indonesia. This registration and announcement will be done by the MLOHR.
  1. Obtaining Company Registration Certificate

    Under Law No. 3 of 1982 on Mandatory Company Registration, every company must be registered with the Company Registry at the Ministry of Trade. The registration will be made at the local company registration office having jurisdiction of the domicile of PT PMA. Upon registration, PT PMA will receive a Company Registration Certificate (Tanda Daftar Perusahaan) (“TDP”)
  1. Other Relevant Licenses
  1. Manpower

PT PMA intends to employ expatriates shall have to obtain the following approval/license:

  • Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing) (“RPTKA”)
  • Expatriates Work Permit (Izin Mempekerjakan Tenaga Kerja Asing) (“IMTA”)
  1. Import Licenses

PT PMA wishing to import must obtain Importer Identification Number (Angka Pengenal Importir) which can be a Producer Importer Identification Number (Angka Pengenal Importir Produsen) (“APIP”) or a General Importer Identification Number (Angka Pengenal Importir Umum) (“APIU”).

APIP applies for companies that importing goods for their own use as capital good, raw material and/or other good for their production activities. The goods imported are not to be traded or transferred to other party.

APIU is intended to companies importing certain goods for trading.

Additionally, PT PMA as an importer must also register itself to obtain a Custom Registration Number (Nomor Induk Kepabeanan) (“NIK”).

  1. Applying for Business License (Izin Usaha)

    PT PMA shall have to obtain Business License in order to commence its operation/production. The followings are the requirements to apply for Business License:
  1. Copy of a valid Principle License;
  2. Copy of the Articles of Association and approval from the MOLHR;
  3. Copy of Taxpayer Registration Number (NPWP);
  4. Copy of documents of project location/address of the company, which consist of:
  1. Copy of land/building possession for office/warehouse in the form of conditional sale and purchase agreement with proof of payment or deed of sale and purchase under the name of the company or copy of the certificate of land title and the Building Construction Permit (IMB); or
  2. Evidence on land/building/office lease agreement under the name of the company with the term of lease at least for 3 years (for industrial sector) and 1 year (for service/trading) as from the date of the filing of application;
  3. Evidence on affiliation and borrowing agreement if the domicile of the company is located at the building of affiliates. The affiliation is evidenced by the share ownership in accordance with the articles of association
  1. Location Permit;
  2. Licenses from local government pursuant to the location of the project, i.e., nuisance Permit (HO) and/or place of business permit (SITU) for companies located outside industrial estate pursuant to the local regulation;
  3. Copy of a complete documents and approval/legalization on Environmental Impact Assessment (AMDAL) or Environmental Management Efforts (UPL) and Environmental Monitoring Efforts (UPL) or Statement of Environmental Management and Monitoring Undertaking (SPPL)
  4. Copy of Environmental License for companies who already have AMDAL or UKL-UPL
  5. Copy of the latest Investment Activity Report (LKPM) and receipt of the submission from BKPM;
  6. Recommendation from the technical ministries/institution, if required under the regulation of the line of business;
  7. Copy of power of attorney to the proxy, if the application is not done by the Board of Directors of the company;
  8. Form of Application;
  9. Result of Field Inspection, if necessary;
  10. Presentation, if necessary
  11. Other documents as may be required in accordance with the line of business of the company.

The above is merely a description on the incorporation process of PT PMA. There may be other licenses or matters required in order to operate PT PMA which will be depending on the line of business of the PT PMA.