Indonesia has made substantial progress in the field of democracy economic reforms over the last decade. Until now, Indonesia is welcoming foreign capital investors. In 2021, the Government of Indonesia has launched the OSS-RBA (Online Single Submission Risk Based Approach) or OSS Risk-Based which makes it easier for business actors, including foreign investors, to set up businesses in Indonesia. This article sums up the procedures and requirements for establishing a Foreign-Owned Company in Indonesia (PT PMA).
Governing law and regulation
- Law No. 40/2007 concerning Limited Liability as amended by Laws No. 11/2020 concerning Job Creation
- Law No. 25/2007 concerning Investment as amended by Laws No. 11/2020 concerning Job Creation
- Presidential Regulation (Perpres) No. 10/2021 concerning Investment Line of Business
- Presidential Regulation (Perpres) No. 49/2021 concerning Amendments to Presidential Regulation (Perpres) No. 10/2021 concerning Investment Business Sector
- Presidential Regulation (Perpres) No. 5/2021 concerning Risk-Based Business Licensing
- BKPM (Investment Coordinating Board) Regulation No. 1/2020 concerning Guidelines for Implementation of Integrated Electronic Business Licensing Service
- BKPM (Investment Coordinating Board) Regulation No. 4/2021 concerning Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities
- Head Of Statistics Indonesia (BPS) Regulation No. 2/2020 regarding The Classification of Indonesian Business Fields
Overview
Foreign Investment is a form of investment activity to conduct a business in Indonesian territory that is carried out by foreign investors, either fully using foreign capital, or jointly with domestic investors. Foreign Investor is “individual foreign citizens, foreign business entities, and/or foreign governments investing in the territory of the Republic of Indonesia”. The legal entity through which a foreign person, foreign company or foreign government body can conduct business in Indonesia is the PT PMA.
Foreign investment must be in the form of a limited liability company based on Indonesian law and domiciled in the territory of Indonesia unless otherwise stipulated in the law. Foreign investment can consist of:
- Foreign company with foreign company. (Both in the form of legal entities and individuals)
- Foreign company with domestic company (Indonesia). (Although only consist of 0.001% foreign elements it is still counted as PT PMA)
- Foreign company with PT PMA
- PT PMA with PT PMA.
Business sectors open for foreign investments
Since 2020, the government has changed the existing Negative Investment List into a Positive Investment List. The Positive Investment List consists of three classifications, namely: priority business fields, allocated business fields or partnerships with cooperatives and Micro, Small, Medium Entreprises (MSMEs), and business fields with certain requirements. To know more details of the Positive Investment List please refer to this link. All business fields are open to investment activities, except for business fields that are declared closed for investment or activities that can only be carried out by the government.
The business fields closed for investment include:
- Cultivation and industry of narcotics class I;
- All forms of gambling and/or casino activities;
- Catching fish species listed in Appendix I of the Convention on International Trade in Endangered Species of Wild Fauna and Flora;
- Utilization or extraction of corals and utilization or extraction of corals from nature which are used for building materials of calcium lime, aquariums, and souvenirs/jewelry, as well as live or dead corals (recent death corals) from nature;
- Chemical weapons manufacturing industry;
- Industrial chemical industry and industrial ozone-depleting materials; and
- Alcohol beverage industry, drink containing alcohol such as wine, and malt-containing beverage industry.
The government is no longer focused only on closed and open business fields, but on investment priorities which also affects the provisions of business fields that are not allowed to include foreign investment (100% domestic capital).
All business fields that are open to investment consist of priority lines of business, allocated business fields or partnerships with cooperatives and MSMEs, business fields with certain requirements, and business fields that are not included in those three fields.
Investors who invest in priority lines of business shall be granted fiscal Incentives such as tax allowance, tax holiday, investment allowance, and custom incentives and also Non-Fiscal Incentives such as ease to do business and provide support infrastructure.
Requirements and administrative procedure to establish a foreign company
Referring to the Investment Law, foreign investors whose business sector is open for foreign investment in Indonesia should establish a limited liability company known in Indonesian language as “Perseroan Terbatas Penanaman Modal Asing” (PT PMA). Foreigners, either individuals or legal entities, are allowed to establish PT PMA. The foreign company’s establishment is similar to the limited liability.
- Complete the requirements: before submitting an application for a PT PMA establishment permit to BKPM, a foreign company must complete several requirements. The minimum investment value requirement for PT PMA is that the total investment is greater than IDR 10,000,000,000.00 (ten billion rupiahs), excluding land and buildings per KBLI (Indonesian Standard Industrial Classification) business field, 5 (five) digits per project location. In addition, the minimum capital requirement for PMA is regulated is an issued/paid-up capital of at least IDR 10,000,000,000.00 (ten billion rupiahs), unless stipulated otherwise by laws and regulations. A minimum of two shareholders is also required to set up a PT PMA. At least one of the shareholders has to be a foreign national or foreign entity.
- Obtain the approval of the company name. The company name should consist of three words that are not vulgar or obscene.
- After that the shareholders must present a Deed of Establishment (DoE) that needs to be legalized by a public notary. The DoE contains PT PMA’s Article of Association and information regarding the PT PMA’s founders, Board of Directors, Board of Commissioner and the shareholders. A public notary must legalize the DoE. The notary will then file for the approval of the company establishment to the Ministry of Law and Human Rights. PT PMA shall be legally established on the date of issuance of a Decree of the law minister on “the validation of company legal status.” After submission of the DoE by the notary, the law ministry will approve the company legal entity.
- The next step is to obtain a Tax Identification Number (NPWP) from the local tax office for the company. A valid NPWP is required for securing other company’s licenses, banking activities, and fulfilling tax obligations.
- The company also has to obtain the domicile letter that shows the location of your business.
- Then, the company has to obtain the application of a business identification number (NIB) through the Online Single Submission (OSS System) on https://oss.go.id/. NIB is a unique company profile number that guarantees an immediate operation, provided that no additional licenses are needed. NIB also serves as an import license and customs identification number to be used for the customs clearance process. Otherwise, OSS System is an electronically integrated business licensing service that aims to mitigate any lengthy bureaucratic procedure. Alongside NIB, PT PMA will also obtain the Business License(s) and Location Permit that will be granted one day following the registration via OSS.
- PT PMA should register the risk-based licensing. The risk-based licensing is a licensing system based on the level of activity risk. The risk level is divided into low, medium-low, medium-high, and high. In addition, several other factors are also considered, such as the scale of activity and land area as stated in the government regulation regarding the implementation of Risk-Based Business Licensing. For example, if the company, based on the Risk-Based License, is at the Low-Risk level, then what is needed is only a NIB.
Even if most foreign investment licensing is conducted through the OSS System, please note that some areas of business require direct licenses from the BKPM. Some of those areas are downstream oil and gas, minerals and coal, import and tax facilities. Please see the complete list on this page.
You must pay attention too that other business activities may need additional fulfillment. Depending on the business sector, additional licenses such as commercial license and tourism license may be required before operation. In cases like this, it can take months before the government grants your business a license. For example, fintech companies in Indonesia need an OJK (Financial Services Authority) license.
