General information concerning the establishment of a foreign or domestic company in Indonesia

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General information concerning the establishment of a foreign or domestic company in Indonesia

By: AMO Lawyers

Contributors:

1. Drafted by Regine Bernard (Foreign counsel) and Indira Musiawan (Associate)

2. Review by Noverizky Tri Putra Pasaribu S.H LL.M (Adv)


 

Legal Basis:

  • Indonesia Company Law No. 40 year 2007 concerning Limited Liability Company (“LLC Law”);
  • Presidential Regulation No. 44 year 2016 concerning List of Business Fields Closed and Business Fields Open with Conditions to Investment (“DNI”);
  • Indonesia Government Regulation No. 91 year 2017 concerning the Acceleration of Business Implementation (“GR No. 91/2017”); and
  • The Chairman of Indonesia Investment Coordinating Board (“BKPM”) Regulation No. 13 year 2017 concerning the Guidelines and Procedures for License and Facility Investment (“Perka BKPM 13/2017”).

I. Background

Indonesia is the largest archipelagic state in the world. Its strategic location and its role as the fourth most populous country in the world, Indonesia being allowed to continue playing an important role in the regional as well as global trading sector, making it attractive for overseas investors. The main reasons of the foreign investments by the multinationals in Indonesia are the large population and consumption as well its natural resources, creating an endless-possibilities for any type of international cooperation in Indonesia between private and public sectors.

As one of the country that plays a major role in the international direct foreign investment, Indonesia has signed several Free Trade Agreement (FTA) with various countries including with Japan (through Economic Partnership Agreement). In addition, due to Indonesia status as participant of the ASEAN, Indonesian is involved with the establishment of various FTA.

As on the of result of the such cooperation, Indonesia established a new regulation in foreign direct investment, namely, the DNI. If it is not listed on the DNI then a foreign investment companies are generally allowed to be set up with up to 100 per cent foreign shareholding, such as management.

However, in order to invest in Indonesia, the foreign investors must comply with the regulations in effect. The first aspect of investing in Indonesia is to determine the form of entity that is allowed by the regulation:

o Legal entities: Limited liability company (PT), Foundation, Cooperative.

There is a separation between the entity’s assets and the proprietor of the entity’s assets.

o Non-Legal entities: Partnership, Firm, Limited partnership (CV).

The assets are not separated between the entity and the proprietor of the entity.

However, the foreign entity or foreign person is only allowed to establish a Limited Liability Company. As for Non-Legal Entities only open for domestic or local shareholders.

 

II. Investment Registration

The BKPM on December 2017 issued a new regulation concerning the establishment of a foreign direct company, namely, the Perka BKPM 13/2017. Once the said regulation is in effect it shall replace the prior regulations, such as:

  • BKPM Regulation No. 14 year 2015 concerning Guidelines and Procedures for Investment Principle License;
  • BKPM Regulation No. 15 year 2015 concerning Guidelines and Procedures for Investment Licensing and Non-licensing; and
  • BKPM Regulation No. 16 year 2015 concerning Guidelines and Procedures for Investment Facilities.

Perka BKPM 13/2017 introduces a new terminology for the initial investment approval, it changed from Principle License to Investment Registration. To obtain it, a foreign investor must obtain the following requirements beforehand:

  1. obtained legal entity status with share ownership limitation in accordance with the prevailing regulations;
  2. obtained a taxpayer registration number; and
  3. acquired an office (note: virtual office is also allowed).

There is a new regulation regarding the investment in Indonesia issued by the Indonesia Coordinating Board or BKPM, but it will be discussed in a separate article.

III. Establishment of a Company in Indonesia

According to Article 5 of the law No. 25 of 2007 on Capital Investment (“Law No 25/2007”), if foreign investors desire to establish a business in Indonesia, it shall be in the form of a Limited Liability Company (Perusahaan Terbatas (“PT”). A PT with foreign shareholders is named a PMA Company (Perusahaan Penanaman Modal Asing), while a PT with domestic shareholders is called a PMDN Company (Perusahaan Modal Dalam Negeri). There are differences between these 2 types of company. It is as follows:

1. Comparison between a Foreign Investment Company and Domestic Investment Company

 

No Foreign Investment Company Domestic Investment Company
1 PT PMA has same rights and responsibilities as local companies. The company can have three main business activities.
2 Minimum of two shareholders (can be individuals or legal entities). The founding process takes more time and money than other entities.
3 Minimum organizational structure is one Director and one Commissioner. (applied as well)
4 The foreign investor is allowed to owns 100% of the company share as long as it is not listed on the DNI. The company is 100% owned by local shareholders.
5 The company must make monthly tax reports. (applied as well)
6 The company is required to provide reports on business activities to the BKPM every 3 months so that the BKPM may monitor the company’s development.  
7 The minimum investment plan is 10 billion Indonesian Rupiah The minimum investment plan is 50 million Indonesian Rupiah.

 

2. Establishment of a Foreign Direct Company in Indonesia

According to Article 7 of the LLC Law, to establish a company there shall be two or more legal entities that incorporate their desire to establish a company in the form a Notarial Deed which was written in Indonesian language. However, in practice before obtaining the Deed you shall first file a request to the Ministry of Law and Human Rights (“MOLHR”) concerning the name of the company, this is to ensure that the name that you have chosen is not yet used by other company.

After obtaining an approval from MOLHR in regards of the name of the company, then you shall proceed with the Deed of Establishment written by a public Indonesian Notary concerning the establishment of the company, this Deed shall inquire further the name of the company, the Board of Directors, Board of Commissioner, the Shareholders of the company, the paid-up capital, the authorized capital and the issued capital.

After the Deed of Establishment is finished the next step shall be obtaining the MOLHR approval for the company to be established. After the MOLHR gave their approval, then you shall proceed in obtaining a taxpayer registration number, company registration certificate and certificate of domicile. After obtaining all of the document then you shall proceed to the BKPM to obtain the Investment Registration on-line through National Single Window for Investment ("NSWI").

The last step shall be waiting for the announcement of the establishment to be published in the State Gazette. Then the process of establishing a foreign direct investment company shall be done.

3. Establishment of a Domestic Investment Company

The process to establish a domestic investment company is the same as establishing a foreign direct company. The only difference is instead of obtaining the license from BKPM it shall be obtained from the One Stop Integrated Service (“PTSP”). However, it shall also be filed on-line through the same website.

IV. Closing

The establishment of a company in Indonesia has been made easier over the course of the years, this is due to the high demand to invest in Indonesia because that Indonesian people are one of the largest consumers in the world, the strategic location and the natural resources Indonesia has to offer. Therefore, if you need the legal assistance to help you establish a company in Indonesia, look no further, A.M | Oktarina Counselors at Law shall be at your service.

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