Common legal knowledge on the appropriate business licenses and business schemes
In practice, the term ATPM is commonly associated with the automotive industry, as the massive growth of the Indonesian automotive industry which started in the early 1970s was triggered by the rise of ATPM automotive companies. From a business perspective, ATPM companies can be defined as Indonesian companies appointed by the principals (usually coming from abroad) as the trademark holder to exclusively import, market, distribute and perform after sale services in a specific area. In legal terms, the terminology ATPM does not automatically limit the scope of business of ATPM companies to only agency-related business. ATPM companies may engage in several business activities, depending on the authority given by their principals.
In the early years of their emergence, many ATPM companies were manufacturer and distributor. That was possible because at that time a company was still allowed to hold a license for importing goods to use in production (manufacturing function) and to sell to other parties (distributing function). Nowadays, Import Identification Numbers are given in accordance with the legal scope designated by the prevailing regulations. Manufacturers who need imported goods to support and to be used in their production are required to have a Production Import Identification Number (Angka Pengenal Impor Produksi or "API-P") while distributors who want to sell the products that they import are required to have a General Import Identification Number (Angka Pengenal Impor Umum or "API-U"). Due to the requirement to have only 1 (one) type of import identification number, the current tendency has been for an ATPM company to either only manufacture (whether the manufacturing process is done by the company itself or done in cooperation with other companies under a toll manufacturing scheme) or only distribute its principal's products.
It can be understood from the explanation above that even though the name includes the word "agency", that does not mean the ATPM company is only performing agency activities. Instead, as we said above, an ATPM company can be a manufacturer or a distributor. The type of the business licenses that an ATPM company must have, will depend on which it is:
- Local ATPM
If a local ATPM company's business activity is basically manufacturing and selling the products that it has manufactured, the local ATPM company is required to have an industrial license issued by the Indonesian Minister of Industry. If the local ATPM company's business activity is basically distributing products that it purchases from its principal, the local ATPM company is required to have a trading license issued by the Indonesian Minister of Trade.
- Foreign investment ATPM
The different policies in respect of the business licenses also apply to companies whose shares, partially or wholly, are owned by a foreign party. The authority to issue business licenses is delegated from the Indonesian Minister of Trade and the Indonesian Minister of Industry to the Head of the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or "BKPM"). BKPM will issue an Industrial Business License (Izin Usaha Industri) for a manufacturing ATPM company and will issue a Permanent Business License (Izin Usaha Tetap) for a distributing ATPM company.
Before applying for a business license, the founding shareholders of the ATPM company must have a principle license as a license for their foreign investment in the ATPM company. The principle license will be issued only if the foreign shareholding percentage in a foreign investment company is in line with the mandatory maximum percentage for foreign shareholding regulated in the Indonesian prevailing regulations ("Investment Negative List or DNI"). The maximum foreign shareholding percentage under the DNI for distribution businesses is 33%. As for the manufacturing business, the DNI specifies different limitations for different types of manufacturing. In general, many manufacturing companies, among others those using advanced technology, such as automotive manufacturing companies, are 100% open for foreign investment.
Please note that "distributor" is different from "agency" under Indonesian laws. Basically a distributor company is a company which sells the products that it has purchased from its principal to non-end customers (if the products are sold to end customers, the company is considered to be a retailer and retail business is closed for foreign investment). On the other hand, an agency company is a company which markets and promotes products owned by its principal and accordingly the customers deal directly with the principal for the sale and purchase of the products. Agency business is closed for foreign shareholding under the DNI.
Optional Scheme for Business Operation
The ATPM companies and the principals can determine a particular business scheme depending on the type of business and cooperation that they wish to have. For example, if the business of the ATPM company is manufacturing, the cooperation between the ATPM company and the principals can be set out in a licensing manufacturing agreement. If the manufacturing ATPM company has a cooperation with other company(ies) for a toll manufacturing, the manufacturing ATPM company must first seek an approval from its principal for letting its business partner(s) have access to and/or use the technology owned by the principal (as the case may be) in performing the toll manufacturing process (to the extent necessary for completing such process). As for a distributor ATPM company, it can sign a distributorship agreement with the principal (either an exclusive or a non-exclusive one).
It can be understood that due to the nature of the business of the ATPM company, the protection of intellectual property rights plays a very important role. Therefore, it is recommended to register the principal's intellectual property rights which are licensed or used by the ATPM companies to support their business with the Indonesian Intellectual Property Rights Registrar. The ATPM company and the principal will then need to understand the procedures and rules for the protection of intellectual property rights under Indonesian laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.