Establishing a presence from abroad
The most common option for an overseas company as a foreign investor to establish a presence in Indonesia is by setting up a limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA). The first step in establishing a PT PMA is to determine whether the PT PMA can be wholly foreign owned or only partially foreign owned. This involves what is known as the Negative Investment List. The current Negative Investment List is contained in Presidential Regulation No. 39 of 2014 outlining the list of business fields that are closed and business fields that are open with requirements for investment (PR 39).
To establish a PT PMA, a foreign investor must submit an application to the Capital Investment Coordinating Board to obtain a principle license (izin prinsip). Once the principle license is issued by the Capital Investment Coordinating Board, the founding shareholders or their proxies need to execute the deed of establishment containing the PT PMA's articles of association, which must be signed before a notary public and filed with the Ministry of Law and Human Rights for its approval. The filing process is handled by the notary. Once the Ministry of Law and Human Rights approves the articles of association, the PT PMA must then register with the Ministry of Trade.
Another common option for an overseas company to establish a presence in Indonesia is by acquiring an existing PT PMA. Such an acquisition is also subject to approval by the Capital Investment Coordinating Board and the Ministry of Law and Human Rights and registration with the Ministry of Trade.
There are advantages and disadvantages both to establishing a new PT PMA and to acquiring an existing PT PMA.
Establishing a new limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA)
The advantage is that the foreign investor has immediate control once the PT PMA is established and the management can be set up to suit the investor's preferences.
The disadvantage is that establishing a new PT PMA requires permits, setting up a physical presence (office) and hiring employees, which is time consuming compared to acquiring an existing PT PMA. Setting up a new PT PMA also requires completing an administrative process with government institutions/agencies related to the technical licences of that PT PMA.
Acquiring an existing limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA)
The advantage is that there is preexisting brand recognition in the market if the existing PT PMA is already widely known and in good standing. Also, the existing PT PMA will have licenses, an office and employees.
The disadvantage is that before acquiring an existing PT PMA an investor is recommended to conduct a legal due diligence on the PT PMA's documents to ensure the soundness of the PT PMA, specifically with regard to its outstanding taxes and financial obligations and whether the PT PMA is involved in any disputes with other parties. The legal due diligence may incur legal costs and require time before the foreign investor can proceed to the next steps. In addition the administrative procedures that must be followed, such as notification/registration with government institutions/agencies, are time consuming.
Foreign companies can also establish a representative office, specifically a Foreign Company Representative Office (Kantor Perwakilan Perusahaan Asing (KPPA)) or a Foreign Trade Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing (KP3A)) by submitting an application to the chairman of the Capital Investment Coordinating Board. A KPPA is established by foreign companies engaging in a service business, while foreign companies involved in the trading of goods will establish a KP3A. A KPPA and KP3A are limited to acting as a liaison between their principal and potential customers (for example, marketing and promotional activities) and are prohibited from generating revenue in Indonesia.
Forming a private company in Indonesia
A limited liability company (Perseroan Terbatas (PT)) is governed by Law No. 40 of 2007 regarding limited liability companies (Company Law). The other applicable laws and regulations include Law No. 3 of 1982 regarding mandatory company registry. A limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA) must also observe Law No. 25 of 2007 regarding capital investment.
The procedure for establishing a PT PMA is governed under Capital Investment Coordinating Board Regulation No. 5 of 2013 as amended by Regulation No. 12 of 2013 regarding the guidelines and procedures for investment licensing and nonlicensing. The relevant authorities involved in establishing a business are the Ministry of Law and Human Rights and the Capital Investment Coordinating Board. The Capital Investment Coordinating Board is a regulatory body and the centrt for the administration of foreign investment.
The Capital Investment Coordinating Board, as the supervisory authority for a limited liability company (Perseroan Terbatas (PT)) with foreign ownership (PT PMA), will reject an application for a principle license if:
- The company cannot substantiate that it will implement its investment.
- The company only has a virtual office.
A PT PMA must also submit an activities report to the Capital Investment Coordinating Board, and if that PT PMA does not conduct any activities the Capital Investment Coordinating Board has the authority to revoke the PT PMA's license.
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