Business Structures & Establishments
In 2007, the Government of the Republic of Indonesia (“GOI”) enacted a new Investment law in the form of Law Number 25 of 2007 concerning Investment (“Investment Act”) and made this Investment Act the legal basis of investment activities in Indonesia.
Foreign Direct Investment in Indonesia
Under this Investment Act, the GOI determines basic investment policies which the foreign investor should pay attention to, that the GOI will give equal treatment to all investors, domestic or foreign, who invest in Indonesia and also ensures legal certainty, business certainty and business safety for investors starting from the licensing process to the termination of investment activities, but still all in accordance with the prevailing legislative regulations.
The Investment Act defines foreign investment as investment to do business in the territory of the Republic of Indonesia by a foreign investor by means of using all foreign capitalization or by engagement in a joint venture (JV) with a domestic investor. The form of business entity allowed for foreign investors is that forming a foreign investment company (“PMA Company”) in the form of a limited liability company, abbreviated to “PT” standing for Perseroan Terbatas (which is governed by the Limited Liability Companies Act, Law Number 40 of 2007 – “New Company Law”).
* Global Business Guide Indonesia
The Comany Law
The Company Law issued in 1995 stipulates the legal framework for companies. Previously, business was regulated by the provisions of the Indonesian Commercial Code and Indonesian Civil Code. These were drafted in the last century based on Dutch Colonial Law. The 1995 Company Law was most recently amended by Law No.40/2007 concerning Limited Liability Company.
Legal entities for doing business
There are a number of legal forms of entities that can engage in business in Indonesia:
• Sole Proprietor: proprietor has unlimited liability
• General Partnership (FA or “Firma”): partners have joint and several unlimited liability
• Limited Partnership (CV): silent partners are liable to the extent of their capital contribution, while managing partners have unlimited liability
• State-Owned Corporation (BUMN): company owned by the government and reliant upon the state to fund any deficit
• Branch of a foreign corporation: foreign companies cannot, in most cases, establish operations in Indonesia through a locally-registered branch. “Branch” registration is permitted in banking, oil & gas and certain types of construction
• Limited Liability Companies (PT): shareholders have limited liability.
A PT company formed with a foreign shareholder in accordance with the requirements of the Foreign Investment Law is referred to as a PMA company.
PTs, with domestic investment status from BKPM, are known as PMDN companies. An older Dutch form of limited liability company, known as NV, still exists but no new companies are formed in this way.
For foreign investors, a PMA is the only form permitted under the Foreign Investment Law. However, foreigners may have a presence other than through a direct investment.
Establishment and application procedures for incorporation of a PMA
The provisions relating to the PT are contained in the Articles of Association (“AoA”) formed by the Notarial Deed of Establishment.
The AoA contained in the Deed address, among other things:
• Rights and duties of shareholders
• Rights and duties of commissioners and directors
• Name of the company, it’s purpose, duration, domicile
• Authorized capital and the division into shares
• Number of shares taken by founders
Once the nature of the project and size of investment have been established, registration must be made with BKPM. The registration must be supported by copies of:
• AoA for both foreign and local parties, or a copy of a passport for individual shareholders
• tax payer registration number (NPWP) and operating license (SIUP) of local party
• letter of Power of Attorney (“POA”) from shareholders
• description of business activities.
If the project meets with BKPM approval, an initial investment approval will be issued, which permits the process of the establishment of the company to get started until it obtains legal status from the MOLHR and is registered in the Company Registry with the MOT.
Once a PMA company is established, it is necessary to apply to BKPM for a Principle License (for manufacturing company) or Permanent Business License (for services company). These licenses will enable the company to apply for other necessary licenses: import licenses, permit for factory location, work permits for expatriates and Nuisance Act Permit. The Principle License normally has up to a five year validity (which can be extended). The Principle License can only be used until the PMA reaches the commencement of commercial operations or production.
The official date of commencement of commercial operations is triggered by the issuance of a Permanent Business License (IUT). An IUT is active as long as a company is still operating. Prior to commencement of commercial production, a Quarterly Activity Report must be submitted in standard format to BKPM and Bank Indonesia detailing, among other things, disbursements of foreign currency financing approved in the BKPM application. Bi- annual reports are required after the IUT is issued.
An important aspect of the investment application process is the compilation and approval of BKPM Master Lists, which detail the imported capital equipment and initial raw materials required, as inputs to the proposed investment. The imported items must be verified as suitable and relevant for the proposed project. Only items on the approved Master Lists are available for import duty relief and other concessions that will be documented in Exemption Certificates on imported equipment or materials.
*Timeframe for PMA process
What you need to start the process
– 3 business name choices
– Type of business you will run and company model (100% foreigner investment or with Indonesian partner)
– Names of share holders (minimum 2 person either foreigner or local)
– Authorized Capital (total investment), issued capital and paid up capital
– Structure of direction (Director and Commissioner)
Required certificates and licenses:
– Izin Prinsip from BKPM Jakarta (investment department of Jakarta)
– Akta Perusahaan (Notarial deed of the company that made by Notary)
– SK Menteri Hukum dan Ham (Validation Statement Letter from Law Ministry of Jakarta)
– Domicile statement Letter of the company from Chief of the island and District of Sekotong
– NPWP perusahaan (Tax registration)
– SITU and HO (Statement Letter of company location and Statement from neighbor of Company)
– TDP (Company registration that signed by Bupati)