foreign investors or PMA

PENANAMAN MODAL ASING
(Indonesian Foreign Direct Investment Company)

BUSINESS VEHICLES

The main business vehicles in Indonesia are legal entities and business entities. In a legal entity, there is a separation between the assets of the founder(s) and that of the established entity, which is not the case in a business entity. Establishing a legal entity requires the approval of several government entities, while establishing a business entity only requires registration with government entities.

Examples of legal entities include:
• Limited liability companies (Perseroan Terbatas (PTs))
• Co-operatives
• Pension funds

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Business entities include:

• Civil partnerships
• Firms (a type of partnership)
• Representative offices
• Permanent establishments
• Limited partnerships
• Comanditer Venootschap (CVs)

The main form of business vehicle used in Indonesia is the PT.PMA. A PT.PMA is a legal entity comprised of shares that must be established by at least two shareholders. The PT.PMA is the most common form of business vehicle because of the limited liability of shareholders and a clear capitalization regime. A PT.PMA can be a publicly listed company or a privately-owned company.

A PT.PMA is the most common form of business entity used in Indonesia and is generally preferred, because the liability of shareholders is limited to their capital contribution. Additionally, the Board of Directors and Commissioners of a PT.PMA cannot be held liable for any corporate decision adopted in good faith, therefore affording greater protection to the parties involved.

ESTABLISHING A NEW PT PMA

The most common option for an overseas company establishing a presence in Indonesia is to set up a Limited Liability Company with foreign ownership (PT. PMA). The first step in establishing a PT.PMA is to determine whether the PT.PMA can be wholly owned or only partially owned by foreign shareholders.

To establish a PT.PMA, the founding shareholders or their proxies must execute a Deed of Establishment containing the PT.PMA’s Articles of Association (AOA), which must be signed before a Notary and filed for approval with the Ministry of Law and Human Rights (MOLHR). The filing process at the MOLHR will be handled by the Notary.

Once the MOLHR approves the AOA, the PT.PMA must register with the Online Single Submission System (OSS), managed by the Coordinating Ministry for Economic Affairs (CMEA). The OSS System will issue a Business Registration Number (Nomor Induk Berusaha or NIB) and Business License.

For some lines of business, companies can immediately start commercial activities after obtaining the Business License. After they obtain a Business License, companies in certain business sectors (such as industry, natural resource management, or energy) must secure a Commercial/Operational License before starting commercial activities. The Commercial/Operational License will only be issued after a company has met or obtained all the standards, certificates, licenses, and/or registrations required for the product and/or service being sold.

The Advantages of Establishing a new PT.PMA are as follows:
• Foreign investors have immediate control over the PT.PMA once it is established.
• Management can be set up to suit the investors’ preferences.

The Disadvantages are 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.
• Going through an administrative process with government institutions and agencies.

MINIMUM CAPITAL REQUIREMENTS

To establish a PT. with foreign ownership (PT.PMA), the minimum investment is IDR 10 billion (about USD 730,000) and the minimum issued share capital is IDR 2.5 billion (about USD 174,000). In each business field, comprising equity capital and indicative loans. A company is categorized as a PMA as long as any of the shares are held by a foreign citizen or foreign company. Therefore, it doesn’t matter if it’s 100%, 51%, or even 1% – as long there are foreign shareholders, you are foreign-owned company.

STRUCTURE

Indonesia recognizes a two-tiered board structure. The Company Law does not regulate the structure of the Board of Directors (BOD) or Board of Commissioners (BOC), which can be determined by the company’s Articles of Association. However, the laws and regulations relating to specific business sectors may regulate the structure of the BOD and/or BOC (for example, in the insurance and banking sectors).

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