Recently we have seen that both central government and provincial has stepped up to control the rapid real estate and hospitality market in Bali. This is good and Seven Stones Indonesia have predicted this for a long time. We also wrote a blog about this a while back which you can read here :
It is also no secret that a lot of investors and developers takes short cuts with a variety of set ups. The fact is that the only way you can do business in Indonesia is through Penanaman modal asing or PT PMA (pty Ltd) set up. Anything else is circumvention of law and carries high legal risk. But this we will write about some other time.
Below is a list of the major aspects that you need to make sure you’re in compliance with. And at Seven Stones Indonesia we offer you a free soft audit and update you need to do to be in compliance.
The following are things that PT PMA needs to do to remain in compliance with Indonesian law:
Form of Legal Entity
PT PMA must take the form of a Limited Liability Company (PT) based on Indonesian law and be domiciled in Indonesia, in accordance with Article 5 paragraph (2) of Law Number 25 of 2007 concerning Capital Investment.
Capital and investment:
- Fulfill the minimum investment value requirement of more than IDR 10 billion excluding land and buildings per 5-digit KBLI business sector per project location.
- The nominal value of shares for each shareholder is a minimum of IDR 10 million. This is regulated in the Investment Coordinating Ministry regulations.
Business Field:
- Ensure your business sector is open to foreign investment and not on the Negative Investment List.
- Licensing: Obtain a Business Identification Number/NIB through the OSS system based on your business activities.
Employment:
- Prioritize hiring Indonesian workers
- Provide them with training and technology transfer opportunities.
- Make sure employees have Indonesian social health insurance/BPJS (both for health and employment).
Financial Compliance:
It is important to note that PT PMA must comply with applicable tax provisions and make tax payments and reports on time to avoid tax administration sanctions.
In addition, PT PMA also needs to pay attention to special provisions related to taxation that may apply to PMA companies, as stipulated in the double taxation avoidance agreement between Indonesia and the country of origin of the foreign investor. In terms of tax and financial compliance, PT PMA needs to submit:
• Corporate Income Tax (PPh)
– Must pay Corporate Income Tax in accordance with Article 17 of Law Number 36 of 2008 concerning Income Tax.
– Report Annual Corporate Income Tax Return no later than 4 months after the end of the tax year.
• Income Tax Article 21 (PPh 21)
– Withhold, deposit, and report PPh 21 on employee salaries every month.
– Report Periodic PPh 21 SPT no later than the 20th of the following month.
• Income Tax Article 23 (PPh 23)
– Withhold, deposit, and report PPh 23 on income paid to other parties (such as services, rent, etc.).
– Report Periodic PPh 23 SPT no later than the 20th of the following month.
• Income Tax Article 4 paragraph (2) (Final PPh)
– Withhold, deposit, and report Final PPh on certain income (such as land/building rent).
– Reporting the Final Income Tax Periodic Tax Return no later than the 20th of the following month.
• Value Added Tax (VAT)
– Collecting, depositing, and reporting VAT on the delivery of Taxable Goods or Taxable Services.
– Reporting the VAT Periodic Tax Return no later than the end of the following month.
• Income Tax Article 25 (PPh 25)
– Paying PPh 25 installments every month as an advance payment for Corporate Income Tax.
– Reporting the PPh 25 Periodic Tax Return no later than the 20th of the following month.
• Income Tax Article 26 (PPh 26)
– Withholding, depositing, and reporting PPh 26 on income paid to Foreign Taxpayers.
– Reporting the PPh 26 Periodic Tax Return no later than the 20th of the following month.
• Land and Building Tax (PBB)
– Paying PBB on land and/or buildings owned, in accordance with Law Number 12 of 1985 concerning Land and Building Tax as amended by Law Number 12 of 1994.
Shareholders meeting:
PT PMA is required to hold a General Meeting of Shareholders (GMS) once a year. This is regulated in Law N0 40 of 2007 concerning Limited Liability Companies (UU PT).
The law applies to all companies in Indonesia, including PT PMA. The following is a more detailed explanation:
- Annual GMS Obligations: Article 78 paragraph (1) of the law states that the annual GMS must be held no later than 6 months after the financial year ends.
- Annual GMS Agenda: In accordance with Article 78 paragraph (2), at the annual GMS all documents from the Company’s annual report must be submitted.
- Consequences of Not Carrying Out a GMS: If a company does not hold an annual GMS, shareholders can request a GMS to be held from the Board of Directors or Board of Commissioners, as regulated in Article 79 of this law.
- Implementation Flexibility: The GMS can be held physically or via electronic media (e-GMS) in accordance with Financial Services Authority Regulation Number 16/POJK.04/2020.
- GMS Documentation: Every time a GMS is held, minutes of the meeting are required to be prepared, as regulated in Article 90 of the law. It is in many cases compulsory to notaries the shareholders meeting, and in any case always recommended.
It is important to note that even though PT PMA is a company with foreign investment, they are still subject to Indonesian law including the UU PT in terms of corporate governance. Therefore, the obligation to hold an annual GMS also applies to PT PMA.
Other Important Regulations :
- Language in any agreements: Using Indonesian in agreements involving government agencies, state institutions or Indonesian private parties, in accordance with Law no. 24 of 2009 and Presidential Decree no. 63 of 2019.
- Stamp Duty : Paying Stamp Duty on certain documents in accordance with Law Number 10 of 2020 concerning Stamp Duty.
- Export activities: According to Government Regulation No. 2 of 199, PT PMA in the production sector can export its own production and goods produced by other companies in Indonesia.
- Submit Investment Activity Report/LKPM (due in April, July, October and January).
Local Support to Protect Your Business
Proactive compliance with Indonesian regulations can protect your business from potential risks and ensure smooth and profitable operations.
However, the process can be complex and time-consuming, requiring careful attention to detail and adherence to local laws.
Get in touch with Seven Stones Indonesia today to have in-depth compliance check for your business. Text us on Whatsapp +62 877-7711-7701 or email us [email protected] to book 30-minute free consultation.
