PT PMA (Perseroan Terbatas Penanaman Modal Asing) is the legal term used for foreign-owned limited liability companies in Indonesia. PT PMA or a foreign-owned company is the most common form of business entity for foreign investors who want to operate in Indonesia. The Indonesian government has put in place regulations that make it easy for foreigners to invest in Indonesia, but it is important to comply with the legal requirements to avoid any legal issues in the future.
Requirements for Foreigners To Open Their Company in Indonesia
Foreigners can own up to 100% of a foreign-owned company in Indonesia, but there are certain requirements that must be met set by The Investment Coordinating Board of Indonesia (BKPM), the agency that is responsible for issuing licenses and regulating foreign investment in Indonesia. The following are the legal requirements for foreign business owners in Indonesia:
1. Business Plan
A business plan that outlines the proposed activities of the company and the expected financial performance must be submitted to the BKPM. Based on a regulation, Badan Pusat Statistik No 2 Year 2020 about standard Classifications of the Indonesian Business Field (KBLI), all foreign-owned company must submit their business plan. It is the perfect tool to get the vision of your company clearer. This is the first thing that every foreign-owned company needs to know and have before starting a business in Indonesia.
2. Investment Plan
An investment plan that details the amount of investment and the source of funds must be submitted to the BKPM. Investment Plan is part of every responsibility of a foreign-owned company to follow, which is known as Reporting Investment. Laporan Kegiatan Penanaman Modal (LKPM), are required to submit the investment activity report every three months (quarterly).
3. Minimum Capital Requirement
Based on Peraturan Badan Koordinasi Penanaman Modal (BPKM) number 4/2021, the government regulate that the minimum capital requirement for a foreign-owned company minimum is IDR 10 billion (~US$700,000) for large-sized business in most industries, except for certain industries that have a higher minimum capital requirement.
4. Legal Documents
The legal documents required for registering a foreign-owned company include a notarized deed of establishment which include shareholders’ detailed information (AKTA) and a statement of approval from the Ministry of Law and Human Rights (SK).
5. Choosing a Director and Commissioner
A foreign-owned company must have at least one director and one commissioner. Foreigners can be both the director or the commissioner without having to stay in the country. However, if they choose to be a director of that said company, they will need to apply for the taxpayer Identification number (NPWP) and become the taxpayer in Indonesia.
6. Obtaining a Business License:
After the company is registered, a business license must be obtained from the relevant local government agency. The Business License is the identification of the Business Number (NIB) that companies are supposed to register to the Online Single Submissions Risk Based Approach (OSS-RBA) to comply with the business activity and plan. Through OSS-RBA, companies can carry out the licensing process for their business, each of which has obligations to fulfil.
The process of registering a foreign-owned company can take several months, so patience and persistence are important. Additionally, once your business is up and running, there are ongoing compliance requirements that you’ll need to meet, such as filing the company’s annual tax and investment reporting for every 3 months of period reporting. Working with a professional consultant who has experience in the Indonesian market can help you navigate these requirements and ensure that your business remains in good standing with the authorities.
Overview of Different Types of PT PMA Foreign-Owned Company Structures
There are different types of foreign-owned company structures that foreign investors can choose from, each with its own advantages and disadvantages. The following are the most common types of foreign company structures:
1. Foreign-Owned PT PMA
This structure allows foreign investors to own 100% of the PT PMA, giving them complete control over the company. The main advantage of this structure is that it allows foreign investors to have full ownership and control of the company. The disadvantage is that it requires a higher minimum capital requirement based on the kinds and type of business sector the company chooses to run in Indonesia.
2. Joint Venture PT PMA
This structure involves a partnership between foreign investors and local partners. The main advantage of this structure is that it allows foreign investors to benefit from the local partner’s knowledge and experience in the Indonesian market, minimize the risk of doing business, and transfer the professional or expert for the business.
3. Representative Office
This structure is suitable for foreign investors who want to explore the Indonesian market without committing to a full-scale operation. The main advantage of this structure is that it allows foreign investors to establish a presence in Indonesia without the need for a large investment. The disadvantage is that it does not allow the company to engage in commercial activities and profit in Indonesia.
Common Challenges and Solutions When Registering a Company in Indonesia
Registering a foreign company in Indonesia can be challenging due to the complex regulations and bureaucratic procedures involved. Some of the common challenges faced by foreign investors when registering a company in Indonesia include:
1. Language Barrier
Most of the registration documents are in Indonesian, and foreign investors may need the help of a translator or legal advisor.
2. Lack of Transparency
The registration process can be opaque, and it may be difficult to obtain clear information about the requirements and procedure for business licenses.
3. Delayed Processing Time
The processing time for registration can be lengthy, and there may be delays due to bureaucratic procedures.
4. Limited Access to Financing
Foreign investors may need help accessing financing from Indonesian banks due to the lack of credit history and collateral requirements.
To overcome these challenges, it is important to engage a professional service provider with expertise in registering a foreign company in Indonesia. These service providers can help navigate bureaucratic procedures, provide legal advice, and assist in obtaining the necessary approvals and licenses. Indonesia is a promising market for foreign investors, and a PT PMA is the most common form of business entity for foreign investors in Indonesia. While the registration process can be complex, engaging a professional service provider can help foreign investors navigate the process successfully. With the right guidance and support, foreign investors can establish a successful business in Indonesia and benefit from the country’s growing economy.
Kick-Start Your Business and Open Your Company with Seven Stones Indonesia!
Registering a company in Indonesia can be a complex process, but with the right guidance and support, foreign investors can navigate the process successfully. Seven Stones Indonesia’s team of experts can provide guidance on the legal requirements, assist in obtaining the necessary approvals and licenses, and provide ongoing support for the company’s operations in Indonesia. Contact our team today at hello@sevenstonesindonesia.com to book your free first 30-minute consultation to kick-start your journey in Indonesia!
