FOREIGN INVESTMENT LIMITED LIABILITY COMPANY
Last Updated: 17 April 2023
For foreigners or foreign companies looking to invest in the Indonesian market or to get involved with an Indonesian, the investment or participation is contingent upon the establishment of a Perseroan Terbatas (PT) or a Limited Liability Company.1 This is a form of a legal entity under Indonesian law, which limits the liability of the shareholders based on the capital they have contributed to the company.2 In common practice, the foreign company ownership will be named "PT PMA" (PT Penanaman Modal Asing or Foreign Investment) to differentiate it with "PT PMDN" (Penanaman Modal Dalam Negeri or Domestic Investment).
The stipulations of a PT itself are regulated under Company Law, which has been amended by the Job Creation Law. Unlike PT PMDN, a PT PMA will be subject to different specific provisions. Below are some considerations and steps that needs to be reviewed before setting up a PT PMA in Indonesia.
1. Classification of the Business Activity
The first important aspect of establishing a PT PMA is to determine which Indonesian Standard Classification of Business Fields ("KBLI") your business falls under. The KBLI, as described by the five-digit code, is used as a reference for business scope, business risk classifications, required business licenses, and other important matters, such as the eligibility basis for fiscal incentives for the business activity.
2. Foreign Share Ownership of the Business Sector
In general, based on the Positive Investment List introduced by the government, a business sector is open to 100% foreign investment unless it is subjected to a specify type of limitation, such as closed business sectors or open business sectors with specific requirements. The company should check whether its business activity falls under the exception classifications as stipulated under its KBLI.
3. Investment Plan and Capital Requirements
The Head of the National Investment Coordination Board (Badan Koordinasi Penanaman Modal/"BKPM") regulates that a PT PMA shall have investment value of more than IDR 10 billion (or approximately USD 660 thousand), excluding land and building. The relatively high threshold is set to protect local small businesses from foreign competitors and to encourage foreign investment in large-scale business. However, it should be noted that this minimum capital requirement is not meant to be a frozen asset and may be used for the company's investment plans.
In addition to the minimum investment value requirement, a PT PMA must also fulfill the minimum capital requirement in the form of issued or paid-up capital of at least IDR 10 billion of the total investment. For example, if the PT PMA sets an investment value of IDR 11 billion, then the company must submit a minimum of IDR 10 billion of the investment as paid-up capital.
4. Shareholder Structure
At least two shareholders are required for the establishment of a PT PMA. These shareholders can be individuals, legal entities, or a combination of both. Some business sectors specifically require legal entities to be shareholders.
5. PT Management
In general, the stipulations regarding company management for PT PMA are the same with PT PMDN. A PT shall have a minimum of 1 (one) director and 1 (one) commissioner. However, the Indonesian Manpower Law prohibits foreigner director to do tasks related to Human Resources. Certain business activities also requiresan Indonesian citizen to hold director and commissioner positions, i.e., Direct trading/multi-level marketing.
Shareholders with a minimum share value of IDR 1 billion and who also hold director or commissioner positions is eligible for investor KITAS facilities. For more information, please refer to the chapter Visa and Immigration.
6. Procedure
The first step for shareholders in setting up a PT PMA is to present a deed of establishment legalized by a local public notary. The deed shall contain the articles of association of the company, which must be written in the Indonesian language and signed by all shareholders. Afterwards, the deed must be submitted by the notary to the Ministry of Law and Human Rights for approval. The Ministry will then ratify the Deed of Establishment by issuing a Decision Letter or Decree (“SK Menteri Hukum dan HAM”) that signifies that the company has been registered as a legal entity.
After acquiring the Deed of Establishment, the company must apply for a Taxpayer Identification Number or Nomor Pokok Wajib Pajak (“NPWP”) through the tax office, which can be done online, and a Business Identification Number (“NIB”), which can be done via the Online Single Submission (“OSS”) System. With the NIB, the PT PMA can finally start their business preparation based on the data entry and general plan of business activity that were submitted during the application. The OSS system will also automatically analyze the risk-level of the business activity to determine the business licenses of the company. For more information on business license, please refer to chapter Business License.
7. Nominee Agreement
Investors are prohibited from entering into agreements and/or statements confirming the ownership of shares in a limited liability company for and on behalf of others. Based on the Investment Law, this agreement shall be considered null and void.
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