Foreign Direct Investment (“FDI”) is defined as any investing activity for running business within the territory of the Republic of Indonesia, made by any foreign investor using either foreign capital entirely or joint capital with domestic capital. Right now, FDI in Indonesia is regulated by Law No. 25 of 2007 concerning Investment, including the scope of such investment as mentioned in the definition.
In principle there are 2 (two) important matters for foreigners who want to run a business in Indonesia by way of establishing a Foreign Direct Investment Company (“FDI Company”) beside field of business, namely:
A. Business Entity
BKPM has regulated that the business entity of any FDI in Indonesia must be in the form of Limited Liability Company (Perseroan Terbatas, also known as “PT”) which domicile is based in Indonesia and is established under and adheres to Indonesian laws and regulations.
B. Capital Structures
BKPM has also regulated that the total value of investment plan for a FDI Company must be greater than or of equal value IDR 10,000,000,000,00 (ten billion Rupiah) or its equivalent in unit US Dollar, excluding land and building, unless it is determined otherwise by the Ministry / relevant institutions to its business field.
However, based on the Indonesian Company Law, Foreign Investors have the ability to participate with at least IDR 2,500,000,000,00 (two billion five hundred million rupiah) or its equivalent value in US Dollar or it is determined specifically for a certain business field, which is equal to 25% (twenty five percent) of the minimum amount of foreign investment regulated by BKPM. This 25% is known as the “Paid-Up Capital and Issued Capital” in the Company itself, which must be owned by the Company in a liquid form of capital, as opposed to the “Authorized Capital”, which is the 100% of the Company’s capital including those 25%.
The following is a detailed description for Foreign Investors/FDI before starting a business in the form of FDI Company in Indonesia:
PRE-OPERATION STAGE (ESTABLISHMENT OF FDI COMPANY)
Any Foreign Investors/FDI (PMA-Penanaman Modal Asing) is obligated to register its investment through the OSS of Investment in BKPM. An access right is mandatory for investors that intend to use OSS. Note that each company is only granted one access right to be used.
In order to ensure the efficient processing of the application, it is desirable that applicants furnish all requested information and documents with their applications, such as:
Application Form; Applicant’s Identification; Detail of activity plan and work flow chart; For certain types of business, BKPM may require the applicants to present a presentation in front of BKPM Officials.
BKPM will issue a Principle License as the provisional Investment License for investors no later than 3 (three) working days as from the receipt of complete and correct application. The content of such License includes details of the approved project, and usually reflects the submitted application.
Having obtained the Principle License from BKPM, the Foreign Investor may execute the Deed of Establishment of the new FDI Company containing the proposed company’s Articles of Association, before a civil notary in Indonesia. This Deed of Establishment should be drafted to be consistent with the Joint Venture Agreement (if any), the Company Law and the Investment Registration. Certain commercial matters in the Joint Venture Agreement are not normally stated in the Deed of Establishment.Securing Certificate of DomicileLetter of the FDI Company
COMMERCIAL OPERATION STAGE (LICENSES AND PERMITS)
To secure a Business License, the FDI Company has to obtain:After the FDI Company is firmly established under Indonesian laws and regulations, the next step for the Foreign Investors is to secure their business license from BKPM in order to obtain the legal basis for the FDI Companyto perform their commercial and business activities in Indonesia.
All of which could be secured from BKPM. FDI Company must also submit Investment Activities Report (LKPM) to BKPM every 6 (six) months.
Commencing on 26th January 2015, BKPM has implemented an OSS Center, which is an integrated services between BKPM with some ministries/institutions responsible for the issuance of licenses and/or permits relevant to business activities. Implementation of OSS Center is intended to provide quick, simple, transparent and integrated license services.
IMPORTANT NOTE:The licenses, documents and/or procedures described and listed above in this article are the general requirements for the establishment of a Foreign Direct Investment Company (“FDI Company” or PT PMA) in Indonesia. Establishment of FDI companies in specific business sectors may require additional establishment licenses, permits, and/or documents. Therefore, Foreign Investors must always seek legal advice before engaging into any investment activity in Indonesia.
HOW CAN SMART LEGAL CONSULTING HELP YOU?
SMART Legal Consulting has extensive experience in assisting Foreign Investors to establish FDI Company in Indonesia. If you need immediate assistance, please contact SMART Help Desk at: