PARTNERSHIP BETWEEN PMA COMPANY AND LOCAL BUSINESSES IN INDONESIA

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There are many ways to invest in Indonesia. Foreign investors can establish a PMA company (Perseroan Terbatas Penanaman Modal Asing) which is 100% fully owned by the investors or they can build a partnership with local companies. To invest in Indonesia, foreign investors must refer to the Negative Investment List, which is regulated and periodically amended by the Government.

The amendment of the Negative Investment List in Indonesia is always awaited by foreign investors. It is very important to for them know every changes to the list, especially regarding the business fields that are now open for foreign investors.

The latest Negative Investment List is regulated in Presidential Regulation Number 44 of 2016 concerning List of Business Fields That Are Closed to Investment and Business Fields That Are Conditionally Open for Investment (“DNI 2016”). DNI 2016 stipulates the categorization of business fields for foreign investors, which is categorized in 3 (three) categories: Open, Conditionally Open, and Closed for foreign investment.

Pursuant to Article 2 of DNI 2016, the conditions stipulated in DNI 2016 for foreign investment in certain business fields can be classified as follows:

  1. Conditionally Open
    1. Reserved for Micro, Small, and Medium Business and Cooperatives (Usaha Mikro, Kecil dan Menengah, dan Koperasi);
    2. Mandatory Partnership (kemitraan) with Micro, Small, and Medium Business and Cooperatives (Usaha Mikro, Kecil dan Menengah, dan Koperasi);
  1. Open under Specific Conditions
    1. Limited Foreign Capital Ownership;
    2. Specific Locations;
    3. Specific Permits;
    4. 100% Domestic Capital; and/or
    5. Limited Capital Ownership in the scope of ASEAN Cooperation

In this article, SMART is going to explain on the mandatory Partnership as stipulated within DNI 2016, which applies for some of the most desirable business activities in Indonesia for foreign investment, including E-Commerce and Manufacturing.

WHAT IS PARTNERSHIP?

Article 1 Paragraph 7 of DNI 2016 defines Partnership (otherwise known as Kemitraan) as direct or indirect cooperation in the activities of investment specifically for Business Fields That are Conditionally Open for Investment based on the principles of mutual needs, trust, strengthening, and benefits, to involved micro, small, medium business operator in doing business with large business.

Further elaborated in Article 5 (2) of DNI 2016 on the Partnership as referred to in the Negative Investment List, stipulating that such Partnership shall be established by Investors and Small, Micro and Medium Business and Cooperatives under/through the nucleus-plasma system, subcontracts, agency, franchising, and other Partnership systems.

WHO ARE THE PARTNERS?

There are 4 (four) businesses that Investor can partner with in a Partnership, pursuant to DNI 2016:

  1. Micro Business (Usaha Mikro)
  2. Small Business (Usaha Kecil)
  3. Medium Business (Usaha Menengah)
  4. Cooperatives (Koperasi)

Based on Law Number 20 of 2008 regarding Micro, Small, Medium Business, Micro Scale Business means an independent business conducted by individual and/or business entity which its equity net up to 50 million Rupiah, exclude the office land and building; or its annual income up to 300 million Rupiah.

Small Scale Business means an independent business conducted by individual or business entity which is subsidiary or branch owned, controlled, or be part, directly or indirectly of a medium or big scale business which its equity net more than 50 million Rupiah up to 500 million Rupiah, exclude the office land and building; or its annual income more than 300 million Rupiah up to 2.5 billion Rupiah.

Medium Scale Business means an independent business conducted by individual or business entity which is subsidiary or branch owned, controlled, or be part, directly or indirectly of a small or big scale business which its equity net more than 500 million Rupiah up to 10 billion Rupiah, exclude the office land and building; or its annual income more than 2.5 billion Rupiah up to 50 billion Rupiah.

WHAT KIND OF BUSINESS FIELD ARE OPEN FOR PARTNERSHIP?

Below is the list of business fields which are conditionally open and available for partnership:

Forest and Agriculture Production Hatchery, Rearing, Processing Fishery Products Manufacture Retail
Forest Production: Rattan Hatchery of Seafish Manufacture of Copra Retail Sale via Mail Order Houses and via Internet
Forest Production: Oleo Pine Resin Hatchery of Brackishwater Fish Manufacture of Pickled Fruits and Vegetables
Forest Production: Bamboo Hatchery of Freshwater Fish Manufacture of Soy Sauce
Forest Production: Shorejavanica Rearing of Brackishwater Fish Manufacture of Powdered and Sweetened Condensed Milk
Forest Production: Agarwood Rearing of Freshwater Fish Manufacture of Stamped Batik
Production of Shellac, Alternative Food Crops (sago), Gums, and Honeybee Farming Processing of Fishery Products: Salting/Drying of Fish and Biota from Other Waters Manufacture of Processed Rattan
Production of Silkworm Cocoon Processing of Fishery Products: Smoking of Fish and Biota from Other Waters Manufacture of Preserved Rattan, Bamboo and the like
Processing of Fishery Products: Fish Yeasting/Fermentation and Other, Cooked Products (for extraction and fish jelly) Manufacture of Wooden Goods (builders’ carpentry and joinery) (manufacture of mouldings and construction material components)
Processing of Fishery Products: Processing of Minced Fish and Surimi Manufacture of Essential Oils
Marketing, Distributing, Wholesale, and Export to Fishery Products Manufacture of Dried Tobacco and Processed Tobacco
Manufacture of Clay/Ceramic Bricks
Manufacture of Other Clay/Ceramic Products
Manufacture of Lime
Manufacture of Articles of Cement
Manufacture of Articles of Lime
Manufacture of Other Articles of Cement and Lime
Manufacture of Nails, Bolts and Nuts
Manufacture of Components and Parts of Engines/Turbines (prime movers)
Manufacture of Pumps and Compressors
Manufacture of Articles of two-and three-wheeled Motor Vehicle Components and Fittings
Manufacture of Bicycle and Pedicab Fittings
Manufacture of Agricultural Machine Tools
Manufacture of Woodenships for Marine Tourism and Fishing
Manufacture of Devices and Fittings of Woodenships for Marine Tourism and Fishing
Manufacture of Jewelry Articles of Precious Metal for Personal Use
Manufacture of Jewelry Articles of Precious Metal for non-Personal Use
Manufacture of Jewelry Articles of non-Precious Metal for non-Personal Use
Manufacture of Precious Stones
Manufacture of Handicraft Notelsewhere Classified
Manufacture of Recovery of non-Metal Materials
Manufacture of Cane Sugar (white sugar, refined sugar and raw sugar) from Sugar Cane through Partnership, in Nucleus-plasma System with 20% of Farmland Area

HOW DOES A PARTNERSHIP WORK?

Depending on what type of partnership is established.

Learn more about the types of Partnership in our articles here:

  1. Nucleus-Plasma System
  2. Subcontracts
  3. Agency
  4. Franchising
  5. Wholesale
  6. Distribution and Agency
  7. Other forms of Partnership, such as Profit Sharing, Operational Cooperation (Kerjasama Operasi or KSO), Joint Venture, and Outsourcing.

 

HOW CAN SMART CONSULTING HELP YOU?

To ensure a smooth investment and business operation from the legal perspective, but also still focus on establishing your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with investment regulation.

SMART Legal Consulting have worked and assisted with foreign investors and PMA Companies to restructure, maintain and operate their business in Indonesia in compliance with all prevailing laws and regulations under the current Indonesian foreign investment legal regime. SMART is also able to assist PT PMA in submitting LKPM, and liaising with BKPM in regards of LKPM obligations.

CONTACT US NOW for further explanations about foreign companies and investments in Indonesia, at:

E:  info@smartcolaw.com

H: +62821-1234-1235

O: +6221- 2278-3385

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