3 THINGS YOU NEED TO KNOW ON FOREIGN INVESTMENT IN THE DISTRIBUTION BUSINESS IN INDONESIA

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A Distributor PMA Company has its requirements and obligations to comply with when conducting trading activities. Learn the 3 (three) most essential things on how PMA Company can conduct distribution in Indonesia.


The trading business is one of the business opened for foreign investment in Indonesia, with the wholesaler, import, export, and distribution activities being opened with different conditions for foreign investment, and retailers as the sole activity closed for foreign investment. Understanding the role of a PMA Company as a distributor in the supply chain, and the limitations which apply, is key in maximizing the investment in Indonesia.

There are 3 (three) things you need to know regarding foreign investment in distribution business in Indonesia, which are as follows:

  1. PEN TO 67% FOREIGN OWNERSHIP BASED ON NEGATIVE INVESTMENT LIST
    The current Negative Investment List as stipulated in Presidential Regulation No. 44 of 2016 (“DNI 2016”) allows foreign investment in the form of limited liability Company (“PMA Company”) for the distribution activities, up until maximum 67% foreign ownership.This is an increase from the previous Negative Investment List in 2014, which only allows a maximum of 33% foreign ownership for distribution activities.It must be noted that DNI 2016 also allows foreign investment in the wholesaler activities, including import and/or export, which is opened for 100% foreign ownership, except for specific goods such as: fishery products, alcoholic beverages, narcotic pharmaceuticals, pharmaceutical raw materials, and medical devices.However, if a PMA Company conducts both wholesaler and distribution activities, it must comply with the lowest maximum amount of foreign ownership, which is 67% foreign ownership.
  2. MUST FULFILL MINIMUM EQUITY AMOUNT TO OBTAIN PERMANENT BUSINESS LICENSE (IZIN USAHA TETAP OR IUT) TO START BUSINESSPMA Company is classified as a Big Business, pursuant to Law No. 20 of 2008 concerning Micro, Small and Medium Business. Therefore, in order for a PMA Company to obtain its Permanent Business License (Izin Usaha Tetap), or the Trade Business License (Surat Izin Usaha Perdagangan or SIUP) from the BKPM, it must first fulfill the requirement of a Big Business.The PMA Company must:
    1. Have the amount of equity above IDR 10 billion; or
    2. Have an annual revenue above IDR 50 billion.

    By logic, a PMA Company is not allowed to conduct business activities before obtaining the Trade Business License. Therefore, it needs to fulfill the first requirement, which is having an amount of equity above IDR 10 billion. Such equity is deposited as the Company paid-up capital.

  3. MUST APPOINT LOCAL COMPANIES AS DISTRIBUTOR OR AGENTS TO DISTRIBUTE THEIR PRODUCTS
    Even though PMA Company is allowed to conduct distribution activities, Ministry of Trade Regulation No. 11/M-DAG/PER/3/2006 states that both PMA Companies in the wholesaler and/or distribution business must appoint a local trading company owned by 100% Indonesian nationals to conduct its trading business activities.The terms and conditions of the appointment obligation are as follows:

    1. The local trading company is appointed as agent, sole agent, distributor, or sole distributor;
    2. The appointment is made in an appointment agreement legalized by an Indonesian Public Notary; and
    3. The agreement with the local trading company must be approved in writing by the principal manufacturer abroad who is represented by the Distributor PMA Company.

    The same appointment obligations apply for the Foreign Trading Company Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing) who has obtained its Representative Office license from the BKPM.

HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining 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 prevailing trading laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. We have helped established PMA Company in trading business, with 100% success rate. SMART have Also assisted local and multinational companies in handling their trading legal matters, including matters related to legal compliance and application of trading business licenses (import, export, distribution). We have also assisted Clients in drafting and reviewing sales and distribution agreements pursuant to the prevailing trading laws and regulations in Indonesia.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.
E:  info@smartcolaw.com
H: +62821-1234-1235

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