CAN INVESTORS ESTABLISH A SPECIAL PURPOSE VEHICLE (SPV) COMPANY IN INDONESIA?
The utilization of a Special Purpose Vehicle (SPV) Company to raise foreign investment funds is a common practice by investors worldwide. The question is, does Indonesia recognize a SPV Company? And how can investors establish a SPV Company in Indonesia?
The worldwide exposé at the beginning of 2016 known as the “Panama Papers” reveals the popular utilization of Special Purpose Vehicle Companies (”SPV Company”) established in various countries by investors worldwide. A SPV Company is commonly established as a Shell Company (Perusahaan Cangkang), defined as a company serving as a vehicle for business transactions without the Shell Company itself having any significant assets or operations.
The purpose of establishing SPV Companies overseas is to raise investment funds sourced from foreign loans. However, some investors also use SPV Companies to conduct tax evasion for their transactions, by establishing their SPV Companies in “tax heaven” countries, susch as Panama or British Virgin Islands.
SPV COMPANIES IN INDONESIA
In Indonesia, the existence of SPV Companies is not regulated nor recognized in Law Number 40 of 2007 concerning Limited Liability Company (“Company Law”). The Company Law specifically regulates concerning limited liability companies (Perseroan Terbatas or “PT”) established and domiciled in Indonesia, which conducts business operations within the territory of Indonesia and must be established pursuant to the Company Law and its subordinate regulations.
However, lack of specific regulations does not discourage Indonesian nationals and companies to establish SPV Companies overseas, as evidenced by their presence in the Panama Papers.
The concept of SPV Company itself is known in Indonesia, but only under certain limitations:
- State-owned SPV Company which grants and operates the Second Mortgage Facility (Pembiayaan Sekunder Perumahan), pursuant to Presidential Regulation No. 19 of 2005 jo. Presidential Regulation No. 1 of 2008.
- State-owned SPV Company which issues the State Islamic Securities (Surat Berharga Syariah Negara or “SBSN”) pursuant to Law of Republic Indonesia Number 19 of 2008.
POST-TAX AMNESTY REGULATIONS FOR INDONESIAN TAXPAYERS OWNING INDIRECT PROPERTY THROUGH SPV COMPANIES OVERSEAS
Even though the Company Law does not regulate nor recognize SPV Companies in Indonesia, the post-tax amnesty regulations issued by the Directorate General of Taxation stipulates the definition for Special Purpose Vehicle itself, to give legal certainty for owners of SPV Companies concerning the tax treatment applicable for SPV Companies.
Ministry of Finance Regulation No. 127/PMK.10/2016 on Tax Amnesty for Taxpayer with Indirect Property through Special Purpose Vehicle lastly amended by Ministry of Finance Regulation No. 142/PMK.010/2016 (“PMK 127”) defines “Special Purpose Vehicle” as companies that are:
- Established solely to conduct a special function for the interests of its shareholders, such as Investment purchase or financing;;
- Not conducting active business operations.
PMK 127 gives legal certainty for Indonesian taxpayers, whether Indonesian citizens, foreign citizens or legal entities in the form of local company or foreign company (“PT PMA”), who have established SPV Companies overseas. PMK 127 further regulates how the tax amnesty will work on any indirect funds received by the Indonesian taxpayers from the SPV Companies overseas.
CONCLUSION
While Indonesian taxpayers are allowed to establish SPV Companies overseas, there are currently no prevailing laws and regulations which regulates nor recognizes the establishment of private SPV Companies domiciled in Indonesia. The lack of regulations may not necessarily be interpreted as an active prohibition on establishment of SPV Companies; however, such establishment must be conducted pursuant to the Company Law and its subordinate regulations.
The legal implication arising out of the obligation for SPV Companies to comply with Company Law and its subordinate regulations is that the SPV Company is essentially established as a regular company, with its own business operations, as well as the required paid-up capital. For foreign investors planning to hold shares in the SPV Company established in Indonesia, the SPV Company itself will become a PT PMA, which must comply with the prevailing Investment Laws and its subordinate regulations in Indonesia, such as the minimum paid-up capital requirement and investment realization. All obligations applicable to a regular Company (PT or PT PMA) will also apply for the SPV Company
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 laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. Our experience and dynamic firm value assist Clients in staying up-to-date with the newest Indonesian laws and regulations. SMART focuses on foreign investment and general corporate matters, including establishment of PMA Company and providing Corporate Secretarial and Legal Services to maintain investors’ business Indonesia.
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