EXPANSION OF BUSINESS IN A PMA COMPANY: MORE INVESTMENT NEEDED?

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When planning to expand a PMA Company, one of the most important things is to determine whether such expansion is classified as a diversification of business, or as an expansion of business which must be followed by an expansion of investment. Since the minimum investment for PMA Company must be above IDR 10 billion, it becomes crucial to understand this since the planning stages to project the expansion funds required.


A foreign-owned limited liability company established under the laws of Republic of Indonesia (“PMA Company”) with a permanent business license can plan to expand its business in Indonesia, whether by adding more business activities, diversifying the existing business activities, or other business plan with the purpose to gain more revenue and expand the business in Indonesia.

Before a PMA Company can expand, it is important to know which kind of expansion is classified as a Change of Business, and which kind of expansion is classified as an Expansion of Business. Why is this important? This is because the expansion of business for PMA Company must be preceded by the application to the BKPM regarding such expansion. And pursuant to the BKPM Regulations, there are several types of expansion which must be followed by an expansion of investment.

With the current regulation requiring a minimum amount of above IDR 10 billion for every expansion of investment, it becomes very crucial to know which expansion the PMA Company will be executing. This is because the investment budget will depend entirely on such classification.

The expansion of a PMA Company Business is classified by which type of license is required to be applied for at the BKPM. There are 2 (two) licenses, which are:

  1. CHANGE OF BUSINESS LICENSE (IZIN USAHA PERUBAHAN)
  2. A PMA Company can apply for a change of its current Business License, in the event that the expansion of its business consists of:

    1. Change of Project Location;
    2. Change of Business License validity period;
    3. Change of production type due to diversification of products, without adding any types of machinery and/or investments;
    4. Change of production capacity which is stated in the Business License, which is not in line with the installed capacity in the project location pursuant to field assessment results;
    5. Change of annual marketing and value of exports;
    6. Change in the form of KBLI Adjustment (commonly done by PMA Company established prior to the current prevailing KBLI Code)
    7. (For Trading and Wholesale PMA Company) Increasing more types of products traded without increasing capacity and investment;
    8. (For Construction PMA Company) Adding sub-qualifications.
  3. EXPANSION OF PERMANENT BUSINESS LICENSE (IZIN USAHA PERLUASAN)
  4. If the expansion plans of the PMA Company is not in line with the expansion which is classified for Change of Business License, the PMA Company must apply for an expansion of its Business License, and must fulfill the following conditions:

    1. PMA Company must apply first for an Expansion of Principle License (Izin Prinsip Perluasan). Expansion of Principle License follows the same requirement as applying for a new Principle License;
    2. PMA Company must first realize an investment above IDR 10,000,000,000 (ten billion Rupiah) excluding land and building.

Therefore, prior to expanding their business, a PMA Company must think very carefully about how much it is planning to expand, and how much it is planning to invest in return. Of course, this does not eliminate other options to expand a business, such as opening a subsidiary or building a business partnership with other companies in Indonesia.

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 assisted local and multinational companies in handling their corporate legal matters, including preparing resolutions and general meeting of shareholders for their Client, liaising with BKPM in regards to Client investment and business licenses, and acting in an advisory capacity for the Client.

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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