3 THINGS FOREIGN DISTRIBUTOR NEED TO KNOW IN DOING 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 the foreign investor in Indonesia, with the wholesale, import, export, and distribution activities being opened with different conditions for the foreign investor, as for retailers are closed for the foreign investor. 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. 67% OPEN FOR FOREIGN INVESTOR
  2. The current Negative Investment List as stipulated in the Presidential Regulation No. 44 of 2016 (“DNI 2016”) allows a 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 foreign investor to own maximum 33% shares for distribution activities.

    It must be noted that DNI 2016 also allows a foreign investment in the wholesale 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 wholesale and distribution activities, it must comply with the lowest maximum amount of foreign ownership, which is 67% foreign ownership.

  3. MUST FULFILL MINIMUM EQUITY AMOUNT TO OBTAIN PERMANENT BUSINESS LICENSE (IZIN USAHA TETAP OR IUT) TO START BUSINESS
  4. PMA 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) from the BKPM, it must first fulfill the requirement of a Big Business.

    The PMA Company must:

    1. Have the amount of equity above IDR10,000,000,000 (ten billion rupiah); or
    2. Have an annual revenue above IDR50,000,000,000 (fifty billion rupiah).

    Please note that 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 (paid-up capital) above IDR 10 billion.

  5. MUST APPOINT LOCAL COMPANIES AS DISTRIBUTOR OR AGENTS TO DISTRIBUTE THEIR PRODUCTS
  6. Even though PMA Company is allowed to conduct distribution activities, Minister of Trade Regulation No. 11/M-DAG/PER/3/2006 states that both PMA Companies in the wholesale and/or distribution business must appoint a local trading company owned by 100% Indonesian shareholders to conduct its trading business activities.

    The terms and conditions of the appointment obligation are as follows:

    1. The local trading company is appointed by the PMA Company to be an agent, sole agent, distributor, or sole distributor of the goods and products. This means that the domestic trading company cannot be appointed as a reseller or a direct retailer to the end consumer, as stipulated in Minister of Trade Regulation No. 22/M-DAG/PER/3/2016.
    2. The appointment agreement which appoints the local trading company must be legalized by an Indonesian Public Notary.
    3. The principal foreign company who is the manufacturer of the products must give its written approval on the appointment of the local trading company. Such approval is signed by the Director who is authorized to represent the principal foreign company.

    Please note that the Foreign Trading Company Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing) are obligatedto appoint the local trading company too, which must also follow the same obligations.

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 domestic 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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