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Ever since Indonesia's independence, foreign companies have made major investments in Indonesia to develop its resources, build infrastructure, establish manufacturing facilities for export and/or provide products and services for the domestic market. The intricacies of setting up a company and making an investment in Indonesia are many. This article will serve as but a brief introduction to the topic.
Setting up Business Activities and a Company in Indonesia
To establish a business in Indonesia, if you do not require a local legal entity for the investment proposed, you could choose to appoint an Agent or Distributor, or set up a Representative Office. Many foreign investors at the early stage of entering the Indonesia market choose to set up an Agency Agreement or Representative Office, then later after the business starts to grow they will apply for a Foreign Direct Investment Company (FDI) status.
This is referred to most commonly in Indonesia by its Indonesian acronym PMA, or Penanaman Modal Asing.
A Representative Office can be established depending upon the line of business and the necessary licenses issued by the related government department. The limitation of a Representative Office is that they are not allowed to conduct direct sales and cannot issue Bills of Lading.
Representative offices are set up primarily for marketing, market research, or as buying or selling agents. The related government ministries are:
Limited Liability Company or Perusahaan Terbatas (PT)
Foreign Direct Investment, most often referred to by its Indonesian abbreviation PMA, is governed primarily by the Foreign Capital Investment Law No. 25 of 2007. As a legal basis, the law is fairly accommodative to various deregulatory policies and measures to date, and those that will be taken by the government in the foreseeable future.
In addition to Investment Law No. 25/2007, PMA companies as well as other companies in their business operations are still subject to sector/industrial policies as required by corresponding ministries.
Incorporation of PMA Company
The Investment Coordinating Board (BKPM), the government body which processes and handles FDI companies, issued an important deregulation package on PMA in 2010 referred to as Presidential Decree No. 39 year 2014. It was seen as a very significant step toward a much more conducive and attractive investment environment in Indonesia. Some highlights of the new regulation:
You can obtain a copy of the FDI application sin English from Indonesian embassies overseas or from Investment Coordinating Board office - either from the head office in Jakarta or from regional offices in the provinces.
The amount of capital to be invested in a foreign-owned company is decided by the investing parties themselves, and the BKPM approval is based on the economics and scale of the project. Foreign investment companies are basically free to choose where in Indonesia they will set up operations, with the proviso that factories must be in areas zoned for industry or in an industrial estate.
The life of foreign investment companies has been extended by allowing the renewal of the fixed/permanent operating license (IUT) for an additional 30 years. The process of incorporation of a new foreign direct investment company:
- Principle License will be valid for 3 years
(2) The name of the Company must be preceded by the phrase “Perseroan Terbatas” (Limited Liability Company) or the abbreviation “PT”.
(3) In the case of a Public Company (Perseroan Terbuka), apart from the provisions referred to in paragraph (2) being applicable, the abbreviation “Tbk” shall be added at the end of the Company’s name.
(4) Further provisions regarding the procedures for the use of Company names shall be stipulated by Government Regulation.
The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same as or resembles the name of other companies.
Government Regulation No. 43 of 2011 on Use of Names of Limited Liability Companies also provides that an application to use a name that is the same as or similar to a well known trademark shall be rejected unless approval is obtained from the holder of the trademark.
Step 4: Incorporation of Izin Prinsip BKPM
- Fixed Operating License (IUT) - 30 years
Prepare and send the 3-month report (LKPM) of the last period to the BKPM office as well as UUG (HO) nuisance act and enviromental management (SPPL/ UKL-UPL/Amdal) to BKPM and required financial audits for several businesses, if necessary.
Step 2: Fixed Operating License (IUT) for 30 years is issued
A Limited Liability company is established either under foreign shareholders or through a joint venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability company, they must comply with Indonesian law and are considered an Indonesian company and the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.
To get a license for Change of Capital and Change of Owner the applications should be submitted to BKPM. According to BKPM, there's no charge to arrange licences.
Taxation and Labor Law
Another important matter is the Taxation and Labor Law. It is compulsory to report taxes on a monthly basis and follow Indonesian labor law.
As you can see from this very brief introduction, the process is a complicated and lengthy one and can be a virtual mine field for those who are unfamiliar with dealing with Indonesian ministries. Because of this, many foreign companies choose to acquire the advisory services of a professional investment consultant which specializes in assisting foreign companies who want to establish businesses in Indonesia.
Updated May 29, 2015
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