A Penanaman Modal Asing (“PMA”)/ Foreign Direct Investment (“FDI”) in Indonesia is regulated under Law 25 of 2007 (Undang Undang Penanaman Modal/ Direct Investment Law), the law applies to FDI and also Local Direct Investment.
In brief, the law stipulates that FDI is any investment made by a foreign party (private person/ legal entity/country) directly with a legal entity in Indonesia in form of a shared ownership, whether the ownership is partly or wholly owned by a foreign party. Kindly note that the Law 25 of 2007 is not applicable to share ownership through the capital market.
Negative List of Investment/DNI
Law 25 of 2007 stipulates that the government may regulate open business activities and restrict direct investment made by citizens or foreigners through Presidential Regulations.
The latest ruling (when this article is made) is Presidential Regulation 44 of 2016 (Daftar Bidang Usaha Yang Tertutup dan Bidang Usaha Yang Terbuka Dengan Persyaratan di Bidang Penanaman Modal/ List of Business Fields That Are Closed To Investment and Business Fields That Are Conditionally Open For Investment) which in practice are usually called Negative List of Investment (Daftar Negatif Investasi/ “DNI”).
The key to understanding DNI is to understand business classification in Indonesian Business Industry Classification Code (Klasifikasi Baku Lapangan Usaha Indonesia/ “KBLI”). Once we understand a business activity that we are interested in, then we may check whether the particular activity is open, close, or conditionally open.
An open business activity is indicated by the absence of the code in the DNI, while the code for a closed business activity and conditionally open business activity will appear in the DNI.
Open means that the business activity is 100% open and available for investment (local/FDI), while close will be the opposite. As for conditionally open, it may be classified to restricted for foreign investment (partially or fully restricted) or requires further arrangements (e.g. required to cooperate with Small Medium Scale Companies).
However, please be advised that there are some business activities that need to be confirmed by the authority in charge as there are some regulations from the technical ministry in charge that may not have been harmonized with the DNI.
Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/ “BKPM”)
By law, the authority in charge of each business activity is the technical ministry. For instance, distributor activity is monitored by Ministry of Trade, mining activity is monitored by Ministry of Energy and Natural Resources, etc.
However, in relation to direct investment, the technical ministry can delegate some of their authority (e.g. issuing licenses/permits) to BKPM. Having the delegated authority, BKPM has an authority over most direct investment activities in Indonesia.
We can’t say “everything” because some business activities like banking and finance are still monitored and regulated by Financial Service Authority/ Otoritas Jasa Keuangan/ “OJK”).
The FDI must require the services of a notary to form a PT. Company in order to operate in Indonesia. The company’s business activity must be in line with the DNI guidelines as mentioned above.
As a PT. Company, it needs at least two persons (private individual/legal entity) as the company shareholders. The minimum shares owned by the minority shareholder is IDR 10 Million. In practice, the company is called Perusahaan Terbatas Penamanan Modal Asing (PT. PMA).
The minimum total investment value per business activity for a FDI must be more than IDR 10 Billion (in practice, adding another IDR 1 Million is enough). The investment can be financed through equity and loan. Kindly note that BKPM may request a higher investment based on the business activity applied.
The total investment must fully reflect in the Authorized Capital stated in the Article of Incorporation of the company. The Paid Up and Issued Capital (Cash deposit) are at least 25% from the Authorized Capital. Subject to the new Ministry of Law and Human Rights (“MLHR”) regulation, the deposit needs to be made within three months after the MLHR approval’s issuance date.
Further, the company is required to have a minimum of one person as a Director and one person as Commissioner. Kindly note that a legal entity is not allowed to hold such position in Indonesia.
As a business entity, a PT. PMA is required to have at least the following basic legal documents/licenses/permits to operate.
- Principal License;
- Article of Incorporation/Association (“AoI”/”AoA”);
- Ministry of Law and Human Rights Approval for the AoI/AoA;
- Certificate of Domicile;
- Certificate of Tax Registration;
- Certificate of Company Registration; and
- Business License.
Kindly note that the list above may be increased subject to the type of business activity engaged by the company.
Reference (downloadable via Google Drive)