Indonesia: General Overview Conducting Business In Indonesia

Foreign Company Entities Permitted in Indonesia

The common business forms established by foreign investors in Indonesia are as follows:

1. Foreign Direct Investment Company (PMA)

A PMA Company is a Limited Liability Company that is established by foreign investors (may also involve Indonesian investors). The joint venture partners may be legal entities (corporations) or individual persons.

2. Representative Office (RO)

Foreign company is allowed to open a RO in Indonesia to investigate or supervise the foreign company or group's investment activities in Indonesia. It is not permitted to manage any company in Indonesia or to generate income from Indonesia.

Key Points

1. Foreign Direct Investment Company ("PMA")

The legal entity of the PMA company should be a Limited Liability Company (PT) which categorized as a large-scale business and subject to the minimum investment requirements.

2. Indonesian Standard Industrial Classifications ("KBLI");

KBLI consist of numerical code that classify various types of businesses in Indonesia as a reference for the process to obtain business licenses.

3. Positive List of Investment ("DPI");

DPI regulates the business sector is open too 100% FDI unless otherwise stipulated by prevailing laws and regulations.

4. Risk-Based Business Licensing ("RBA")

The process to obtain business licenses in Indonesia is currently being carried out through an online integrated system called OSS-RBA, which determined based on the classification of business risks, ranging from low, medium-low, medium-high and high risk.

Starting The FDI Business

General Requirements

1. Shareholders

PT PMA should be owned and contained by minimum of 2 (two) shareholders (individuals and/or legal entities);

2. Investment Amount

The amount of investment required for PT PMA is more than IDR 10,000,000,000 (excluding lands and buildings) for every 5 (five) digits of KBLI per project location, with the minimum paid-up capital of IDR 10,000,000,000. RO and Foreign Business Entities are exempted from these requirements.

Determine the KBLI

To establish the PT PMA in Indonesia, it is important to determine your Business Classification Number ("KBLI") before establish the PT PMA. Under the Risk-Based Approach investment concept which recently regulated by The Law Number 11 of 2020 Concerning Job Creation, KBLI have significant role play to determine whether a business activity should be considered into following 4 (four) risks categories:

1. Low;
2. Medium-Low;
3. Medium-High; and
4. High

These categories have particular license obligation for each risk, whether the PT PMA solely obtain 1) Business Identification Number ("NIB"); and 2) a Standard Certificate; or whether it must also obtain additional 3) Business Licenses.

(e.g.: 52291 is KBLI for Freight Forwarding business activity which categorized as Medium-High Risk and consequently the company requires to obtain NIB and Standard Certificate.)

Prioritized Sectors in DPI

The priority investment list reclassifies business fields that are open to investment into 4 broad categories and introduced a new concept of "prioritized sectors" as follows:

1. Priority Business Fields

This line of business includes national strategic programs/projects.

2. Business Fields Allocated for/or Require Partnership with Cooperatives (Koperasi) and/or Micro Small and Medium Enterprises (MSE)

Certain business fields are not open for FDI and therefore, should be allocated for Cooperatives and MSE. Also, there is certain business fields that require partnership with Cooperatives and MSE.

3. Business Fields that are Open with Certain Requirements

There are 12 business fields are reserved for domestic investors and 25 business fields having a maximum foreign ownership.

4. Business Fields Outside the Above Classifications

Business fields that do not fall into any of the above categories are open to all investors without restrictions. However, it is advisable to check implementing regulations that may be issued by relevant ministries for each business fields to understand if there are any additional requirements imposed.

Procedures

1. Getting a Deed of Establishment (DOE)

The Shareholders must execute a DOE before and legalized by a local public notary. DOE is consist of Articles of Association of the PT PMA.

2. Getting an Approval Decree from the Ministry of Law and Human Rights (MOLHR)

The DOE will be submitted by the Notary to the MOLHR for approval. The MOLHR will ratify the DOE by issuing a Decree that signifies that the PT PMA has been registered as legal entity

3. Getting a Business License

After being ratified, PT PMA should register the OSS Account to obtain NIB and Standard Certificate or License (id any). PT PMA may subject to apply for further technical licenses, called PB-UMKU

4. Getting a Company Taxpayer ID (NPWP)

After getting a business license, PT PMA should apply for a tax ID through the local tax office.

Originally published 22 March 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.