5 Differences in Investment Procedure for Domestic Investment and Foreign Investment

“The investment procedure in Indonesia has differences regarding domestic capital with foreign capital”

According to Article 1 number 1 of Law Number 25 of 2007 on Investment (Undang-Undang Penanaman Modal/UUPM), investment is all forms of investment activities, both by domestic investors or foreign investors in Indonesian territory. There are 2 (two) investors, namely Domestic Investment (Penanaman Modal Domestik/PMDN) and Foreign Investment (Penanaman Modal Asing/PMA).

The difference between the two is the Domestic Investment, capital is owned by Indonesian citizens (WNI) and comes from the territory of Indonesia. Meanwhile, Foreign Investment, capital is owned by foreigners and can be owned by foreigners entirely or jointly with Domestic Investment. Here are the differences in investment procedure between the establishment of a Domestic Investment and Foreign Investment company:

1. INVESTMENT SUBJECTS

In Domestic Investment, the subject are Indonesian citizens, Indonesian business entities, the Indonesian State, or regions that invest in Indonesia (Article 1 point 5 UUPM). Meanwhile, in Foreign Investment, there are foreigners, foreign business entities, or foreign governments that invest in Indonesia (Article 1 number 6 UUPM).

2. FORM OF BUSINESS AGENCIES

It is easier for Domestic Investment to establish a business entity than Foreign Investment. This is because Domestic Investment can be in the form of a legal entity, not a legal entity, or even an individual business (Article 5 paragraph (1) UUPM).

While Foreign Investment only gets to establish a business in the form of a Limited Liability Company (PT) which is based on Indonesian law and is also domiciled in Indonesia (Article 5 paragraph (2) of the Company Law).

For Domestic Investment and Foreign Investment in the form of PT, the investment is carried out by (Article 5 paragraph (3) UUPM): taking a share of the establishment of the PT; buying shares; and other methods by the provisions of laws and regulations.

3. THE ESTABLISHMENT OF A LIMITED LIABILITY COMPANY

Both Domestic Investment and Foreign Investment PT are subject to the laws and regulations regarding PT. As stated in Article 77 point 5 of Law Number 11 of 2020 (UU Cipta Kerja), that the ratification of the establishment of Domestic Investment and Foreign Investment business entities is reffering the provisions of laws and regulations.

Thus, to establish Domestic Investment and Foreign Investment PT, requires:

1. Prepare PT data in the form of: PT name, place and domicile of PT, PT management, ID Card (KTP) and Tax Identification Number (Nomor Pokok Wajib Pajak/NPWP) of the founders and managers;
2. Lease Agreement or Domicile of Building Construction License (Izin Mendirikan Bangunan/IMB) of PT;
3. Preparing a PT Deed of Establishment by a Notary Public; and
4. Ratification as a Legal Entity at the Ministry of Law and Human Rights.

Especially for Foreign Investment PT, there are additional requirements that must be fulfilled. Based on Article 6 of the Investment Coordinating Board (BKPM) Regulation Number 5 of 2019 on Amendments to the BKPM Regulation Number 6 of 2018 on Guidelines and Procedures for Licensing and Investment Facilities (BKPM Regulation 5/2019), here are additional requirements:

1. Has a net worth of more than IDR 10 billion, excluding land and buildings for business premises, or annual sales proceeds of more than IDR 50 billion;
2. The value of issued capital is the same as the paid-up capital, which is a minimum of IDR 2.5 billion;
3. and a minimum share nominal value of IDR 10 million for each shareholder.

4. SCOPE OF INVESTMENT

There are restrictions for Foreign Investment. This is because Foreign Investment qualifies as a large business. Foreign Investment must meet the requirements for an investment value of more than IDR 10 billion excluding land and buildings. This means that Foreign Investment may only invest in business activities with an investment value greater than Rp. 10 billion (Article 7 of Presidential Regulation Number 10 of 2021 concerning the Investment Business Field).

Apart from that, all business fields are open to either Domestic Investment or Foreign Investment, except (Article 2 paragraph (1) Perpres 10/2021):

1. which is declared closed for foreign investment;
2. for activities that can only be carried out by the central government

5. BUSINESS LICENSE

Domestic Investment and Foreign Investment must have a Business Identification Number (NIB). NIB registration is issued from Online Single Submission (OSS). After obtaining an NIB, the Company can submit of business permits, commercial or operational permits, and location permits, and environmental permits. In addition, it is also necessary to apply other special permits according to the line of business to the relevant ministries.

It should be noted, for PT that already have valid in-principle permits, investment permits, investment registration, or business permits, applications for other required licensing services must include the NIB as a requirement (Article 5 Regulation of the Investment Coordinating Board Number 6 of 2018 on Guidelines and Procedures for Licensing and Investment Facilities).

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Author: Farhan Izzatul Ulya/Shabrina