Establishment of Foreign Investment Company (PT PMA)Indonesia
Establishment of Foreign Investment Company (PT PMA) Indonesia – Indonesia is considered as one of potential market for investment with competitive investment incentive, resource availability and many other factors that attract investment including foreign investment. Based on the data on investment realization from the Investment Coordinating Board (BKPM), Domestic Investment (PMDN) and Foreign Investment (Penanaman Modal Asing “PMA”) per January to March 2018 has reached total investment value of IDR 185.3 trillion, with an increase of 11.8% from the same period in 2017 with total investment value of IDR 165.8 trillion.
By the increase of total investment, there is no doubt that continuous promotion of leniency in investment procedures including for foreign investment plays an important role on the increase of investment realization in Indonesia.
Investment policies which provide simplified procedures for establishment company including foreign investment company (PT PMA) with attractive investment facilities scheme has became strategic solution to attract foreign investor to grow their business in Indonesia and create opportunity for the local business players to expand their business operations in Indonesia through joint venture or other form of business partnership with foreign investor or PT PMA.
From the above discussion, what is exactly PT PMA? How to establish one? And what are the benefits of its establishment?
The following article will describe more about PT PMA.
What Is PT PMA?
Foreign Investment company (PT PMA) is a business entity in form of a limited liability company established under Indonesian laws as meant under the Law No. 40 of 2007 regarding Limited Liability Company (the “Company Law”). The Law Number 25 of 2007 regarding Capital Investment (the “Investment Law”) defines “Foreign Investment” as an investment activity to perform business in the territory of the Republic of Indonesia by foreign investors, either through foreign investment entirely or joint venture with domestic investors.
Although in general PT PMA is and Indonesian legal entity in form of a limited liability company, PT PMA has particular differences with other ordinary limited liability company (PT). Under the prevailing Investment Law, either foreign Citizen and foreign legal entities can establish a PT PMA in Indonesia. However, there are certain restriction or limitation in particular business fields which can be entered by PT PMA or requirement for PT PMA to have joint venture with Indonesian citizen or Indonesian legal entities in order to be able to run their businesses in Indonesia. In respect to the implementation of investment in Indonesia, the government applies provisions regarding limitation for foreign share ownership under the Negative Investment List and restriction in manpower matters in respect to the prohibition of foreign workers (expatriate) to hold position with the role in human resources and personnel matters at any level (including Director, manager or staff level) as stipulated under the Manpower Law Number 13 of 2003 and further regulated under the Presidential Regulation of the Republic of Indonesia No. 20 of 2018.
Conditions that must be observed in the establishment of PT PMA
1. Know the line of business of the Company
Understanding the company’s line of business is essential and must be considered before establishing PT PMA. The investor needs to determine and further check the applicable Negative Investment List as well as other sectoral provisions relating to the concerned line of business in order to be able to set the right investment structure and process pursuant to the prevailing regulation and investment policy applied in Indonesia.
2. Negative Investment List (DNI)
DNI is one of the regulation in the frame of the implementation of the Investment Law that defines line of businesses which are open, restricted or open with certain limitation or requirement for investment. The DNI is served as a guideline for the investors and allows them to have clear options regarding the business sectors or line of business that can be entered in their investment in Indonesia. In addition, DNI also provide distinction between PT PMA and companies established under the frame of Domestic Capital Investment (PT PMDN) as well as ordinary local limited liability company which is established neither in the frame of PT PMA or PT PMDN (PT Biasa).
DNI comprises of 3 (three) major sections, namely (i) Open Business Fields; (ii) Closed Business Fields; and (iii) Open Business Fields With Conditions:
- Open Business Fields
Business Fields which fall under this category can be entered by investor without requirements in the framework of Investment. The business field under this section can be entered by 100% foreign investment.
The DNI does not specifically listed business fields which fall under the Open Business Fields, pursuant to the provision under the DNI, business fields which are not listed as Closed Business Fields or Open Business Fields With Conditions shall constitute as Open Business Fields.
Example: automotive manufacturing (car, motorcycle and commercial vehicle), restaurant, etc.
- Closed Business Fields
Business fields which are listed under this section are closed and prohibited for investment activities due to specific reason including but no limited to the conditions where the industry is related to certain controlled substance or the business itself restricted under Indonesian laws. Example: cultivation of marijuana, alcoholic beverage industry, etc.
- Open Business Fields With Conditions
The following are two categories of Business Fields that can be entered for investment activities with conditions:
- Open Business Fields With Conditions which are reserved for or in partnership Micro, Small and Medium Enterprises as well as Cooperatives. Example: plantation with area of less than 25 Hectare; and
- Open Business Fields With Conditions, with the following limitation or requirement:
- Limitation on foreign capital ownership (example: Distributor that is not affiliated with production activities;
- Specific locations (example: breeding and cultivation of swine);
- Special licensing (example: banking and financial institutions);
- Domestic capital of 100% (example: Retail Trade of cars, motorcycle & commercial vehicles);
- Limitation of capital ownership in the context of cooperation of Association of Southeast Asian Nations (ASEAN) (example: Travel Agency).
3. Establishment under Indonesian Laws
As regulated under the Investment Law, any foreign investment in Indonesia must be in the form of a limited liability company (PT PMA), duly established under laws of the Republic of Indonesia and domiciled within the territory of the Republic of Indonesia, unless otherwise expressly stipulated by the prevailing laws.
4. Clarity on the nationality of the Founders
Both the Company Law and the Investment Law requires the clarity on the nationality of the founders for which such detail shall be clearly defined and stated in the Deed of Establishment of the company as well as any of the investment registration application document.
In the event that the company in this matter PT PMA, established by one or more foreign entity, the number and date incorporation that must be declared shall be the date of establishment (or official date of incorporation) and corporate identification number or corporation number as stated in the certificate of incorporation or similar document applied in the origin country of the respective founder(s).
5. Organizational structure
Organizational structure of the PT PMA must fulfil the requirement under the Company Law, namely:
- Minimum of 2 (two) shareholders;
- Established company organ which shall at least consist of:
- the General Meeting of Shareholders;
- the Board of Directors with at least 1 (one) Director;
- the Board of Commissioners with at least 1 (one) Commissioner.
6. Prohibition on Falsified Information or Data
Provision of falsified information or data in connection with the establishment, registration and reporting of the PT PMA are strictly prohibited. The Article 64 of BKPM Regulation No. 6/2018 (Perka BKPM 6/2018), specifically stipulated that in establishing a PT PMA, the company management and/or its proxy is strictly prohibited from providing false information and/or data.
7. Prohibition on Nominee Arrangement (share ownership agreements for and on behalf of other party)
Provision under Article 6 paragraph (6) of the Perka BKPM 6/2018, stipulate that the Investors are prohibited from making agreements and/or statements that states the share ownership in the company for and on behalf of the other party. Such arrangement which also known as Nominee Arrangement or Agreement is not recognized under the Indonesian Law (both under the Company Law and the Investment Law), therefore, any Nominee agreement or arrangement for the establishment of limited liability company including PT PMA shall become null and void by law.
The Establishment Procedure of PT PMA
1. Ensure that all general requirements for the establishment of a limited liability company (PT) are complete, including:
- The Deed of Establishment of PT;
- Decree of the Minister of Law and Human Rights concerning the Ratification of the legal entity of the PT; and
- Taxpayer Identification Number (Tax ID/NPWP)
2. Fulfil the investment value and capital requirements to obtain Investment License, namely:
- asset of IDR 10 billion or more excluding land and buildings of business place, according to the latest financial statements or annual sales of more than IDR 50 billion according to the latest financial statements;
- total investment value of IDR 10 billion or more excluding land and buildings;
- issued and paid up capital of at least IDR 2.5 billion.
The percentage of share ownership ratio shall be calculated based on the nominal (par) value of the shares, and value of the share ownership by each shareholders shall not be less than IDR 10 million.
3. Obtain Single Business ID Number (NIB) and other relevant business licenses through the Online Single Submission (OSS) or BKPM system in accordance with the company’s business sector
NIB is the identity of the business entity issued by the OSS Agency upon registration of the business entity by the applicant. NIB also applies as:
- The Company Registration Certificate (TDP) Number
- Importer Identification Number (API), if the company will carry out import activities
- Customs access or Custom ID (NIK), if the company will carry out cross border trading activities (export and/or import)
The following are business sectors that can process to obtain business license through the OSS system pursuant to the Government Regulation No. 24 of 2018 regarding Integrated Electronic Business License Services (“GR 24/2018”):
- Power (Electricity) Sector
- Agriculture Sector
- Environment and Forestry Sector
- Public Works and Public Housing Sector
- Marine and Fisheries Sector
- Health Sector
- Food and Drug Sector
- Industrial Sector
- Trade Sector
- Transportation Sector
- Communication and Information Sector
- Financial Sector
- Tourism Sector
- Education and Culture Sector
- Higher Education Sector
- Religion and Religious Sector
- Employment Sector
- Police Sector
- Cooperative, Micro, Small and Medium Enterprises (MSMEs) Sector
- Nuclear sector
What is the step for using OSS System?
- Create OSS user-ID;
- Log-in into the OSS system by using user-ID;
- Fill in required data of the Company to obtain the Single Business Number (NIB);
- Especially for a new businesses, complete the process to obtain basic licenses, business licenses and/or commercial or operational licenses, along with their respective commitments requirement.
What do you need to know before accessing the OSS?
- Provisions regarding Negative Investment List as stipulated in Presidential Regulation No. 44/2016.
- Environmental requirement for the intended business. Certain business activities which have environmental impact is required to obtain Environment Permit, i.e. Environmental Assessment and Environmental Protection Plan (AMDAL) pursuant to the Ministry of Environment and Forestry Regulation No. 5/2012.
What are the conditions regarding the activation of the licenses?
Under the OSS regime, all licenses issued by OSS will only become effective after all license commitments have been fulfilled by the applicant and payment such as PNBP, retribution or other according to applicable regulations are fully paid.
How if the business sector is not included in business license that can be submitted through OSS? how is the arrangement?
In addition to the business sectors that can be submitted through OSS, business licensing applications can be made through the Central Integrated Licensing Service (PTSP) at the BKPM as stipulated in the Regulation of BKPM 6/2018. Provisions for BKPM licensing procedures will be explained further in the Licensing Procedure at BKPM.
4. The location of the business activity must be in accordance with the local Spatial Plan and Zoning.
The selection of place of business or project site is one of the essential issue in the establishment of company including PT PMA. The applicant is required to check and observe the local regulation related to the Spatial Plan and Zoning to ensure that the place of business and project site is not located in the restricted area for the particular line of business.
In respect to the matters related to the business zoning, the Government of Indonesia also designate certain area called Special Economic Zones (SEZs). The designated area is not only provide leniency in the licensing process but also provisions concerning to investment treatment including special treatment on Negative Investment List.
If the company is located within the designated SEZ, the company may enjoy dispensation in respect to the restriction under the Negative Investment List in which limitation under the Open Business Fields With Conditions will not be applied to the company in the SEZs, except for business fields reserved for MSMEs and Cooperatives as well as closed business fields for Investment.
5. To complete other special licenses required by the relevant ministries/agencies as might be applied to specific business sector or line of business.
6. For the company that already obtained valid principle license, investment license, investment registration, or business license, which are still valid, the NIB is required to be stated in further application for operational or special license.
Application process to obtain License for PT PMA’s through BKPM
1. To submit application for business license for line of business that can be applied through the Central PTSP of BKPM
Business license for line of business that are not listed under the GR 24/2018 concerning OSS, can be submitted through the Central PTSP of BKPM using the application form as regulated under the Perka BKPM 6/2018 or as regulated by the relevant ministries/non-ministerial government institutions.
2. To complete all required documents
Application which is submitted both online and offline must be supported with supporting documents as set out in the general requirements for licenses application, namely:
- Legality of the entity, which consists of:
- deed of establishment of the company that has been approved by the Minister of Law and Human Rights;
- Taxpayer Identity (NPWP) for company that has been registered and confirmed as taxpayer; and
- Legality of the domicile
- Legality of the domicile can be in the form of a Deed of Sale and Purchase (AJB) of land or unit office strata title, Title Certificate (HGB/HGU), lease agreement or land or building use agreement for the use of property onwed by group of companies/affiliates.
- Legality on environmental aspects, in the form of Environmental Permits or Environmental Management documents.
- LKPM report requirement, Evidence on the submission of the latest Investment Activity Report (LKPM) through SPIPISE for companies that already have an obligation to submit LKPM.
- Power of attorney, if the application is not submitted directly by the authorized signor of the Company’s Board of Directors.
3. Application Notification
Any application made through the Central PTSP of BKPM will be responded accordingly, in the event that the document requirement is not complete or there is lack of data, the officer at BKPM will immediately return the application along with a detailed record of the verification results.
4. Application Status Confirmation
- Application accepted
If the establishment request is accepted, the Business License will be issued no later than 3 working days from the receipt of the complete and correct application. Next, the Central PTSP of BKPM will issue a receipt for the application.
- Application rejected
If the application for establishment is rejected, the Head of BKPM or the appointed official will submit a Rejection Letter no later than 2 (two) days.
5. Validity period of business license
The validity period of a business license is stipulated as long as the company is still carrying out its business activities, unless specified otherwise based on the provisions of the legislation.
6. The Investment Activity Report (LKPM)
LKPM is a report on the development of investment realization and problems faced by business entity. In the event that the company has obtained licenses and has an investment value of more than IDR 500 billion, the company is obliged to submit LKPM quarterly with the format as provided in the Annex of BKPM Perka No. 7 of 2018 and the LKPM reporting can be done through SPIPISE (Information Services and Investment Licensing Electronic System).
PT PMA Priority Services Scheme
Priority service scheme is provided through the acceleration of business licensing given to PT PMA with investment value of at least IDR 100 billion; or the investment or the project will absorb at least 1,000 Indonesian workers. However such requirements are excluded for:
- certain type of industries, special zones with inland free trade arrangement, in accordance with regulations stipulated by ministers responsible in the industrial sector;
- companies in certain industrial business sectors that are part of certain supply chain of certain industry, with the requirement to submit a statement or memorandum of understanding as a supplier of the product company to be produced;
- companies that enrolled in tax amnesty program, with the requirement to attach a record of tax amnesty certificate issued by the Minister of Finance or an official appointed on behalf of the Minister of Finance; and
- infrastructure projects and/or national strategic projects stipulated in the legislation;
Application for priority services scheme for investment and business license shall be made by the Managing Director of the company to the Central PTSP of BKPM supported with all documents as required under the prevailing laws and regulations.
Why should PT PMA?
What are the advantages from the establishment of PT PMA? Is there any disadvantages?
The advantages of PT PMA in Indonesia
1. Incentives under the Investment Law:
- Reduction in net income of up to 30% (thirty percent) of the amount invested, prorated at 5% (five percent) within six years of the commercial production, with the condition that that the assets are not repatriated within six years;
- Exemption or reduction of import duty on the import of capital goods, machinery, or equipment for production;
- Exemption or reduction of import duties on raw materials or auxiliary materials for production;
- Exemption or postponement of VAT or LST on the import of capital goods or machinery or equipment for production purposes for a certain period of time;
- Accelerated depreciation and/or amortisation deductions; and
- Land and Building Tax Relief, especially for certain business fields, in certain regions or special zones.
2. The existence of equal treatment with the other PT in general;
3. Easy process to obtain business licenses;
4. Opportunity for 100% foreign investment open for certain business sectors;
5. Facilities in immigration documents for foreign investors, such as:
- recommendation for the granting of limited stay visa;
- recommendation for conversion of visit visa to limited stay permit;
- recommendation for conversion of limited stay permit to permanent stay permit
Potential concern from the establishment of PT PMA in Indonesia
- Open exposure to the increase on the number of foreign workers in Indonesia that will compete with the Indonesian manpower;
- Mandatory periodic report including monthly tax report and quarterly Investment Activity Report (LKPM).
We certainly hope the above article on the procedure to establish PT PMA in Indonesia can be useful.
Author: Adella Izzati Samiya
Editor : Andry Yudistira