Your guide to foreign investment companies in Indonesia.
Foreign investment in Indonesia is becoming increasingly appealing for many entrepreneurs who want to explore this archipelagic market. Case in point, there were already over 13,000 realized foreign direct investment projects worth over US$7 million for just Q1 of 2021, as stated in the quarterly report from BKPM. Moreover, with the introduction of the omnibus law in 2020, there are many incentives and more opportunities that foreign investors should look out for. The relaxed bureaucracy and ease of doing business definitely make starting a foreign company in Indonesia a whole lot more attractive.
Can foreigners own companies in Indonesia?
The answer is, yes! Although this is with the exception of a few business fields that either have been closed off for protection from foreign competition or seen as a potential threat to national security. However, the opportunities to grow and start your business are endless. It is no wonder why Indonesia is praised for being home to many of Asia’s unicorns. Therefore, it is exciting to start your company or PT PMA in Indonesia in 2021.
But first, you’ll need to understand how business in Indonesia for foreigners works. At the end of this article, you’ll also be able to know the legal benefits of a PT PMA and how to set up your foreign company in Indonesia.
- What is a PT PMA?
- What are the rules of a PT PMA
- What can a PT PMA do?
- Where should I set up a foreign company in Indonesia?
- What do I need to register a foreign company in Indonesia?
What is a PT PMA?
Firstly, what does PT in Indonesia stand for?
Perseroan Terbatas (PT) is a type of legal entity in Indonesia that simply refers to any private company. The company could be a local or foreign limited liability company.
In Bahasa, a Foreign Limited Liability company is known as PT Penanaman Modal Asing or PT PMA. They are a popular option for foreign companies who want to explore Indonesian investment opportunities.
Basically, a PT PMA is a limited liability company (LLC) with any number of shares owned by a foreign group or individual. On that note, every foreign company in Indonesia needs at least two shareholders, one President Director and a President Commissioner. They can be of any combination:
However, Indonesian law still considers a company as a PT PMA no matter if it’s fully or partly foreign-owned. This means that even if one percent of the company has a foreign shareholder, it is not classified as a local company. Therefore, you’ll need to register it as a PT PMA in Indonesia.
What are the rules of a PT PMA?
At this point, there are two main things that you need to consider about foreign investment in Indonesia.
First, all profit-seeking businesses with foreign ownership in Indonesia have to register as a PT PMA and meet all the requirements. In other words, if you don’t register as a PT PMA, you won’t be allowed to generate any profits.
Second, you should be aware of the 2021 Summary of Indonesia’s Negative and Positive Investment List. The list shows you which Indonesian investment opportunities are unavailable or restricted for foreign investors. If an industry is on the list, then you might not be able to fully or partly own a company with that industry in Indonesia.
What can a PT PMA do?
Since most PT PMAs are 100% foreign-owned, they are able to have full control over the trajectory of their company goals and direction. Additionally, they are allowed to choose where to operate their business, either physically or virtually. To seek profits in Indonesia, a foreign company must register as a PT PMA.
Specifically, the benefits include the ability to:
- Do business in Indonesia as a legitimate entity with equal rights as domestic companies.
- Apply for business licenses and permits for industries that need them such as construction, manufacturing, and consultancy.
- Participate in business tenders in Indonesia.
- Ensure a transparent and legal foreign ownership structure for financial backers and investors.
- Sponsor foreign executives and employees in Indonesia for business visas and work permits.
Where should I set up a foreign company in Indonesia?
The main gist to register your business is to get your Deed of Establishment, tax number ID (NPWP), and a business registration number.
Thereafter, you’re going to need an official business location. Some companies have offices in Jakarta only for administrative purposes, even though they perform most of their operations elsewhere.
In Jakarta, companies have to obtain a domicile letter from the landlord of the office building to operate as an office. You can work from wherever you want, but keep in mind that companies can’t register residences as an official business address.
Also, there have been changes since 2018 where initially, the Indonesian Investment Coordinating Board or Badan Koordinasi Penanaman Modal (BKPM) handles applications for foreign companies in Indonesia at their headquarters in Jakarta. Since 2018, foreign investors are able to obtain business licenses through an Online Single Submission (OSS) system, eliminating the need to go through multiple ministries or other government institutions.
In most cases, physical offices might not be a suitable investment for new companies, which is why many of them use coworking desks or business registered addresses via shared office providers. If at some point you start considering a physical office, you can still retain your official address.
So, what do I need to register a foreign company in Indonesia?
Now you have a general idea of what to prepare if you want to set up a foreign company in Indonesia. What are the next steps?
Greenhouse has prepared a step-by-step guide to help you start your business in Indonesia for foreign businesses.
We advise that you connect with professional consultants who can help guide and manage everything for you. Greenhouse has experience in handling all processes related to PT PMA registration - including preparing all the paperwork. We’re happy to help you start incorporating your business in Indonesia.
This article is not intended to and does not constitute legal or tax advice, recommendations, mediation, or counseling under any circumstance. This webpage and your use thereof does not create an attorney-client relationship with Greenhouse or our service providers in Indonesia. The article solely represents the thoughts of the author and is neither endorsed by nor does it necessarily reflect Greenhouse’s belief. Greenhouse does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the webpage. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular problem.