Forms of Foreign Direct Investment (FDI) in Indonesia

Indonesia, as Southeast Asia’s largest economy, presents a wealth of opportunities for foreign investors. The government has actively promoted Foreign Direct Investment (FDI) by improving regulations, offering incentives, and easing restrictions. However, understanding the available structures for FDI is crucial for investors looking to establish a presence in Indonesia. This guide explores the common forms of FDI, the legal frameworks governing them, and why choosing Kusuma & Partners Law Firm is your best option for navigating Indonesia’s business landscape.

FDI in Indonesia typically takes several forms, each with distinct regulatory and operational implications.

Foreign-Owned Limited Liability Company (PT PMA)

PT Penanaman Modal Asing (PT PMA) is the most common vehicle for foreign investors. Governed by Law No. 25 of 2007 on Investment, PT PMA allows foreign ownership based on the Positive Investment List (replacing the former Negative Investment List).

Key Requirements:

• Minimum Capital Investment: IDR 10 billion (+ USD 700,000), excluding land and buildings.
• Foreign Ownership Limitations: Varies by sector (some allow 100% foreign ownership, others require local partners).
• Business Licensing: Must be registered via the Online Single Submission (OSS) system.
• Reporting & Compliance: Subject to BKPM (Investment Coordinating Board) reporting obligations.

For a detailed understanding on PT PMA, consider reading this article A Guide to Setting up PT PMA in Indonesia. It provides insights into the legal steps and requirements for setting up PT PMA in Indonesia.

Representative Office

Foreign companies may establish a Representative Office for non-commercial activities. This structure is suitable for market research, promotional activities, or liaising with Indonesian entities.

Types of Representative Office:

• KPPA (General Representative Office) – Focused on liaison and coordination.
• KP3A (Trade Representative Office) – For conducting market analysis and trade promotion.
• BUJKA (Foreign Construction Services Representative Office) – For foreign construction firms operating in Indonesia.
• KPD (Foreign Banking Representative Office) – Used by foreign banks to explore potential banking operations.

Joint Venture (JV) with Local Partners

Certain industries require foreign investors to form a Joint Venture (JV) with Indonesian entities to comply with ownership restrictions. Joint ventures provide local market knowledge, government relationships, and access to local resources.

Common Sectors Requiring JVs:

• Oil & Gas
• Media & Telecommunications
• Financial Services
• Distribution and Retail

Public-Private Partnerships (PPP)

The Indonesian government encourages FDI in infrastructure through Public-Private Partnerships (PPP). These partnerships allow foreign investors to collaborate with the government on projects in:

• Toll roads and transportation
• Power generation and renewable energy
• Water supply and waste management

PPP investments are regulated under Presidential Regulation No. 38 of 2015 on Cooperation between Government and Business Entities.

Mergers & Acquisitions (M&A)

Foreign investors can acquire shares or assets of Indonesian companies through Mergers & Acquisitions (M&A). These transactions are regulated by:

• Law No. 40 of 2007 on Limited Liability Companies
• Financial Services Authority (OJK) Regulations for public companies
• Business Competition Supervisory Commission (KPPU) for antitrust compliance 

Kusuma & Partners assist businesses in handling Merger & Acquisitions (M&A), ensuring a smooth process while complying with all legal requirements.

Foreign Investment in Capital Markets

Foreign investors can participate in Indonesia’s capital markets by purchasing shares of publicly listed companies on the Indonesia Stock Exchange (IDX). Regulations governing foreign investment in securities include:

• Law No. 8 of 1995 on Capital Markets
• Financial Services Authority (OJK) Regulations
• Securities ownership restrictions for strategic industries

Franchise and Licensing Arrangements

Foreign businesses can enter the Indonesian market through franchise or licensing agreements, regulated under:

• Law No. 7 of 2014 on Trade
• Regulation of the Minister of Trade No. 71 of 2019 on Franchising
• Intellectual Property Laws for trademark and patent protection

Kusuma & Partners assist businesses in handling Contract Drafting & Contract Review of Franchise and Licensing Arrangements, ensuring a smooth process while complying with all legal requirements.

Special Economic Zones (SEZs) and Industrial Parks

Indonesia offers Special Economic Zones (SEZs) with tax incentives, simplified licensing, and infrastructure support to attract FDI. SEZs are regulated under Law No. 39 of 2009 on Special Economic Zones.

Legal and Regulatory Considerations

FDI in Indonesia requires compliance with various legal and regulatory frameworks:

1. Investment Licensing & Approvals – Governed by BKPM.
2. Taxation & Incentives – Corporate income tax, VAT, withholding taxes, and tax holidays.
3. Employment Laws – Hiring foreign employees requires work permits and compliance with Employment Law.
4. Intellectual Property Protection – Patent, trademark, and copyright registrations with DGIP.
5. Antitrust & Competition Laws – Compliance with KPPU to avoid monopolistic practices.

Conclusion

Indonesia presents lucrative investment opportunities, but regulatory complexities require careful structuring. Kusuma & Partners Law Firm ensures a seamless investment process with expert legal guidance. Contact us today to discuss your investment needs!

Start Foreign Direct Investment (FDI) in Indonesia with Kusuma & Partners Law Firm

Navigating Indonesia’s FDI landscape requires expert legal guidance. At Kusuma & Partners Law Firm, we provide:

• Comprehensive Legal Support: From company incorporation to compliance.
• Industry-Specific Expertise: Deep knowledge of FDI regulations across multiple sectors.
• Efficient Licensing and Approvals: Seamless processing of business licenses via OSS and BKPM.
• Legal, Tax & Investment Structuring: Optimizing tax efficiency and mitigating risks.
• Proven Track Record: Successfully assisting multinational clients with market entry and expansion.

Ready to expand into Indonesia? Fill out the form, and let’s build your success together!

“DISCLAIMER: This content is for general informational purposes only and should not be treated as legal advice. For professional advice, please consult us.”