Yes, if the sector is 100% open under the Positive Investment List.
In Indonesia, many foreign investors initially set up a PT PMA (foreign-owned company) with local partners, often due to regulatory requirements or strategic partnerships. However, as business goals evolve, foreign shareholders may seek to regain full or majority ownership by buying back shares from local partners. While this can be a smart strategic move to consolidate control and streamline decision-making, the process is far from simple. It must adhere to Indonesia’s corporate, investment, and tax regulations, and any misstep could result in legal complications or penalties.
In the Indonesian business landscape, foreign investors are required to establish a PT PMA (Perseroan Terbatas Penanaman Modal Asing) when they want to operate directly in the country. This type of company is specifically designed for foreign capital participation. Typically, a PT PMA is structured with both foreign and local shareholders, especially when the business operates in a sector that is partially open to foreign ownership under the Positive Investment List (Presidential Regulation No. 49 of 2021).
While this partnership model is often necessary at the inception phase, over time, foreign investors may seek to increase control over the business. One of the most common and effective strategies to achieve this is by buying back shares from local partners in PT PMA. However, this process must follow strict legal procedures under Indonesian law and comply with investment regulations.
There are several compelling reasons why foreign investors might wish to buy back shares from their local counterparts. Sometimes, local partners initially enter the joint venture to satisfy regulatory requirements, and their role becomes less active over time. In other cases, business growth may require tighter governance and faster decision-making processes, which are easier to manage with fewer shareholders.
Moreover, when a local partner no longer wishes to be involved, whether due to strategic realignment, retirement, or cashing out their investment, a share buy-back becomes a natural and necessary step. For the foreign investor, this provides an opportunity to simplify ownership, enhance operational efficiency, and exercise greater control over the company’s strategic direction.
But here’s the catch: buying back shares from local partners in PT PMA is not just a commercial decision, it’s a legal process with compliance implications. Knowing how to handle it properly is essential to avoid disputes or sanctions later.
Legally, share buy-back and transfer in Indonesia is governed by Law No. 40 of 2007 concerning Limited Liability Companies (Company Law), Law No. 25 of 2007 on Investment, and various implementing regulations issued by the Ministry of Law and Human Rights, and BKPM (Indonesia Investment Coordinating Board), now under OSS (Online Single Submission) supervision.
Under these laws, shareholders are free to transfer their shares, provided they follow the procedures outlined in the Articles of Association and relevant shareholder agreements. If the PT PMA operates in a restricted sector, the transfer must also comply with the applicable foreign ownership cap. Furthermore, every share transfer must be approved through a General Meeting of Shareholders (GMS) and documented in a Notarial Deed, which must be reported to the Ministry of Law and Human Rights.
So, while the legal framework is well-established, it’s the execution and compliance details that make or break the deal.
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When foreign investors initiate a buy-back, they must engage with several authorities:
In addition, depending on the sector and size of investment, other government agencies may also be involved. Thus, having professional guidance is a necessity.
Before any legal action is taken, both parties must revisit the Articles of Association (AoA) and Shareholders’ Agreement. These documents may contain restrictions or pre-emptive rights that could affect the buy-back. For instance, other shareholders may have the first right of refusal.
Next, conduct legal due diligence; tax due diligence; and financial due diligence. This involves reviewing the company’s liabilities, outstanding contracts, disputes (if any), and regulatory compliance. Think of it as your “health check” before the deal.
After due diligence, the next step is to agree on a fair price for the shares. While parties can negotiate privately, using a licensed appraiser or auditor to perform a professional valuation adds credibility and minimizes tax disputes.
The agreed price must be clearly documented. It will serve as the basis for calculating the Capital Gains Tax on the local seller, which is typically borne by the seller but sometimes negotiated otherwise.
The next legal milestone is a General Meeting of Shareholders (GMS). Here, all shareholders must agree on the share transfer. The minutes of the meeting must be drafted, signed, and included in the notarial documentation.
The GMS resolution must clearly state:
A Notarial Deed of Share Transfer must be executed before a licensed Indonesian notary. This is a mandatory step, as oral or informal agreements are not recognized under company law.
This deed becomes the legal proof of transfer and forms the basis for reporting to relevant authorities.
Once the deed is signed, the notary will submit the documentation electronically through the Ministry’s AHU system. This ensures that the change in shareholding is recorded in the government’s official company registry.
Without this registration, the transfer will have no legal standing against third parties.
Finally, the PT PMA must log in to the OSS system and update its LKPM (Investment Activity Report) and corporate data. This is critical to ensure that your PT PMA remains compliant and that future business licenses or incentives are not jeopardized.
Failing to update this information can lead to administrative sanctions and other legal complications.
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Unfortunately, we’ve seen many cases where foreign investors jump into a share buy-back without proper guidance, only to regret it later. Here are a few traps you should watch out for:
The golden rule? If it’s not in writing, registered, and tax-cleared, so it’s not safe.
If your goal is to buy back shares to gain full ownership or restructure your PT PMA, these tips will help you stay compliant and avoid setbacks.
At Kusuma & Partners Law Firm, we have represented both foreign and domestic clients in complex share buy-back transactions. Our experience tells us one thing: behind every successful deal is a clear legal strategy.
Too often, investors focus solely on price and neglect structure. We help our clients not just buy shares, but do so smartly. From evaluating tax impact, drafting bulletproof contracts, to registering changes with OSS and AHU.
And because we understand the emotional aspect of dissolving partnerships or navigating joint venture exits, we act as your strategic partner, not just your lawyer.
Buying back shares from a local partner in PT PMA is more than just a business step, it’s a strategic legal move. With the right approach, it can bring clarity, control, and growth. But without proper legal guidance, it can lead to costly mistakes.
If you are planning to buy back shares from local partners in PT PMA, let our team at Kusuma & Partners Law Firm assist you. We combine legal expertise with business acumen to deliver solutions that work.
Fill in the form below to get our expert guidance.
“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.”
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