Frequently Asked Questions

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 Setting Up a PT PMA in Indonesia: A Complete Guide for Foreign Investors. 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.”

Expanding your business to Indonesia? Setting up a PT PMA in Indonesia is the key to legally operating as a foreign investor. PT PMA (Penanaman Modal Asing) is a foreign-owned limited liability company that allows international businesses to enter Indonesia’s growing market. However, the process involves legal compliance, business licensing, tax registration, and investment approvals. In this guide, we will walk you through the essential steps to successfully establish a PT PMA in Indonesia while ensuring compliance with local regulations.

Definition and Importance of PT PMA

PT PMA (Penanaman Modal Asing) is a type of limited liability company in Indonesia that can be wholly or partially owned by foreign investors, structured for foreign investors to legally operate a business within the country. It provides foreign entities with the legal framework to conduct business in Indonesia, making it a popular choice for international companies looking to enter the market.

Importance of PT PMA

• Market Access: PT PMA allows foreign investors to directly engage in Indonesia’s market, offering opportunities across various sectors.
• Legal Entity: As a recognized legal entity, PT PMA provides operational legitimacy and legal protection under Indonesian laws.
• Investment Flexibility: PT PMAs have flexibility in ownership structures and can operate in many industries, subject to regulations and restrictions as outlined in the Positive Investment List.

Corporate Structures, Shares, and Ownership of PT PMA

Corporate Structures

• Single-tier Structure: Consisting of shareholders, director, and commissioner, this structure simplifies decision-making and governance.
• Two-tier Structure: Involves both a Board of Directors (BOD) for daily management and a Board of Commissioners (BOC) for oversight and strategic guidance.

Shares and Ownership

• Class of Shares: PT PMA can issue common and preferred shares, each with distinct rights and obligations for shareholders.
• Foreign Ownership Limits: According to the Positive Investment List, certain sectors allow full foreign ownership, while others require local partners or have specific ownership caps.

Tips: Engage legal consultant for accurate foreign ownership guidance, ensuring compliance and efficiency.

Essential Documents for Establishing PT PMA

• Deed of Establishment: Contains Articles of Association (AoA) and must be notarized by an Indonesian notary.
• Investment Registration: Issued by the Investment Coordinating Board (BKPM), this is required for foreign entities to invest.
• Business Identification Number (NIB): Issued through the OSS system, serving as the company’s primary business license.
• Tax Identification Number (NPWP): Necessary for tax reporting and compliance.
• Sector-Specific Licenses: Depending on the business type, additional permits may be required, such as industry-specific licenses, location permits, and environmental permits.

Step-by-Step Guide to Setting up a PT PMA in Indonesia

Step 1: Set Up a Local Office

PT PMA must have a registered office in Indonesia. Investors can opt for a physical or virtual office, depending on the business structure.

Step 2: Classification of Business Activity (KBLI)

Every business in Indonesia must classify its activities under the Indonesian Standard Industrial Classification (KBLI) codes, which determine licensing requirements.

Step 3: Obtain Necessary Licenses

• Register the Company Name
• Preparing Deed of Establishment
• Obtain Business Identification Number (NIB)
• Acquire Sector-Specific Licenses (depending on the industry)

Step 4: Open a Bank Account and Deposit Capital

• Bank Account: Open a corporate bank account in Indonesia to deposit the required capital.
• Minimum Capital Requirement: Generally, a PT PMA mush have a minimum investment of IDR 10 billion (around USD 700,000), with at least 25% of the capital paid up.

Step 5: Register with the Social Security System

Your employees must be registered with BPJS Ketenagakerjaan (social security)and BPJS Kesehatan (healthcare).

Step 6: Employing Foreign Employees

Foreign employees require Work Permits (KITAS) and Visa documents, and investors must ensure compliance with Indonesian labor laws, including quotas for local and foreign workers.

Legal, Accounting, and Tax Compliance for PT PMA

• Legal Compliance: the company’s business activities must comply with the prevailing laws and regulations.
• Annual Financial Reports: certain businesses must be audited and submitted to relevant Government authority.
• Corporate Income Tax (CIT)
• VAT (Value Added Tax) and Payroll Taxes: must register for VAT and ensure compliance with payroll taxes for employees.

Ensuring ongoing compliance is crucial for the long-term success of your PT PMA in Indonesia.

Investment Dynamics in Indonesia

Foreign Direct Investment (FDI) Environment

Indonesia actively encourages foreign investment through various incentives and reforms designed to improve the ease of doing business. Key drivers include a young, dynamic workforce, increasing consumer spending, and government initiatives in infrastructure and digital transformation.

Investment Incentives

• Tax Incentives: Tax holidays, reductions, and investment allowances for certain industries and regions.
• Special Economic Zones (SEZs): Offer additional benefits such as reduced tax rates, expedited licensing, and other incentives.

Regulatory Landscape and Applicable Laws

Key Regulatory Bodies

• Ministry of Law and Human Rights: Responsible for company registrations and legal entity recognition.
• Investment Coordinating Board (BKPM): Oversees foreign investment approvals and coordinates regulatory processes.
• Financial Services Authority (OJK): Regulates financial sector companies, ensuring compliance with financial and investment laws.

Applicable Laws

• Law No. 40 of 2007 on Limited Liability Companies: Governs the establishment and operation of PT PMA.
• Law No. 25 of 2007 on Investment: Provides the legal framework for foreign investment, including investor rights and obligations.
• Omnibus Law on Job Creation: Simplifies regulations and procedures, aiming to attract more foreign investment by enhancing the business environment.

Benefits of Setting Up a PT PMA in Indonesia

• Full 100% or Partial Foreign Ownership: In most sectors, foreign investors can fully own and control their company.
• Access to Growing Market: Indonesia’s rapidly expanding consumer base provides ample opportunities across various sectors.
• Government Incentives: PT PMAs may enjoy tax holidays, investment allowances, and customs incentives in special economic zones (SEZs).
• Stable Economic Growth and Business Climate

By setting up a PT PMA in Indonesia, investors gain access to a thriving business environment with strong growth potential.

Challenges in Setting Up a PT PMA in Indonesia

Common Challenges

• Regulatory Complexity: Navigating Indonesia’s regulatory environment can be challenging without local expertise.
• Sectoral Restrictions: Certain industries are closed or restricted to foreign investors, necessitating careful planning.
• Capital and Local Content Requirements: High capital requirements and local content rules can pose barriers for smaller investors.

Solution: Partner with a trusted legal consultant to navigate the process efficiently.

Important Things to Consider When Setting Up a PT PMA

• Business Sector Restrictions: Review the Positive Investment List to understand the limits on foreign ownership and required partnerships.
• Compliance with Labor Laws: Ensure that you meet labor laws, especially concerning hiring local employees and expatriates.
• Cultural and Market Knowledge: Understanding local business practices and consumer behaviour is crucial for success.

Best Sectors and Industries to Invest in Indonesia

High-Potential Sectors

• Manufacturing and Export-oriented Industries: Particularly in electronics, automotive, and consumer goods, driven by Indonesia’s competitive labor market.
• Digital Economy: Rapid growth in e-commerce, fintech, and digital services, fueled by a young, tech-savvy population.
• Renewable Energy: Increasing demand for sustainable energy solutions offers opportunities in solar, wind, and geothermal power.

Emerging Opportunities

• Healthcare: Rising demand for healthcare services and products, spurred by a growing middle class.
• Tourism and Hospitality: Indonesia’s diverse attractions continue to drive growth in the tourism sector, creating opportunities in hospitality and infrastructure.

Future Outlook for Foreign Investment in Indonesia

Indonesia’s investment outlook remains positive, supported by ongoing economic reforms and a commitment to improving the investment climate. Key trends include:

• Continued Economic Growth: Indonesian remains a major investment destination.
• Digital Transformation: Continued growth in the digital economy presents vast opportunities for tech-driven investments.
• Sustainable Investments: Emphasis on green and sustainable projects aligns with global trends towards environmental responsibility.
• Regulatory Reforms: Ongoing efforts to simplify business regulations and enhance transparency are expected to further attract foreign capital.

Recommendations for Foreign Investors

• Conduct Market Research before entering the Indonesian market.
• Partner with a Trusted Legal Advisor to navigate regulations efficiently.
• Ensure Compliance with Tax, Labor, and Licensing Regulations.

Conclusion

Setting up a PT PMA in Indonesia opens doors to a thriving market but requires legal, tax, and regulatory compliance. By following the proper steps and seeking professional legal guidance, foreign investors can successfully enter Indonesia’s growing market. By partnering with our law firm, you can ensure a smooth and efficient business setup.

Why Choose Kusuma & Partners Law Firm to Setting Up Your PT PMA?

• Expertise in Indonesian Corporate Law: We have deep knowledge of Indonesian business regulations, ensuring that your PT PMA is set up in full compliance with local laws.
• End-to-End Services: From document preparation and regulatory filings to obtaining licenses and handling tax registrations, we offer comprehensive legal support throughout the entire incorporation process.
• Strong Regulatory Relationships: We have established strong connections with key regulatory bodies, including BKPM and the Ministry of Law and Human Rights, enabling us to expedite the incorporation process and minimize bureaucratic delays.
• Tailored Legal Solutions: We offer customized services to meet your business needs.
• Proven Success: With years of experience helping foreign investors set up PT PMAs in Indonesia, our firm has a proven track record of success across various industries.

Start Your PT PMA with Confidence

Setting up a PT PMA is a big step, and we’re here to make it smooth and successful. With Kusuma & Partners Law Firm, you’re not just getting a consultant—you’re gaining a dedicated partner committed to your business growth. Ready to expand into Indonesia? Fill out the form below, 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.”