Foreign investors are allowed to set up their company in Indonesia in the form of PMA Company. Learn more regarding how much ownership foreign investors are allowed to have in the PMA Company, and the requirements for such ownership.
FOREIGN INVESTMENT IN INDONESIA
Pursuant to the Article 1 Paragraph 3 of Law No. 25 of 2007 on Investment (“Investment Law”), Foreign Investment is defined as an investing activity conducted by a foreign investor for the purpose of running business in Indonesia. Foreign Investment can be done either by full foreign investment or joint venture with domestic investors.
Article 5 paragraph 2 further regulates that Foreign Investment must be in the form of a Limited Liability Company (Perseroan Terbatas or PT or “Company”). The following are the ways foreign investors can invest in a Company:
- Subscribed to the issued shares at the establishment of Company;
- Buy shares issued by the Company;
- Other ways in accordance to applicable laws and regulations.
FOREIGN OWNERSHIP OF PMA COMPANY IN INDONESIA
A Company with shares owned by foreign investors is known as a Foreign Direct Investment Limited Liability Company or Perseroan Terbatas Penanaman Modal Asing, commonly known as “PMA Company” in Indonesia. Once there is a single share that is owned by a foreign investor in a Company, it is deemed a PMA Company and must comply with the requirements applicable to PMA Company, including limitations on foreign ownership.
Before establishing a PMA Company, it is important to determine the field of business, because it may affect the amount of foreign ownership applicable for the PMA Company.
LIMITATION ON FOREIGN OWNERSHIP IN A PMA COMPANY
Foreign Capital is defined as capital owned by Foreign Country, Foreign Citizen, Foreign Business Entity, Foreign Legal Entity, and/or Indonesian Legal Entity which is owned whether in part or fully by Foreign Parties.
How does the limitation of foreign ownership in PMA Company work? Before you establish PT PMA in Indonesia, in regards to determining the composition of shareholders, you should first verify the Presidential Regulation of Republic of Indonesia Number 44 of 2016 (“Negative Investment List”) regarding List of Closed Business Field and Opened Business Field with requirements in Capital Investment Field.
The following is a Table of Limitation of Foreign Ownership on Foreign Capital Investment based on specific business sectors:
Max. Foreign Ownership
Agricultural with area of or more than 25 Ha
|Plantation with area of or more than 25 Ha|
|Forestry||Captive Breeding of Animals and Plants and Conservation Institutions|
|Energy, Mineral Resources||Oil and Gas Construction Services: Platform|
|Oil and Gas Construction Services: Spherical Tank|
|Oil and Gas, Geologic, dan Geophysical Surveying Services|
|Geothermal Surveying Services|
|Offshore Oil and Gas Drilling Services|
|Geothermal Drilling Services|
|Industrial||Maintenance and Reparation of Cars|
|Defense and Security||Manufacture of Raw Materials for Explosives|
|Public Works||Drinking Water Services (Collection, Purification/ Treatment, Supply)|
|Tourism and dan Creative Economy||Museum Management|
|Two Stars-Hotel, One Star-Hotel, Non-Star Hotel|
|SPA (Sante Par Aqua) Services|
|Transport||Land General Freight Transport|
|Communication and Information||Wired Telecommunications Services|
|Wireless/Satellite Telecommunications Services|
|Internet Service Providers|
|Data Communication Services|
|Postal / Courier Services|
|Electronic Trade Transaction Providers|
|Finance||Investment Finance Company|
|Life Insurance Company|
|Manpower||Domestic Employment Services for Indonesian Personnel (Registration, Recruitment, Formalities, Lodging for Pre-Departure Orientation, Departure, Placement and Repatriation)|
|Supply of Workers (Process of Registration, Recruitment, Formalities (inter alia, employment agreements), negotiation with providers, to employ workers, such as: cleaning services, security services, catering services, and other support services)|
|Health||Manufacture of Patent Medicines, Medical Devices|
|Medical Devices Testing Institutions|
|Wholesale of Medical Devices|
Referring to the above table, there is limitation of foreign ownership in a certain business sectors. In such situations, the remaining shares of the PMA Company must be owned by Indonesian Citizen, or Indonesian Legal Entities.
HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. We have assisted foreign investors in establishing PMA Companies in Indonesia with 100% success rate, including assisting them in preparing for BKPM Presentations, and we also assist in providing advisory services for the investors in regards to their business sectors from a legal perspective.
Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.