Investing in Indonesia: 4 Things You Need to Know to Get Started

Admin   |    05 November 2018

We believe Indonesia is one of the most promising destinations for foreign capital given opportunities for future growth and an increasingly supportive government. Its tourism industry is booming, there are major infrastructure projects currently underway, and the government has made several active efforts to make it easier for foreign investors to access projects. The recent global exposure it received as the host of both the 2018 Asian Games as well as the International Monetary Fund and World Bank Group Annual Meeting has also helped further its global appeal.

 

However, Indonesia still has relatively strict laws concerning how and on where foreigners can invest. Here are the 4 main things you need to know before you start investing in Indonesia:

  1. Foreign Direct Investment types

There are two legal entities that are permitted for foreigners in Indonesia:

    1. Foreign Investment Limited Liability Company (Perseroan Terbatas Penanaman Modal Asing, or, PT PMA), which is basically an Indonesia-based company with the combination of foreign and domestic shares;
    2. Representative Office (Kantor Perwakilan Perusahaan Asing, or, KPPA) which is a foreign company that opens their Representative Office in Indonesia.

PMA is the better choice for those who are looking to invest via FDI and are planning to be engaged in commercial activities. It can operate fully as a business since it can be involved in all business activities related to the sector it is engaged in as long as it has received approval for from BKPM. Representative Office or KPPA can only operate simply as a body of local research in the country, and they are not allowed to generate profit and revenue or engage in sales directly.

So the vast majority of foreign entities exist via a PMA. The  law states that the PMA must consist of a minimum of two shareholders, one director, and one commissioner. The shareholders can be an individual or a corporate entity and their nationality can either foreign or local. For a company that operates openly in FDI designated industries, at least one shareholder must be Indonesian.

PMA’s foreign ownership can vary between 0% - 100% depending on the Negative Investment List, which we will explain later. For KPPA, however, there is not restriction of foreign ownership since it’s simply a representative office.

The PMA is also required to have a minimum capital of 10 billion IDR. By the time of its establishment, the founders or shareholders must have already paid 25% of the investment plan, while the remaining 75% may be injected as the shareholders’ loans.

 

  1. Negative Investment List

The government has a list of business fields in respect to their availability to receive FDI. Generally, businesses in Indonesia is classified into three categories, those are:

    1. Open for FDI, refers to the business fields which can be 100% owned by foreigners.
    2. Conditionally open for FDI, where the ownership are divided between domestic and foreign capital.
    3. Closed for FDI, referring to business fields which are strategic to national security, prohibited by law, or hazardous.

On 18 May 2016, the Indonesian Government enacted Presidential Regulation No. 44 of 2016, which sets out the new negative investments list and revokes the one enacted in 2014. In the Presidential Regulation 44/2016, the sectors which are closed for FDI, includes broker of property and alcoholic beverage retail. One of the great changes between the 2014 regulation and the 2016 regulation is the addition of 35 new business fields that are open to have 100% of foreign capital, including film and hospitality. There are also 17 industries which are conditionally open for FDI which are capital investment, banking, agriculture, education, forestry, trading, transportation, energy, and mineral. Foreigners are allowed to invest in these 17 industries as long as their company does not exceed the maximum limit of foreign capital.

 

  1. Investment Licenses

Last year, the Indonesian Investment Authority (BKPM) issued Regulation no. 13 of 2017 regarding Guidelines and Procedures for Investment Licensing and Facilities (13/2017 Regulation), revoking all old regulations.

 

Under the Old BKPM Regulations, a foreign investor has to obtain a principle license first before they apply for a business license. However under the new Regulations, the principle license is no longer required. The 13/2017 Regulation now introduces a new type of license, which is the Registration of Capital Investment that applies to foreign investment companies that fulfil one of the criteria below:

    1. businesses that need time for construction activities;
    2. businesses that are entitled to investment facilities;
    3. businesses that have medium to high potential of environmental pollution;
    4. businesses related to national defense, natural resources management, energy, and infrastructure; or
    5. other businesses as determined by specific regulations.

The 13/2017 Regulation also regulates two types of new business licenses for PT PMA, namely:

      1. The temporary business license, which is valid for one year. This license are issued for PT PMA that are unable to fulfil the investment requirements set by BKPM. This temporary business license can be extended one time for maximum one year.
      2. Permanent business license, which is valid for as long as the company remains operational. This license will be issued to PT PMAs that have already complied with BKPM’s investment requirements

For KPPA licenses, the new Regulation regulates the licenses for the following types of representative offices:

        1. Foreign Company Representative Offices
        2. Foreign Trade Company Representative Offices
        3. Foreign Construction Services Business Entity Representative Offices; and
        4. Foreign Oil and Gas Company Representative Offices

 

  1. Investment Progress Report

Foreign investors who are looking to invest in Indonesia must provide their investment progress report periodically. If the company is still in the establishment process, the report must be written four times a year, and then once the company starts their operation or production, the report must be submitted twice a year. The “Investment Indonesia” progress report must be sent to BKPM. The report can be submitted online through an integrated site of SPIPISE, lkpmonline.bkpm.go.id, or offline directly to BKPM and other relevant authority.


Written By : Fajar Adi Nugroho