Requirement for Foreigners to Start a Business in Indonesia – Foreign entrepreneurs may make foreign investments in Indonesia by establishing a foreign investment company in a Limited Liability Company or in Bahasa Indonesia often abbreviated as “PMA”. Foreign investment in Indonesia in the form of a PMA company can be done by ownership of shares at the time of establishment of the company. Foreign entrepreneurs who wish to have a PMA company must meet the requirement for foreigners to start a business in Indonesia.
Legal Basis for Investment
The legal basis used to regulate the terms and procedures in foreign investment, namely; Law number 40 year 2007 regarding Limited Liability Company, Law number 25 Year 2007 concerning Investment and Presidential Regulation Number 111 Year 2007 concerning List of Closed Business Sectors and Opened Business Field with Requirements in the Field of Investment. Businesses that can be done by foreigners in Indonesia can take the form of investment and business in the field of property. To start a business in the field of property should pay attention to various things as follows:
- Applying for registration to the Investment Coordinating Board.
- Make a deed of establishment of the company in the presence of a notary.
- Handling corporate license such as Certificate of Domicile, Taxpayer Identification Number, and Company Registration Certificate.
- Approval of deed of establishment by the Minister of Law and Human Rights.
The law requires minimum capital of 50 million rupiahs. However, this cannot be used as a benchmark for foreign investment. There are no regulations that require minimal capital to the property business, but in practice BKPM will recommend a value that is considered sufficient to a business field by considering the factors of work plan, capital goods, labor, or previous applications of similar business.
Foreign investment regulations stated in the Capital Investment Law Number 25 Year 2007 regarding Investment is an investment activity to conduct business in the territory of the State of Indonesia by foreign investors, either by using foreign capital completely or in association with domestic investors, namely Article 1 Constitution -The Investment Capital. Furthermore, foreign investment shall be in the form of a Limited Liability Company under Indonesian law and domiciled in the territory of Indonesia and must meet the requirement for foreigners to start a business in Indonesia.
Investment is stated that there is a type of business or investment business sector is open but there is also a business type closed and open with the requirements. Criteria and requirements of closed and open business fields with terms and lists of closed and open business fields with their respective requirements are regulated in a Presidential Regulation.
Thus, if any foreign citizen wishes to invest in the property sector, it should look at the list of business lines in advance and find the requirements to be met. Meanwhile, for the List of Closed Business Sectors and Open Business Fields with Requirements in the Field of Investment there is no limit to foreign nationals or foreign legal entities to establish an Indonesian legal entity whereby all capital belongs to a foreign national or foreign legal entity.
Understanding Foreign Investment
Foreign investors who wish to establish a foreign investment company must follow the procedures and fulfill the applicable requirements in Indonesia. Foreign entrepreneurs must meet the requirement for foreigners to start a business in Indonesia. Foreign Investment or PMA is an activity of investing to conduct business in the territory of the Republic of Indonesia by using foreign capital completely or supplemented by domestic investor which is further done by establishing a legal entity in the form of Limited Liability Company.
The procedure of establishment of PT PMA is almost the same as establishing a local company. However, there are some striking differences in establishing PT PMA compared with establishing local PT, among others; in establishing a PMA requires BKPM approval in the form of Principle Permit and there must be foreign capital ownership in the company. For permission This principle is a mandatory permit to initiate business activities and investment activities in Indonesia. In establishing the PMA should pay attention to the following important points.
Things to Look for in Establishing PT PMA
Things to consider in setting up a PMA Company are as follows:
- Field of Business, it is very important for the party who will establish PT PMA, to know in advance the activities to be executed. In accordance with Presidential Regulation number 44 of 2016 concerning the List of Closed Business Sectors and Open Business Fields with Requirements in the Field of Investment or commonly called Negative Investment List.
- Value of Investment and Capital, Investment value represents all expenditure plan for business activities cultivated consist of component of Fixed Capital and Working Capital. Fixed Capital is a fixed capital owned by the company, while Working Capital is the cost of turn over, which is usually within 3 months.
This capital is issued by the company to conduct the company’s operational activities. Total Value Investment for one business sector is required to be larger than ten billion Rupiah. Whereas, the issued capital and paid up capital for PT PMA is at least twenty-five percent of the total investment value. Foreign entrepreneurs must meet the requirements for foreigners to start a business in Indonesia and the capital used.