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Initial Concerns and Start-up Tips for Foreign Investors

As Indonesia attracts more and more foreign investors, it’s vital to understand both the common hurdles and the creative tricks involved with doing business in this fast-growing economy. Just in the third quarter of 2017, the Indonesia Investment Coordinating Board or Badan Koordinasi Penanaman Modal (BKPM) recorded that total foreign investment in Indonesia grew by 12% (twelve percent), reaching Rp 111.7 trillion, in comparison with the same quarter of 2016. Obviously, foreign investment in Indonesia continues to increase. However, there are some specific stipulations on how such investment can be made. Based on Article 5 paragraph (2) Law No. 25 of 2007 regarding Investment, foreign investment in Indonesia should be in the form of a Limited Liability Company or Perseroan Terbatas (PT). Within this business structure, there are some important points worthy of attention for foreign investors to consider:

1. Maximum Foreign Shares Ownership

Each business activity has its own Indonesia Standard Industrial Classification Number or Nomor Klasifikasi Baku Lapangan Usaha Indonesia (KBLI). The KBLI can be found and verified within the Chief of Central Bureau of Statistic Regulation No. 95 of 2015 regarding Indonesia Standard Industrial Classification. The Indonesian government also regulates the limitation of foreign shares ownership in several business activities listed on the Negative Investment List, which can be found on the Presidential Regulation No. 44 of 2016 regarding the Negative Investment List. The limitations vary from 95%, 67%, and 49% maximum foreign shares ownership to being completely closed for any foreign shares ownership. If the foreign business activities intended are listed in the Negative Investment List, the investor needs to comply with the limitation listed in the regulation. Therefore, the foreign investor needs to check the limitation first for the maximum foreign shares ownership before making vital decisions.

2. Shares of the Company

Since the foreign investment must be in the form of PT or commonly called as Foreign Investment Company or PT Penanaman Modal Asing (PT PMA) as previously stated, further share laws apply. Based on article 7 paragraph (1) Indonesia Company Law No. 40 of 2007 regarding Limited Liability Company (UU 40/2007), a PT should be established by a minimum 2 (two) shareholders. According to article 12 paragraph (3) Chairman of BKPM Regulation Number 13 Year 2017 concerning the Guidelines and Procedures for Licensing and Facility of Investment (PERKA BKPM 13/2017), the authorized capital of the PT PMA should be more than Rp 10 billion as long as there are no other stipulations according to prevailing laws and regulations. Moreover, based on article 33 paragraph (1) UU 40/2007 jo. article 13 paragraph (3) letter b PERKA BKPM 13/2017, a minimum 25% of the authorized capital should be issued and paid in full by the shareholders with the minimum paid up capital for each shareholder of Rp 10 million.

3. Obligation to Report Investment

Prior to 2017, all foreign investors were required to go to the BKPM first for registering their business activities and obtaining approval. However, after the issuance of PERKA BKPM 13/2017, there are some business fields that can obtain business licenses first without obtaining initial BKPM Approval (for more details, you may read our previous articles in this blog “INDONESIA: INVESTING IN 2018 IS A ‘NO-BRAINER”). Whether the company obtains the BKPM Approval first or proceeds straight to a business license, the company shall be given a BKPM website account that is used by the company to process the license from BKPM as well as to submit reports of investment progress. The report of investment progress is known as Laporan Kegiatan Penanaman Modal or LKPM. Prior to obtaining a business license, the company should make the report once every three months or quarterly and submit online to the BKPM. However, after the business license is obtained, the company should make and submit the report every term or every six months to BKPM. Most foreign investors are not aware of this obligation and do not properly submit their LKPM Reports. The late submission or the absence of submission can affect the next license application. For example, let’s say that the company wants to change their shareholders composition or to add business activities, which would need to be registered at BKPM. If the company did not submit its LKPM Report, it would not be able to proceed with the desired changes. In order to have a smooth path especially regarding the licenses required to do business in Indonesia, foreign investors should be sure to submit their LKPM reports regularly.

4. Legal documents

Expectedly, different business activities require different licenses. However, there are several legal documents that all foreign companies should have no matter what their business activities are:

  1. Deed of Establishment
  2. Minister Decree regarding ratification of the Company establishment
  3. Domicile Letter
  4. Tax Identification Number or Nomor Pokok Wajib Pajak (NPWP)
  5. Company Registration or Tanda Daftar Perusahaan (TDP)
  6. BPJS for Manpower
  7. Company Labor Report
  8. Expatriate Employment Permit (if employ foreigner as the employee)

Depending on the business activities chosen by the foreign company, there are more legal documents that could be needed. It is very important not to leave these matters to chance and risk future complications. If you’d like to know what legal documents are suitable for your business activities or would like to have a consultation regarding your business plan, please do not hesitate to reach us via phone, our 24-hour hotline, or our email info@schinderlawfirm.com. We are eager to make the process of foreign investment in Indonesia less complicated and to enable your business endeavors to be in legal compliance as they soar to success.

Written by: Juliani Hanly, SH.