In a corporate business context, control by foreign or external parties typically happened through shareholding. However, in certain circumstances, such control does not derive from equity ownership, but rather established contractually, one example being through a Completely Knocked Down (CKD) business structure implemented through contractual arrangements.
In Indonesia, CKD is regulated under the Regulation of the Minister of Finance of the Republic of Indonesia No. 135 of 2024 concerning Luxury Goods Sales Tax on the Importation and/or Supply of Taxable Goods Classified as Luxury in the Form of Certain Four-Wheeled Battery Electric Motor Vehicles Borne by the Government for Fiscal Year 2025 (“RMF 135/2024”).
Pursuant to Article 1 point 8 of RMF 135/2024, CKD products refer to motor vehicles imported in a fully disassembled yet complete condition as Four-Wheeled Battery-Based Electric Motor Vehicles. Generally, CKD arrangements are carried out between affiliated companies, where the parent company is located abroad, while the subsidiary company is located in Indonesia. Nevertheless, in practice, CKD structures may also be implemented between Indonesian companies and their foreign business partners.
In a typical CKD arrangement, the supplier provides essential elements of the business, including materials, components, machinery, engines, and even trademarks, while the Indonesian company primarily performs the assembly process. This structure often creates a significant level of business dependence on the foreign or external party. As a result, it may blur the distinction between ownership and contractual control.
Ownership refers to legal title and ultimate control over a legal entity, which is generally obtained through equity shareholding. Such ownership grants shareholders the authority to make decisions in the best interest of the company, as implicitly recognized under Law No. 40 of 2007 concerning Limited Liability Company.
In contrast, contractual control refers to the control arises from rights and restrictions stipulated in an agreement between the parties. This form of control is grounded in legally binding contracts, as recognized under Article 1338 paragraph (1) of the Indonesian Civil Code. Through such contractual arrangements, a party may exercise significant influence over another party’s business activities without holding any equity interest.
In the context of CKD arrangements, these two concepts are often conflated. While the Indonesian company remains the legal owner of its business, the foreign or external party may exercise substantial control through contractual provisions, particularly due to its role in supplying key components such as machinery, engines, materials, designs, and other critical inputs. This reliance may create a perception of ownership, whereas, from a legal standpoint, the control exercised is contractual in nature rather than derived from shareholding.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Dewi Susanti