A foreign entity may choose to make a foreign direct investment (FDI) into another country. FDI is invested by an investor who is involved in foreign business operations or acquires business assets in another country. Many developing countries are seen as global FDI hubs; many such countries, of which Indonesia is one, are located in Southeast Asia. Many FDI companies are eyeing Indonesia because it has become one of the world’s leading emerging markets.

How to Establish a Foreign Direct Investment Company in Indonesia

To establish a foreign direct investment company in Indonesia, the first step which must be taken is that of the registration. This is done through the establishment of a limited liability company. In Indonesia, such a company is known as a Perseroan Terbatas (PT). Before a PT can be established, those who are starting the company must obtain a Deed of Establishment as well as approval from the Minister of Law and Human Rights.

The next step to be taken is that of receiving a taxpayer number, also known as Nomor Pokok Wajib Pajak (NPWP), from the authorities. An NPWP is necessary to operate one’s foreign direct investment company in Indonesia. After receiving an NPWP, two certificates are then required; a certificate of domicile and a company registration certificate. At this point, it is possible to receive a permanent business license. However, if the FDI company in question is yet to submit all of the required investment-related document, it is possible for the company to obtain a temporary business license which will be valid for one year.

Cost of Starting an FDI Company in Indonesia

Everyone who chooses to start an FDI company in Indonesia must pay all of the associated costs. One of these relates to the total investment amount to be made by the foreign direct investors. This amount must be at least 10 billion rupiah or the equivalent in foreign currency. It must include loans and equity but neither land nor buildings. The minimum amount of paid-up capital is at least 2.5 billion rupiah or the equivalent in foreign currency. Every shareholder who makes a contribution to the FDI company is to contribute a minimum of 10 million rupiah or its equivalent in foreign currency. The nominal value of the shares determine the share percentage.

The total investment made by a foreign direct investment company can be a combination of equity and debt. Debt is defined as a loan taken from shareholders. According to the rules created by the Indonesian Investment Coordinating Board (BKPM), the ratio of debt to equity must not be greater than 3:1. However, a higher ratio can be accepted by the BKPM if it deems the FDI company’s investment plan to be suitable after hearing a justification from the investors. It goes mainly for construction or manufacturing industries. The term ‘debt’ here represents the loan taken from the shareholders.

Licenses and Permits Required by FDI Companies in Indonesia

An FDI company in Indonesia has to obtain specific licenses and permits in order to set up a business in Indonesia. Every foreign direct investment company must obtain a permanent business license before it may start production and operations in Indonesia. The permanent business license may only be obtained by a company which has invested more than 10 billion rupiah and has stated as such in the Investment Activities Report and the Financial Statement of the Company. The reports must be submitted to the BKPM. However, as has been mentioned, foreign investors who are awaiting the approval of their permanent business license may obtain a temporary business license which will be valid for one year. Owning such a license will allow the FDI company to be able to process various types of FDI licenses. This temporary business license is valid for one year but may have its validity extended by up to two years.

Another important business license in Indonesia is the Import Identification Number. The Import Identification Number is issued by the BKPM. Ownership of this license permits one to import machines, materials, and other goods from abroad which will be used in any of the company’s production processes. A General Importer Identification Number will be granted to any company which is involved in the importing of certain products for trading purposes. One of the other licenses required for imports and exports is a Customs Identity Number. The Customs Identity Number is issued by the Directorate General of Customs and Excise. One final license to be obtained if the owner of the FDI company is a foreigner is the Investment Registration, which replaced the Principle License. Any person or organization may apply for the Investment Registration. Possible applicants include individual investors, foreign investment firms which involve the input of Indonesian citizens, foreign enterprises, regional or national governments, or Indonesian legal entities.

Should you be faced with any problems in obtaining any required business license in Indonesia, we at Paul Hype Page & Co will be able to solve your problems. We will assist you with the obtaining of any necessary Indonesian business license. We will contact government and other authorities on your behalf so that you will not have to be burdened with the task of doing so yourself.

Authorities Governing FDI in Indonesia

Many authorities in Indonesia governs the foreign direct investment companies which have been established in Indonesia. The most important of these is the Indonesian Investment Coordinating Board, also known as the BKPM. It operates according to Law No. 25 of 2007, which is also known as the Investment Law. The BKPM governs all FDI companies which have been established by foreign investors in Indonesia.

Conclusion

Many foreign direct investment companies have made plans to begin business operations in Indonesia because doing so will provide them with many advantages. However, there are many regulations which are to be followed by all foreign investors in Indonesia. Anyone who starts a foreign direct investment company in Indonesia needs to fully understand all of the laws and regulations which are directly relevant to foreign direct investment companies in Indonesia. Such companies are also to obtain various licenses which are required to start an FDI company in Indonesia.