In some recent years, Indonesia has become one of the emerging economies in the world. Being the fourth most populated country in the world and the largest economy in Southeast Asia with a 2014 nominal GDP of $888.6 billion. Those looking to invest in Indonesia should start with the Jakarta Composite Index (JCI). While the rest of the world was in a recession between 2009 and 2012, the country’s primary equity index jumped from a low of around 1140 to a high of around 4100. That being the said, the question therefore arises to many investors as to how do I invest in an Indonesian company.
It must first be understood that there is a few types of business entities which investors can plan to open in Indonesia. However, in this article, we will provide you with all the necessary information required by an investor to the most common business entity in Indonesia which is the Local PT Company and the Foreign Owned Company (foreigners).
Local PT Company (PT)
This company is known as Local PT (Perseroan Terbatas). A majority of the companies in Indonesia are Local PT. It is a limited liability company that is fully owned by the Citizens of Indonesia as only Indonesian individuals or legal entities can be shareholders of a Local PT.
However, foreigners who wish to acquire a Local PT can do so by purchasing over the Indonesian shareholder’s shares, be it part or all of the shares in the Local PT.
This would mean that the legal entity of the company would have to be converted into a Foreign-owned Company (PT PMA) instead of Local PT. According to the business activities, there are several business fields which are closed for foreign ownership (check the updated negative investment list to see what the forbidden business fields are for foreigners).
Local company is a great choice for foreign investors who wish to expand their business in Indonesia but is constrained by limited ownership for certain business areas.
Things you should know about local company:
Directors, Commissioners and Shareholders
In a local PT company, it is also required to have at least 1 director, 1 commissioner and a minimum of 2 shareholders. The difference with PMA is only Indonesian citizens and/or Indonesian legal entities are allowed to hold shares as registered shareholders. To represent the company in performing all transactions and activities, there must be at least 1 director in local company, whose actions are supervised by at least 1 commissioner. If there are more than 1 director or 1 commissioner, they will comprise to be a Board of Directors or Board of Commissioners, with one of them acting as the President Director or President Commissioner.
According to the Regulation of the Minister of Trade on Amendment to Regulation of the Minister of Trade No. 36/M-Dag/Per/9/2007, classified Trade Business License into 3 classifications, as follows:
- Small Trade Business License
Small Trade Business License must be owned by a trading company whose the net worth (paid up capital) is more than IDR 50,000,000, up to IDR 500.000.000, excluding land and building of business premises.
- Medium Trade Business License
Medium Trade Business License must be owned by a trading company whose the net worth (paid up capital) is more than IDR 500.000.000, up to IDR 10.000.000.000, excluding land and building of business location.
- Large Trade Business License
Large Trade Business License shall be owned by a trading company whose net worth (paid up capital) is more than IDR 10,000,000,000 excluding land and building of business premises.
Note: To hire a foreign employee in local PT company, the required company size is medium with paid-in capital above IDR 1,100,000,000.
Foreign Owned Company (PT PMA)
In Indonesia this is known as PT PMA (Penanaman Modal Asing) or PT PMA (Perseroan Terbatas Penanaman Modal Asing). This is a legal entity which foreigner can use to conduct commercial activities in Indonesia established under the Indonesia law. Based on investment law No. 25/2007 regarding investment in Indonesia, a foreign investment is defined as an investing for the purpose of running business within Indonesia.
In a PMA, foreigner both individual and legal entities can be registered as shareholder. Shares of PT PMA can be owned up to 100% by foreign investors subject to the Negative Investment List.
Foreigner’s ownership of PMA shares are classified based on the company’s business activities, and varies from 0% to 100%. However, some business activities may require Indonesian citizen or local legal entities to hold shares alongside the foreign investors.
To find out which sector are open to foreign investment you need to check on the Negative Investment List, a list compiled and regularly update by the Indonesia Investment Coordinating Board (BKPM). In case a sector is partially closed to foreign investment, then the list states the maximum allowed percentage of foreign ownership. This means that you will need to have an Indonesia citizen partner in order to engage in business that particular sector.
Things you should know about PT PMA:
Directors, Commissioners and Shareholders
Based on Indonesia company law, every PMA should have at least 1 director, 1 commissioner and 2 shareholders. The shareholders can be either an individual (foreigner or local) or a legal entity, but at least one of the shareholders needs to be a foreign individual (or foreign legal entity).
The director and commissioner can also be a shareholder. Commissioners are not part of the daily company management. But when it comes to owning company shares, they can although they are not required to have any. Note that PMA in Indonesia must have at least one commissioner.
While choosing to have more than one commissioner, one of them must become president commissioner. This gives him or her the responsibility to be in charge of the board of commissioners. The ones that make your company’s executive management are the board of directors. They are the ones that are supervised by the board of commissioners.
As for the director, they are in charge of company management in accordance to any policy that is appropriate by the Indonesian Company Law or AoA (Article of Association). Apart from having the right to legally represent the company, the directors are authorized to sign any contracts between the company and third parties such as vendors, suppliers and clients as well as the taxation documents. However, a non-resident director cannot sign documents on behalf of the company. Therefore, the director has to first process the work and stay permit immediately after he is appointed as a director.
Shares of PMA can be owned up to 100% by the foreign investors, but according to the Negative Investment List, ownership of the PMA shares is classified based on the business field and it is varies from 0% to 100%.
The minimum investment in Indonesia to start a PMA is IDR 10 billion or equivalent to current exchange rate. This applies to all business sectors and the amount of minimum investment is not including the value of the land and buildings owned by the company.
Minimum paid-up capital is 25% from IDR 10 billion.
Paul Hype Page & Co – OSS service provider and Asean Chartered Accountant.
Paul Hype Page & Co. have 3 physical offices in Singapore, Malaysia and Indonesia
Our Firm Goal is to assist Foreigner and Foreign Companies to set up business in Asean.
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