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.
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.
Starting a Foreign Direct Investment Company in Indonesia FAQs
There are multiple government ministries which deal with the various elements of foreign direct investment. Some of the most important policies regarding foreign investment are reflected in the Central Government’s Master Plan for the Acceleration and Expansion of the Indonesian Economic Development. All business activities of foreign companies in Indonesia are overseen by the Ministry of Finance which also regulates the financial activities of such companies.
The Ministry of Trade oversees the trade activities regarding exports and imports carried out in the country by foreign investors. The Directorate General of Customs and Excise is also involved in this matter. The Ministry of Law and Human Rights ensures that the rights of foreign investors in Indonesia are always protected so that they will not be mistreated by any authorities or suffer due to nepotism or institutional corruption.
There are many laws in Indonesia which are used for the regulation of foreign direct investment companies. Foreign direct investment companies in Indonesia are regulated by Law No. 25 of 2007 with regard to investment as well as adherence to investment regulations. This law also states that any form of foreign direct investment done in Indonesia is to be carried out by a limited liability company owned by foreigners. In Indonesia, such a company is known as a Penanaman Modal Asing (PMA). PMAs in Indonesia are regulated by Law No. 40 of 2007.
The Investment Law also protects the investors because it states that the Indonesian government will remove neither the ownership rights of the investors nor those of any of the country’s foreign investors. When one takes into account all the laws in Indonesia which concern FDI companies, it will be shown that the laws which specifically pertain to foreign direct investment companies include articles which include information such as licensing, closed or restricted sectors for foreign direct investment, general incentives, fiscal concessions, labor issues, and compensation, among others.
Foreign direct investment companies have contributed significantly towards Indonesia’s economic growth as by bringing in foreign capital as investment in various sectors. In recent years, the total amount of FDI in Indonesia has increased by a large amount. The countries which have placed the largest sums of FDI into Indonesia are Singapore, the Netherlands, and China. The sectors in Indonesia which receive the most FDI are warehousing, transportation, and telecommunications.
Recent reports from the BKPM have shown that foreign direct investment in Indonesia has reached unprecedented levels, thus leading to the many benefits being received by the country. Capital formation, net export revenue, generation of tax revenue, improvement of technological standards, and development of certain industries have all come to Indonesia as a direct result of the FDI which has entered the country.