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Legal Requirements of Foreign-Owned Businesses in Indonesia

Home>Guide/FAQ>Legal Requirements of Foreign-Owned Businesses in Indonesia

Legal Requirements of Foreign-Owned Businesses in Indonesia

2020-05-22T16:33:06+08:00November 4th, 2019|0 Comments

Many foreigners who start a company in Indonesia choose to start one which is completely foreign-owned. Such companies are known as PT PMAs. There are various laws and requirements which govern PT PMAs in Indonesia; these will be discussed in the text of the following article.

PT PMA Legal Requirements

Many people from all over the world consider Indonesia to be a viable location in which they may live and work. Some even of their own there. of their own there. Foreigners who do so must first and foremost adhere to all of the laws and regulations which govern foreign-owned companies, which are also known as PT PMAs, based in Indonesia. Those who do so will soon find that their business activities will soon thrive as they take advantage of the burgeoning Indonesian market as well as the many business opportunities which present themselves to foreigners who conduct business activities in Indonesia.

 

Among the most important legal requirements imposed on PT PMAs in Indonesia is that of the paid-up capital requirement. Every PT PMA in Indonesia is required to have at least 2.5 billion rupiah’s worth of paid-up capital. There are two methods by which an owner of a PT PMA may provide verification of this paid-up capital. One of these methods is the signing of a capital statement letter. Such a letter specifies that the shareholders of a PT PMA cumulatively possess at least 2.5 billion rupiah’s worth of usable income and will inject this income into the company once it has been incorporated. Another method which could be used as evidence of paid-up capital is through the transfer of the money to be used into the company’s bank account. It ought to be mentioned, however, that this option is only available to PT PMAs which have already been incorporated because only such companies could have a corporate bank account.

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Directors, Shareholders and Commissioners

There are also specific requirements related to the directors, shareholders, and commissioners of a PT PMA.

Shareholders are those who cumulatively own the company and possess rights related to the company. Each PT PMA in Indonesia must have a minimum of two shareholders. The shareholders of a PT PMA may either be individuals or corporations. Shareholders who are individuals may either be locals or foreigners, while corporate shareholders may either be based in Indonesia or abroad.

The director is the person who is responsible for the general operations of the company. There must be at least one director in every PT PMA. Locals and foreigners alike may serve as the director of a PT PMA. If the person who is selected to be the director of the company is a foreigner, the director will require a work permit before taking up the role, just as is the case with any other foreigner who chooses to work in Indonesia on a long-term basis. It is also possible to utilize the services of either a local or nominee director; neither of these directors require a valid work permit in Indonesia.

Incidentally, we at Paul Hype Page & Co provide nominee directorial services to any Indonesian company which requires a nominee director. We will see to it that the person selected to serve as your company’s nominee director is one who will carry out all duties in the appropriate manner. Our fees are reasonable and affordable, so you will not have to spend excessive amounts of money when seeking our nominee director services.

Commissioners are those who oversee the directors of a company. They are tasked with holding the company’s directors accountable for their actions. Every PT PMA in Indonesia is required to have at least one commissioner. The commissioner of a PT PMA is not required to be a resident of Indonesia. Thus, the commissioner may either be a local or a foreigner.

Among all of a company’s directors and commissioners, one of each will serve as the president director and president commissioner respectively. The president director is the leader of the directors; likewise, the president commissioner is the leader of the commissioners.

 

Registered Business Address

Another legal requirement of all PT PMAs in Indonesia is that of the registered business address. A registered business address is necessary because it provides government and other authorities with a means by which the activities and compliance of the PT PMA can be monitored. Every business in Indonesia requires an official registered business address before its owner is allowed to conduct any business activities.

Each region of Indonesia has its own regulations with regard to the registration of a PT PMA’s business address. However, one commonality with regard to the regulations governing business addresses in Indonesia lies in the fact that all of Indonesia’s regions forbid the use of residential addresses as the official business address of a company, be it a PT PMA or any other form of company. Thus, those who are business owners may not use their place of residence as a registered business address.

The building from which the PT PMA is to conduct its business activities must also be one which possesses an appropriate building license. Any building with such a license may be used as the official office location.

Should the registered business address have to be changed at any point, the office address may be updated accordingly. However, those who do so ought to know that during the process of updating the business address, all related legal and official documents will also have to be updated in a similar manner. There are also significant costs associated with the updating of documents which contain information on the company’s registered business address.

 

Negative Investment List

The Indonesian government maintains the Negative Investment List which states restrictions imposed on foreign ownership in certain industries in Indonesia. Foreigners who plan to establish a business in a sector which restricts foreign ownership are to seek the assistance of a local partner in doing so. The Negative Investment List mentions that all companies in Indonesia which have at least one foreign shareholder are to be registered as PT PMA. It also completely forbids foreign ownership in some of Indonesia’s industries. All of the requirements specified in the Negative Investment List must be followed by any foreigner who has an intent to set up a PT PMA in Indonesia.

 

Process of PT PMA Registration in Indonesia

Of course, the most important part of setting up a PT PMA in Indonesia is that of the registration process itself. There are certain legal requirements and regulations which govern the setup of a PT PMA in Indonesia.

The first step in the process of registration of a PT PMA is that of receiving a Principle License and a Business License. These licenses are necessary for the operation of any business in Indonesia. They are to be obtained from the Indonesian Investment Coordinating Board (BKPM). The next step is that of obtaining a Deed of Establishment which has been made official by a public notary. The Deed of Establishment is to contain the Articles of Association of the company. The Ministry of Law and Human Rights will then provide legalization of the PT PMA in order to certify it as a legal entity within Indonesia. The owner of the company must then receive a Domicile Letter from the local district authorities. The company owner must then follow this with a visit to a tax office. While there, a Tax Identification Number (NPWP) and Taxable Entrepreneur Confirmation (PKP) are to be received. Another important certificate which must be received is the Company Registration Certificate (TDP); this may be received from the Agency for Integrated Licensing Services (BPPT). The final step of the process is that of receiving two reports: the Company Welfare Report and the Manpower Report. Both are to be obtained from the Ministry of Manpower. The entire process, if followed properly and legally, will take approximately 46 working days to be completed.

 

Conclusion

There are many important legal matters that are involved in the establishment of a PT PMA in Indonesia. Every foreigner who has an interest in doing so ought to take note of each of these matters. Those who are not compliant with the legal requirements will face many legal troubles and will not be able to run their business in the way which they desire. However, foreign business owners who meticulously adhere to all matters required of a PT PMA or any other business in Indonesia will find that their business activities will bring many benefits to themselves, their company, and even their employees.

 

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Legal Requirements of Foreign-Owned Businesses in Indonesia FAQs

Which industries of Indonesia employ the most foreigners?2020-04-02T15:12:45+08:00

Due to ongoing stringent rules in Indonesia, the employment rates for foreigners are not particularly high in Indonesia. Nevertheless, there are many rules in place with relate to foreigners in various jobs. For example, all foreigners must be able to speak and read Indonesian before they may enter Indonesia’s job market. Foreigners also ought to learn about basic Indonesian ways of life before entering any of various jobs in Indonesia.

The main sectors which employ foreigners enter are those in tourism, IT, education, and trade. The wood and rubber industries also employ many foreigners. Many expatriates in Indonesia work in foreign companies mainly located in Java, Bali, and Sumatra.

Many foreign investors have been investing in the domestic Indonesian industries because the demand for local products has been on the rise. They also often invest in the exporting and importing of products. Exports and imports are carried out through the largest seaport in Indonesia: the Port of Jakarta. Thus, many foreigners work in the export industry.

Other industries which employ many foreigners include the automotive, chemical, electronics, and engineering industries.

Are there any similarities between each region’s respective job markets?2020-04-02T15:12:15+08:00

The job market in each region of Indonesia contains certain similarities. Common industries in all regions of Indonesia include agriculture, fishery, tourism, petroleum, natural gas, forestry, and mining. However, significant changes occurred after the year 1990. At this point, clear differences between each region’s job market began to set in, particularly regarding shifts in the agricultural sector and service sector.

Sumatra provides job opportunities in petroleum, mining, and agriculture. Sumatra’s primary mined products are gold, silver, and coal, while its leading agricultural products are rubber, coffee, palm oil, tea, tobacco, corn, and rice. North Sulawesi’s job market is also primarily agriculture-based. The main products that come from that region are sugar cane, rice, coffee, coconuts, and nutmeg.

The job market of Java is much more diverse because of its economic prosperity and large population. Industries which are prominent in Java include agriculture, forestry, fishery, livestock, mining, hydrocarbons, and automotive. Leading industries in Kalimantan, meanwhile, include agriculture and fishery.

Which regions of Indonesia contribute the most to the country’s economy?2020-04-02T15:11:14+08:00

The islands of Java and Bali are the primary contributors to the Indonesian economy. The Greater Jakarta area is in Java. Java is the country’s most populous island, with 60% of the Indonesian population residing on the island. It contributes more than 58% of the nation’s total economic production. Bali provides nearly 28%, Sumatra 23.9%, and Kalimantan 8.73%.

The reason Java, Bali, Sumatra, and Kalimantan contribute more towards the national economy is that they are closer to foreign countries such as Malaysia and Singapore. Jakarta and Bali also have many foreign companies and popular domestic brands. Bali is also a well-known tourist destination that also makes it a significant contributor to the country’s economy. The islands of Java, Sumatra, and Kalimantan are also major contributor to the country’s palm oil industry, making these regions essential contributors towards the Indonesian economy.

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