Undoubtedly, Indonesia offers great business opportunities whether for local citizens and also for foreign people. To carry out and start a profitable business in Indonesia, a foreigner needs to open a foreign limited liability company or a foreign-owned company (PT PMA) in Indonesia.
The Incorporation of a limited liability company is governed by Company Law No. 40 of 2007 (the “Company Law”). Once a business decides to expand and takes advantage of this growing market, it will need expert help in navigating the rules on how to register a company in Indonesia.
Advantages of a Foreign-Owned Company (PMA) in Indonesia
Most foreign-owned companies establish the Indonesian version of a Limited Liability Company (LLC), which is known as a PMA—Penanaman Modal Asing –in Indonesia since it can take the form of a 100% foreign-owned limited liability company or can be established as a limited liability company through a joint venture with Indonesian partners.
The advantages of this type of company are that it gives the foreign investor full control over the direction of the company, no restriction on where a PMA can operate in Indonesia and reduces the risk of finding a suitable local partner.
Certain business fields require a foreign-owned company to establish a local partner and are allowed up to a certain percentage of ownership depending on the sector. The specifics of this are covered in the Negative Investment List.
However, there are some business activities that are closed for foreign ownership based on Positive Investment List, therefore should be established as Local Indonesian companies (refers to President Regulation of Republic of Indonesia No.39/2014 concerning the list of business fields that is closed to Investment and business field that are conditionally open for investment).
Investment Plan for PMA
Regarding the updated regulation from BKPM (Read: New Regulation on Capital Submission Proof), investors should invest above IDR 10 billion as their investment plan, which is also the minimum paid-up capital.
An investment plan can be either cash or fixed assets such as machinery however it is excluded for Land and buildings (Read: How to Own Land and Property in Indonesia).
Paid-up capital shall be paid after the company is established and has a bank account (stated by notary letter). A company needs to reach investment realizations above USD 1 million for obtaining a Business license as their permanent license, import license, and other licenses which relate to the company’s sector.
The Steps for PT PMA Registration in Indonesia
|Approval of company name (should consist of 3 words)||The Ministry of Law and Human Rights||2 days|
|Review, Revision, and Approval of Principle License as their temporary license||BKPM||14 days|
|Article of Association (AKTA)||Notary||4 days|
|Legalized of Legal Entity (Deed of Establishment/ SK Kehakiman)||The Ministry of Law and Human Rights||3 days|
|Certificate of Domicile||The landlord of the office building and Local Council||3 days|
|Tax Payer Registration Number (NPWP) and letter of registered tax (SKT)||Tax Office||3 days|
|Nomor Izin Berusaha (NIB)||Provincial Government||1 day|
- Company Name approval. The application for a company name is conducted through an online system, which can be accessed by a notary. The Ministry of Law and Human Rights can reject the name for a variety of reasons, including if it already exists or is similar to the name of another company. Based on the latest Indonesian regulation, the company name should consist of three words. It shall not contain words that are considered vulgar or obscene in Indonesia.
- Principle License (BKPM Approval). The Indonesian Investment Coordinating Board (BKPM) is the central authorized body for receiving, reviewing, and approving foreign investment applications as well as monitoring approved and running projects. The investor should submit their application and investment plan which describes their investment realizations above USD 1,000,000. The investment plan will be reviewed and revised by BKPM. Once it has been approved, BKPM will issue the Principle License as a Temporary Investment Permit. The principal License will be valid for one year and can be extended for two years. Then the company needs to apply for Business License within three years.
- Article of Association (Akta Perusahaan). After obtaining a Principle License from BKPM, the investor is allowed to establish a Foreign-Owned Limited Liability Company (PT. PMA) by arranging for an Article of Association through a notary, which is valid as an Article of Association for the company.
- Ratification of Legal Entity (SK Kehakiman). The Article of Association shall be submitted to the Ministry of Law and Human Rights to be legalized.
- Certificate of Domicile. The next step is to obtain a Certificate of Domicile from the landlord of the office building and from the Sub District (“Kelurahan”), which states the address of the company.
- Tax Registration Number (NPWP). The company shall obtain a Tax Payer Registration Number (NPWP) and a letter of registered tax (Surat Keterangan Terdaftar Pajak/SKT) at the Tax Office located at the same sub-district. NPWP is valid as the company’s tax ID and beneficial for proposing a bank loan, obtaining other necessary company documents as well as for the company’s tax payment (Read: Corporate and Personal Income Tax in Indonesia).
- Nomor Izin Berusaha (NIB). To finalize PT PMA company registration, the company must arrange a company identity number from Provincial Government to officially register the company in the region.
The PMA company registration process in Indonesia is very precise and can be demanding. In addition, as the ASEAN nations update and alter business regulations, having an expert partner on the ground in Indonesia can be critical to success. Engaging professional assistance helps companies navigate local regulations and understand the culture of business in Indonesia. Check more for a complete overview of business services in Indonesia.
How to Register or Open a Foreign Company (PT PMA) in Indonesia in 2021
The Indonesian government has made it easier for foreign investors to invest, register a foreign-owned company and start a business in Indonesia. If in the past years the company registration process took at least two months to be completed, the case is different in 2021. Now, a foreign investor can have their company registered in between 1 and 1.5 months.
Another simplified procedure takes place in Jakarta. If you want to set up your business in Jakarta, you are not required to submit Company Domicile (SKDP). This regulation has been running effectively since May 2019.
As such, the company registration process for PT PMA in 2021 looks like the following. The registration is done via the Online Single Submission (OSS) system.
- Approval of company name: it should consist of three words that are not vulgar or obscene.
- Deed of Incorporation: it should include an Article of Association, and a notary must be present.
- Approval of legal entity: After submission of Deed of Incorporation by the notary, the Ministry of Law and Human Rights will give approval.
- Registration of Tax ID (NPWP): A valid NPWP is required for securing other company’s licenses, banking activities, and fulfilling tax obligations.
- Domicile Letter: Required to show the location of your business.
- Application of NIB: A unique company profile number that guarantees an immediate operation, provided that no additional licenses are needed. Alongside NIB, Business License(s) and Location Permit will also be granted one day following the registration via OSS. NIB also serves as an import license and customs identification number to be used for the customs clearance process.
- Application of other licenses: Depending on the business sector, additional licenses such as commercial license and tourism license may be required before operation.
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