Indonesia Corporate Law Series

An Overview of Indonesia Law

Foreign Investment Company

The Indonesian government, under the leadership of President Joko Widodo, has continually updated regulations that can increase the potential of foreign investment in Indonesia. The latest positive changes can be seen with the introduction of a new system called OSS (short for Online Single Submission) in June 2018, as regulated under the Government Regulation Number 24 of 2018 regarding Electronically Integrated Business Licensing Services (GR 24/2018).

The underlying goal is to cut the bureaucracy in processing permits and to increase the ease of doing business in Indonesia.

Indonesia has carried out continuous reforms, both at the central and regional levels to encourage improvement in the business climate. The results of the reform implementation are recorded and recognized in the 2019 Doing Business Report published by the World Bank at the end of October 2018.

In the report, Indonesia was recorded as having successfully implemented 17 types of reforms in the last three years. Especially for 2018, Indonesia has conducted three types of reforms, namely: Starting Business Indicators, Getting Credit and Registering Property.

Key Regulations

Key Regulations

One of the key regulations governing foreign investment in Indonesia is the Presidential Regulation No. 44 of 2016 regarding List of Business Fields that Are Closed and Business Fields that Are Open with Requirements for Capital Investment (Negative Investment List).


The Negative Investment List provides the areas in which investment is prohibited for foreign entities and areas that have certain investment restrictions for foreign entities. In addition to the Negative Investment List, the relevant laws and regulations that governing the particular business sector must be reviewed to determine whether the business sector is open for foreign investment.


For example, a construction services business is open for up to 67% foreign investment, and an insurance business is open for up to 80% foreign investment.


If a business sector is not listed in the Negative Investment List then it should be open 100% for foreign investment without any conditions. However, in practice, investors must confirm this with the prevailing relevant law and regulations, the BKPM and other relevant government officials before making any investment in Indonesia.


The main regulatory body for foreign investment is the BKPM. However, depending on the business, specific industry regulators may require the foreign investor to acquire an operating licence. It is always advisable for foreign investors to get a full picture of the required licences in the early stage of investment.

 

It is worth noting that the Government recently introduced the Online Single Submission (OSS) system, as regulated under GR 24/2018, under which the issuance and supervision of a significant portion of capital investment licensing was transferred from the BKPM and several other government agencies to the OSS system supervised by the Coordinating Ministry for Economic Affairs. However, the BKPM was mandated to supervise the OSS system.

 

Further, under BKPM Regulation No. 6 of 2018 regarding Guidelines and Procedures for Capital Licensing and Investment Facilities (BKPM Reg. 6/2018), not all licensing applications and approvals were transferred from the BKPM to be managed by the OSS system, therefore the BKPMs One-Stop Integrated Services is still processing and issuing licences in the following sectors:

Energy and mineral resources (electricity, oil and gas, minerals and coal);

Public works and public housing;

Customs and excise facilities; and

Other foreign investment licences (representative office, branch office, limited stay visa, change of status from stay permit on arrival into limited stay permit, and change of status from limited stay permit into permanent stay permit).

With the newly established OSS system, the effect on foreign investment in Indonesia, specifically, and business in the larger context remains to be seen. There is a transition period of six months to get the OSS system up and running, but in practice, it may take longer and require co-operation across relevant ministries.

Incorporation
Incorporation
This section describes the main registration requirements to establish an investment company in Indonesia (officially known as PT Penanaman Modal Asing/PT PMA).
Reporting Requirements
Reporting Requirements
A PT PMA must normally submit the required reports which described in this section.
Capital Injection and Shares
Capital Injection and Shares
In general, the minimum capital requirement for foreign investment is at least IDR2.5 billion, payable on the establishment of the PMA Company, and within one year it must be paid to at least in the amount of IDR 10 billion.

However, specific industries can have higher capital requirements.
Company's Structure
Company's Structure
The ICC adopts two board structure. The BoC has a supervisory function while the BoD has managerial or daily operational responsibilities. The boards have equal status notwithstanding their different functions.

The purpose of the two board structure is to enhance checks and balances.
Restrictions

Restrictions

Find out important insight about restrictions given by the law in this section.
Taxation and Incentives

Taxation and Incentives

Under Indonesias tax regulations, there are domestic taxpayers and foreign taxpayers.

Foreign individuals who reside or are present in Indonesia for more than 183 days in a 12-month period or who are present in Indonesia and have the intention to live in Indonesia are deemed domestic taxpayers. The 12-month period is based on the current date going back 12 months; it is not a calendar year.
Dividends, Interest, and IP Royalties

Dividends, Interest, and IP Royalties

There should be paid-up capital made by the foreign investor depending on their shareholding. Dividend distribution (if any) is payable to the shareholders and subject to withholding tax at the rate of 20%, except when reduced by the relevant tax treaties.

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Disclaimer

Disclaimer
"This Article was produced by DHP Lawyers for understanding Indonesian law only and does not constitute an official translation published by the Indonesian Government.

This article was not intended to be used as advice and/or opinions and/or legal references, and no action should be taken as regards the reliability of any of the information contained herein without first seeking guidance from professional services.

We have made every effort to ensure the accuracy and completeness of the information that is contained within this Memorandum, however, we are not responsible for any errors, omissions and/or mistakes that occur in the source text.

DHP Lawyers reserves its right to change, modify, add, or remove any errors or omissions without any prior notification being given."

If you would like more information or have a specific question you would like to discuss with the Firm, please contact us.

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  21 Jul 2019

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