As one of the largest economies in Southeast Asia, the Indonesian government consistently fosters opportunities for foreign investment. A common avenue for such investment is through the establishment of a Foreign Direct Investment (FDI) company known as Penanaman Modal Asing (PMA).
FDI is a business entity predominantly owned by foreign investors, playing a pivotal role not only in bolstering national economic growth but also in providing foreign investors with broader access to a diverse and fertile market.
However, establishing FDI is a nuanced process governed by regulations sanctioned by law, covering aspects from investment limitations to its overarching objectives.
In this article, we will deliver into a comprehensive exploration of FDI in Indonesia, encompassing its definition, requirements, and the procedural intricacies of its establishment.
What is FDI?
As per Article 1 of Law No 25 of 2007 on Investment (Investment Law), FDI involves the investment of capital to conduct business in the territory of the Republic of Indonesia by foreign investors, either fully utilizing foreign capital or in partnership with domestic investors.
FDI can take various form, including direct investments such as establishment new factories or purchasing shares in domestic companies, or indirect investments like buying bonds or depositing funds in local banks.
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The presence of FDI yields numerous benefits for the country, including:
Boosting Economic Growth
FDI acts as a catalyst for economic growth, contributing to the GDP of the country. Foreign investments infuse fresh capital necessary for the development of various economic sectors.
The establishment of FDI generates employment opportunities for the local population, thereby reducing unemployment rates and enhancing the standard of living for local communities.
Technology and Knowledge Transfer
FDI often introduces sophisticated technology and business knowledge, fostering innovation capacity and enhancing the competitiveness of domestic industries.
Increased Tax and Government Revenue
FDI significantly contributes to government revenue through tax payments, royalties, and dividends. This revenue can be channeled into funding development programs and other public necessities.
Who Can Establish FDI in Indonesia?
Not all foreign nationals can become investors and establish FDI in Indonesia. To do so, a non-Indonesian citizen must meet specific requirements, including:
- Establishing a company based on business fields in the Standard Classification of Indonesian Business Fields (KBLI)
- Having a PT-form company owned by at least two shareholders
- Possessing an investment amount in Indonesia,based on BKPM Regulation Number 4 of 2021 in Article 12, the exception from the minimum investment value provision for PMA is that the total investment is greater than Rp. 10,000,000,000.00 (ten billion rupiah), excluding land and buildings per KBLI business field. 5 (five) digits
- Complying with location regulations for the office, as the use of virtual office spaces is not permitted
- Preparing and delivering a presentation to the Investment Ministry regarding their FDI in Indonesia
Requirements for Establishing FDI in Indonesia
Several specific requirements must be met to become a foreign investor in Indonesia and establish FDI. Here is a detailed explanation of these requirements:
To establish FDI, a company must form a PT. According to Indonesian law, foreign investors can be established PT by:
- Participating in shares during PT establishment
- Purchasing shares from an existing company
- Utilizing other methods as stipulated by applicable regulations
Conducting Large-Scale Business Activities Only
Foreign investors cannot engage in micro, small, and medium-scale businesses. Before choosing a business field, foreign investors must consider open and eligible sectors.
Certain business fields cannot be operated by FDI, as outlined in Article 77 of the Job Creation Law. These include the cultivation and industry of certain narcotics, all forms of gambling and/or casinos, capture of endangered fish species, and utilization of coral for various purposes.
Investment Value Requirement
To establish FDI in Indonesia, foreign investors must meet an investment value of more than IDR10 billion per KBLI 5- digit business field per project location.
Minimum Paid-up Capital Requirement
In addition to the minimum investment value, FDI must fulfill the minimum capital requirement, set at a minimum of more than IDR10 billion.
Procedure for Establishing FDI in Indonesia
The Job Creation Law has ushered in significant changes to the business landscape in Indonesia, impacting the establishment of FDI. According to the Regulation of the Law and Human Rights Minister No 21/2021, here is the procedure for establishing FDI in Indonesia:
Prepare FDI Establishment Documents
Before establishing FDI, several documents need to be prepared, including an electronic statement from the applicant, Articles of Association in deed of establishment, Approval of your Deed of Establishment by the Ministry of Law and Human Rights, statement letter, and proof or PT capital deposit.
Business Licensing for FDI
Once established, FDI needs to obtain business licensing based on risk, such as the Business Identification Number (NIB) and the standard certificate issued by the Online Single Submission (OSS) system.
In addition, FDI engaged in certain business activities must also comply with the Business Licensing for Specific Business Activities (PB UMKU).
In conclusion, understanding the complexities of establishing FDI in Indonesia is crucial for foreign investors.
Complying with regulations, meeting investment and capital requirements, and navigating the legal procedures are integral steps toward a successful investment venture in Indonesia’s thriving economies.
For those who seek assistance in establishing FDI in Indonesia, Kontrak Hukum is your trusted partner. SImplify and expedite your entry into Indonesia’s thriving market with our comprehensive legal service tailored for foreign companies.
Read Also: Benefits of PMA in Indonesia
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