Foreign investment has become one of the main drivers of economic growth in many countries, including Indonesia. The involvement of foreign investors often brings positive impacts in the form of increased production, job creation, technology transfer, and infrastructure improvement.
One form of foreign investment is through the establishment of a Limited Liability Company (PT) with foreign capital or commonly referred to as Foreign Investment (PMA).
It is not uncommon for companies that were initially established as ordinary PTs or Limited Liability Companies with Domestic Capital (PMDN), where the ownership is held in majority by Indonesian citizens, to eventually choose to change their status to PT PMA.
This happens when the company reaches a certain threshold of investment received that requires it to adapt to Indonesian regulations.
It is not uncommon for foreign investment to enter PTs that were previously majority owned by Indonesian citizens, but then had to switch to PT PMA.
The process of change involves a series of considerations and conditions, and requires procedures that must be followed in accordance with applicable legal provisions.
Therefore, this article will discuss more about the conditions that affect a company to change its status to PT PMA, as well as the procedures that must be followed in making these changes. Check out the explanation until the end!
Provisions on Share Ownership of PT by Foreign Entities
Article 7 paragraphs (1) and (2) of Law No. 40/2007 on Limited Liability Companies (Law 40/2007) stipulates that a PT consists of a number of shares owned by two or more persons.
Furthermore, the “person” referred to in the provision can be an individual, either an Indonesian or foreign citizen or an Indonesian or foreign legal entity (Article 7 paragraph (1) of Law 40/2007).
From this explanation, it can be seen that a PT that has been established in Indonesia can be partially or wholly owned by a foreign entity (individual or foreign legal entity).
One of the conditions is that the share ownership of foreign entities in PTs established in Indonesia meets the PMA provisions as stipulated in Law Number 25 of 2007 concerning Capital Investment (Law 25/2007).
Foreign Investment is an investment activity to conduct business in the territory of the Republic of Indonesia carried out by foreign investors, both those who use foreign capital entirely or in partnership with domestic investors (Article 1 point 3 of Law 25/2007).
The specific provisions for PT PMA include:
- FDI is conducted on large enterprises (not on micro, small and medium enterprises);
- FDI is conducted on business activities that are open to foreign ownership. If the business activity is open with certain requirements, then business actors need to pay attention to these requirements. Meanwhile, if it is known that the business activity is closed to foreign ownership, then FDI cannot be carried out.
- PMA is carried out for businesses with an investment value of more than IDR 10 billion excluding land and buildings (unless specified by laws and regulations); and (Article 12 paragraph (1) of BKPM Regulation 4/2021).
- PMA is carried out with a minimum issued or paid-up capital of IDR 10 billion (unless otherwise stipulated by laws and regulations) (Article 12 paragraph (7) of BKPM Regulation 4/2021).
Procedures for Converting an Ordinary PT into a Foreign Direct Investment PT
If a foreign entity becomes a shareholder in a PT that is already operating, the PT is obliged to change its articles of association and its status to become a PT PMA through the Online Single Submission (OSS) platform. (Article 57 paragraph (4) of BKPM Regulation 4/2021).
Here is how to carry out the obligations of a PT that turns into a PT PMA, namely:
- Amending the Articles of Association of a PT
In connection with the presence of a foreign entity as a shareholder of a PT, the PT is obliged to amend the articles of association to adjust matters relating to the adjustment activities of its FDI in the articles of association of its PT (Article 19 paragraph (1) of Law 40/2007).
The first stage to amend the articles of association of a PT in this case is that the PT must hold a General Meeting of Shareholders (GMS) specifically related to the amendment of the articles of association of the PT.
Shareholders may also adopt binding resolutions outside the GMS provided that all shareholders with voting rights agree in writing by signing the relevant proposal (Article 91 of Law 40/2007).
Then, the content of the amendment to the articles of association document must emphasize a number of explanations related to the changes made from ordinary PT to PT PMA in the amendment to the articles of association of the PT.
Examples of the content of amendments to the Articles of Association of a PT include several matters related to:
- Purpose and objectives and business activities of the PT (if adjustment to PMA activities is required);
- Capital increase (if the PT has capital below the PMA requirement as in Law 25/2007);
- Changes in issued and paid-up capital (if the PT has issued and paid-up capital below the PMA provisions as in Law 25/207); and/or
- Changes in the list of shareholders of PT.
The document amending the articles of association of the PT must be contained in a notarial deed in Indonesian language and sought approval or notified to the Ministry of Law and Human Rights (Article 21 paragraphs (2) and (4) of Law 40/2007).
Later, the amendment to the articles of association of the PT will be effective from the date of issuance of the approval decision letter or notification letter from the Ministry of Law and Human Rights regarding the amendment to the articles of association of the PT (Article 23 paragraph (1) and (2) of Law 40/2007).
- Reporting PT PMA Status Change through OSS
The change in status from a regular PT to a PT PMA needs to be reported to ensure that the company data and business license are in accordance with the licensing requirements of PT PMA in Indonesia.
This will also involve updating the profile of the PT, the capitalization of the PT, the data of the management and shareholders of the PT, as well as changes to the aims and objectives of the PT.
To do the reporting, business actors can easily do it online through the OSS website (https://oss.go.id/).
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From the explanation above, it can be concluded that changing the status of an ordinary PT or PMDN to a PT PMA can be done, as long as it meets the criteria such as the presence of foreign nationals or foreign business entities that will join the management structure or as shareholders, increasing paid-up capital to above IDR 10 billion, making changes to the articles of association, and making adjustments or updating data in OSS.
Therefore, if PT Sobat KH’s shares are to be acquired by a foreign entity, get ready to change to PT PMA. Now for the management, just leave it to the Legal Contract.
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