Have you ever heard the term Foreign Investment (PMA)?
Or maybe you’re considering setting up a company that deals with foreign investment?
If so, you’re not alone!
Many people are interested in this topic because foreign investment plays an important role in Indonesia’s economic growth.
Based on the latest data, foreign capital flows continue to increase year on year, showing how important the role of FDI is in strengthening the country’s economy.
But how does the foreign investment process actually work?
What do you need to know before deciding to set up a company with foreign capital?
Let’s start by understanding the basics!
What is FDI?
Foreign Investment PMA is an investment activity carried out by foreign investors in a country, in this case Indonesia.
These foreign investors can be individuals, companies, or entities from abroad who want to invest in Indonesia.
The purpose of FDI is usually to open new businesses, expand existing businesses, or participate in strategic projects in specific economic sectors.
The existence of FDI in Indonesia is specifically regulated by a number of laws and regulations. Some of the legal bases related to FDI are as follows:
1. Law No. 25/2007 on Capital Investment
This law is the main basis for regulating investment in Indonesia, both domestic and foreign. In Article 1 point 3 of this Law, FDI is defined as an investment activity to conduct business in the territory of Indonesia conducted by foreign investors, either by fully utilizing foreign capital or by conducting joint ventures with domestic investors.
2. Presidential Regulation Number 10 of 2021 on Investment Business Fields
This regulation regulates business sectors that are open and closed to foreign investment, including restrictions on share ownership for foreign investors in certain business fields. In this regulation, there are details of priority business fields that get special incentives to attract more foreign investment.
3. Head of BKPM Regulation No. 5/2019 on Guidelines and Procedures for Licensing and Investment Facilities
This regulation provides guidelines on the procedures for obtaining business licenses, depositing capital, and various facilities for foreign investors.
With these regulations, the Indonesian government is trying to create a conducive and attractive investment climate for foreign investors, while maintaining national interests.
FDI is considered one of the drivers of economic growth through technology transfer, job creation, and contribution to state revenue through taxes and other contributions.
If you are planning to make a foreign investment in Indonesia, it is important to understand this legal basis so that every step you take is in accordance with the applicable regulations.
What is the Difference between PMA and PMDN?
Maybe you’ve also heard the term Domestic Investment (PMDN).
So, what is the difference between PMA and PMDN?
Simply put, the main difference lies in the origin of the capital.
- PMA (Foreign Investment): Capital comes from overseas or foreign entities.
- PMDN (Domestic Investment): Capital is entirely domestic or by Indonesian citizens.
Both play an important role in the national economy, but their policies and regulations can differ slightly.
FDI often receives more attention because it has the potential to bring new innovations and technologies that are not available domestically.
However, both PMA and PMDN must still follow government regulations to ensure investment continuity and security.
Read also: Legal Drafting vs Contract Drafting What’s the Difference and When to Use?
What’s the Difference between Investment and Investment?
You may often hear the terms investment and capital investment used interchangeably.
In fact, these two terms have important differences, although both are related to the allocation of funds to generate profits.
- Investment: Investment is an activity of investing funds or capital in the hope of getting profits in the future.
Investment can take any form, such as stocks, bonds, property, or other forms. - Investment: This term is more specifically used to describe activities related to the establishment of a business or the development of an economic sector in a country.
Investment can be made by investors foreign (PMA) or domestic investors (PMDN), with long-term goals such as building a factory or company.
So, while investment can be considered a form of investment, the term investment is more often used in the context of business development and a country’s economy.
What is the minimum capital requirement?
One question that often arises from potential foreign investors is: “What is the minimum capital to establish a FDI in Indonesia?”
Based on the latest regulations set by the Investment Coordinating Board (BKPM), the minimum capital for PMA in Indonesia is IDR 10 billion.
This is a significant number, as the government wants to ensure that only investors with strong enough capital can invest in the country.
In addition, of the total capital, a minimum of Rp2.5 billion must be paid into the company as issued and paid-up capital.
This aims to maintain economic stability and prevent unserious or speculative investments.
Company Example Foreign Investment
Many foreign companies have successfully invested in Indonesia and become major players in the local market.
Some examples of PMA companies operating in Indonesia include:
- Unilever: A multinational giant engaged in the consumer goods sector.
- Toyota: A Japanese automotive manufacturer that has long invested in Indonesia.
- Nestle: A Swiss food and beverage company that also has major factories and operations in Indonesia.
These companies not only positively impact the local economy through job creation, but also help raise industry standards and bring new technologies to Indonesia.
Company Establishment Requirements Foreign Investment
To set up a PMA, there are several requirements that you must fulfill.
Here are some of the main requirements you need to know:
- As mentioned earlier, the minimum capital is Rp10 billion with a minimum paid-up capital of Rp2.5 billion.
- Not all business sectors in Indonesia are open to foreign investment.
Some strategic sectors may have certain restrictions. - There are several business fields that require partnerships with local investors with certain shareholding limits.
- All FDI companies must obtain approval from BKPM and fulfill the regulations set forth.
PMA Establishment Process
The PMA establishment process is actually not too complicated if you already understand the steps.
Here are the main stages in the PMA establishment process:
1. Proposal submission to BKPM
The first step in the process of setting up a Foreign Direct Investment (PMA) is to submit a proposal to the Investment Coordinating Board (BKPM).
BKPM is an Indonesian government agency that acts as the main gateway to coordinate and serve the needs of investors, both domestic and foreign.
BKPM is responsible for investment promotion, business license processing, and providing guidance and assistance to potential investors on investment procedures in Indonesia.
Through an electronically integrated licensing system, the Online Single Submission (OSS), BKPM simplifies the process of applying for licenses for PMA companies.
Investors can access the OSS system to submit their investment proposal, including their business plan, type of business, and the amount of capital they intend to invest.
The objective of this process is to ensure that investment activities are in accordance with applicable laws and national economic policies.
2. Company Name Registration
Once the proposal has been approved by BKPM, the next step is to register the company name.
This process is overseen by the Ministry of Law and Human Rights (Kemenkumham) through the Directorate General of General Legal Administration (AHU) system.
In terms of naming the company, PMA must comply with several rules, such as:
- Unique and Unusual Names
The name of the PMA company must be unique and must not be the same as any other company already registered in Indonesia.
The aim is to avoid confusion in the market and protect trademark rights.
- Using Bahasa Indonesia
Based on Minister of Law and Human Rights Regulation Number 13 of 2021, company names must use Indonesian.
Names that use foreign or mixed languages must obtain permission first.
- Complying with Norms and Values
The company name must not contain words that contradict the norms of decency, morality, or contradict applicable legal provisions.
The company name registration process goes through the AHU system and usually takes a few days.
Once the company name has passed the review, the next step is to draft the company deed of establishment.
3. Preparation of Deed of Establishment
The deed of establishment must be drawn up with the help of a notarial deed and written in Indonesian.
4. Capital Deposits
The minimum capital deposit must be in accordance with applicable regulations.
5. Business License Processing
Once the company is officially established and the capital is paid up according to the rules, the final step is to take care of the various business licenses required to operate legally in Indonesia.
This process includes permits specific to the PMA company’s business sector.
Some examples of business licenses that are generally important for you to take care of are:
- Industrial Business License
If the company is engaged in the manufacturing or industrial sector, you must have an industrial business license to ensure that the company operates in accordance with applicable industry standards in Indonesia.
- Trade Business License (SIUP)
For companies engaged in the trading sector, such as distribution of goods or export-import, you need a SIUP to carry out trading activities legally.
- Environmental Permit (AMDAL/UKL-UPL)
If the company operates in a sector that may impact the environment, such as mining, energy or manufacturing, it is required to arrange an Environmental Impact Assessment (AMDAL) or Environmental Management and Environmental Monitoring Efforts (UKL-UPL).
Examples of companies that require this license are companies engaged in mining or infrastructure development.
Once all the above processes are fulfilled, the certification and PMA license will be issued.
Contract Law, Your All In One Legality Solution!
Setting up a PMA is not a simple process, but that does not mean it cannot be done easily.
To simplify the process, you can use the services of Kontrak Hukum.
Kontrak Hukum offers complete legality solutions, from company establishment, business licensing, to other legal documents.
With professional assistance from Kontrak Hukum, you can focus on developing your business without having to worry about legal matters.
So, what are you waiting for?
Make sure your steps in setting up a PMA goes smoothly with the right help! Ask KH now! Get free consultation at Tanya KH or send a direct message (DM) to Instagram @kontrakhukum.
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