Prohibition to the Conclusion of a Nominee Arrangement

       

A nominee agreement is defined as an arrangement wherein an individual holds shares in a company for the benefit of another person. Such arrangements are strictly prohibited by Law 25/2007. Consequently, these arrangements are deemed null and void by law.

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Obligation to Perform Divestment

       

Share divestment refers to the foreign shares that must be offered for sale to Indonesian participants. Under the previous foreign investment laws, specifically Law No. 1/1967, further implemented by GR No. 20/1994, a PT PMA wholly owned by foreign citizens and/or legal entities, was required to sell a portion of its shares to Indonesian citizens and/or Indonesian legal entities after 15 (fifteen) years from the commencement of commercial operations.  However, the enactment of Law No. 25/2007 removed the general divestment obligation for  PT PMA. Presently, the divestment obligation applies only to: 

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• PT PMA explicitly stated with divestment obligation in existing approvals or business licenses before the enactment of BKPM Reg. No. 4/2021; or

• PT PMA engaging in business activities in specific sectors as per prevailing laws and regulations.

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The fulfilment of the divestment obligation for PT PMA meeting the above criteria is formalized through a deed stating the agreement of the involved parties regarding the implementation of divestment obligation.  Additionally, divestment of shares can be carried out in 2 (two) ways: (i) through direct ownership by Indonesian citizens or Indonesian business entities whose share capital is wholly owned by Indonesian citizens, as per the agreement of the parties; and (ii) the domestic capital market.  Direct ownership by Indonesian citizens or Indonesian business entities requires a minimum of Rp10.000.000,- (ten million Rupiah) for each shareholder. 

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Upon the fulfillment of the divestment obligation, the respective PT PMA is obligated to update its data through the OSS system.  Additionally, the shares owned by Indonesian parties resulting from the implementation of share divestment, once approved by the MoLHR, can be subsequently resold to individual Indonesia individuals, foreign individuals or Indonesia business entities. 

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Moreover, BKPM Reg. No. 4/2021 provides exemptions from the divestment obligation does not need to be satisfied if the shareholders agree to the following conditions in the corporate deed of the company: 

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• for PT PMA in which the shares are not 100% (one hundred percent) owned by foreign parties, the Indonesian party states that they do not wish or demand the share ownership per the provisions of the divestment of shares stated in the approval letter and/or business permit; or

• for PT PMA in which the shares are 100% (one hundred percent) owned by foreign parties, the shareholder(s) state that they do not have any commitment/agreement with any Indonesian parties for sales of shares.

       

Lastly, it is important to note the consequences of failing to implement the divestment obligation, particularly for PT PMA in which the shares are 100% (one hundred percent) owned by foreign parties. In such cases, shareholders/companies are responsible if Indonesian parties demand the implementation of the divestment obligation in the future.

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Opening a Bank Account

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Having a bank account is an important aspect when engaging in business activities, specifically for foreign companies or foreigners who wish to conduct transactions in Indonesia. The absence of a suitable bank account that caters to their business needs can lead to obstacles and additional charges, potentially hindering future collaborations between foreign companies or foreigners and their partners in Indonesia. Fortunately, Indonesia boasts numerous banks, each having several different requirements for opening a bank account. Therefore, understanding the necessary documents is essential to streamline the process of conducting business in Indonesia. 

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Bank Account for Indonesian and Non-Indonesian Citizens 

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Referring to best practices applied in one of the banks in Indonesia, the following documents need to be prepared and provided to facilitate the formation of a bank account for citizens:

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• Identity Card

1. For Indonesian citizens: Identity Card (KTP); and

2. For Non-Indonesian citizens: passport and ITAS (Izin Tinggal Terbatas or Limited Stay Permit).

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• NPWP (Nomor Pokok Wajib Pajak or taxpayer Identification Number)

In the process of opening a bank account, several considerations should be taken into account: 

1. the bank will request the above required documents and require the completion of a bank application form; 

2. an initial deposit of at least Rp500.000,- (five hundred thousand Rupiah) or Rp250.000,- (two hundred and fifty thousand Rupiah); and 

3. after the bank account is active, the bank will charge an administration fee every month. The activation time for a bank account is typically only 15 - 30 minutes, depending on the bank branch’s workload.  

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Furthermore, for foreign nationals intending to open accounts in Indonesia, to facilitate smooth financial transactions, the Indonesian Financial Services Authority or Otoritas Jasa Keuangan (“OJK”) issued a regulation through OJK Circular Letter Number S-246/D.01/2015 on Opening Foreign Currency Accounts by Prospective Individual Foreign Customers, dated September 15, 2015 (hereinafter shall be referred to as “OJK CL S-246/2015”). OJK CL S-246/2015 stipulates that the requirements for opening foreign currency accounts for prospective individual foreign customers must, at a minimum, meet the following criteria:

 

• For accounts with a balance up to USD 50,000 (fifty thousand US Dollars) or equivalent in other foreign currencies:

1. the bank requires a passport for Customer Due Diligence (“CDD”);

2. the prospective customer must provide additional information or documents supporting their profile, such as an employment card, driver’s license, or other valid identification;

3. a minimum initial deposit of USD 2,000 (two thousand US Dollars) or equivalent is required.

 

• For accounts with a balance exceeding USD 50,000 (fifty thousand US Dollars) or equivalent in other foreign currencies, the bank conducts CDD to identify the prospective customer's profile by requesting at least the following:

 

1. a residency permit card;

2. a reference from an Indonesian entity or individual;

3. proof of an account with a financial institution in the customer’s home country;

4. a domicile certificate in Indonesia;

5. a spouse’s identity card (if applicable);

6. a residential lease or ownership agreement; or

7. a photocopy of a credit/debit card.

 

In the event that an individual foreign customer, as referred to in point (a), increases their account balance to exceed USD 50,000 (fifty thousand US Dollars) or the equivalent in other foreign currencies, the bank must conduct CDD by requesting additional documents as outlined in point (b). If the customer fails to provide the required additional documents, they must reduce their account balance to no more than USD 50,000 (fifty thousand US Dollars) by making a direct cash withdrawal.

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Bank Account for Companies and Foreign Entities

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If a company intends to open a bank account, some banks in Indonesia offer special accounts for companies with unique benefits. Referring to best practices applied in one of the banks in Indonesia, the required documents for Indonesian or foreign companies shall at the very least includes:

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• a photocopy of the deed of establishment, AoA, or other deeds serving as the establishment document of the business entity; 

• a photocopy of the Memorandum of Agreement or Cooperation Agreement with the Government of Indonesia or a prominent and recognized Indonesian foundation (if organized as an internal foundation/NGO);

• a photocopy of the AoA outlining the current composition of the Board of Directors/management and the structure of shareholders/founders/owners;

• a photocopy of the certificate of establishment of the business entity or other reliable documents;

• a photocopy of company’s NPWP;

• a photocopy of the business license for a representative office of a foreign trading company or an equivalent business license issued by the relevant authority (in the case of a representative office/foreign branch office or joint operation body);

• identity card (KTP for Indonesian citizens and passport for non-Indonesian citizens) and NPWP of all BoD members; and

• a board resolution appointing the authorized signatory to sign banking documents (not applicable to representative offices).

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In the process of opening a bank account for a company, the following considerations apply: (i) the bank requires the above documents and completion of the bank application form; and (ii) an initial deposit of at least Rp1,000,000 (one million Rupiah) is required. There is no standard timeline for activating the company’s account. However, the verification process will depend on the completeness of submitted documents, with most banks stating that activation takes only one day if all required documents are complete. 

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​Representative Offices

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To expand their enterprises, foreign companies usually open representative offices in various countries. In Indonesia, there are 4 (four) types of representative offices of foreign business entities, regulated by the following prevailing laws: 

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• KPPA;

• KP3A;

• KP3A in the PMSE Sector;

• the representative office of BUJKA; and

• the representative office of foreign electric power support services.

 

In addition to having its own characteristics, each of the abovementioned representative offices also has its own activities that can only be conducted after obtaining permits and complying with several limitations. Consequently, the establishment of KPPA, KP3A, and the representative office of BUJKA in Indonesia, along with the necessary permits which should be obtained by such representative offices before undertaking their activities, will be explained in turn below.

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KPPA

       

The Establishment of KPPA

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KPPA constitutes an office led by one or more individuals, whether Indonesian nationals or foreign nationals, appointed by a foreign company or a group of foreign companies domiciled abroad to represent their interests in Indonesia.[1] The head of KPPA shall be subject to the following provisions:

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• must reside in Indonesia;

• must be fully responsible for the operation of the KPPA;

• is prohibited from conducting activities beyond the scope of KPPA; and

• is prohibited from concurrently holding positions as a director of a company and/or as the head of another KPPA.

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In the event that the head of KPPA is a foreigner and/or employs foreign workers, the KPPA must employ Indonesian workers in accordance with the prevailing regulations. Additionally, it should be noted that the activities that KPPA can conduct are limited to the following matters: