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Foreign Investment in Indonesia

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Total Investment Value Requirements in Certain Sectors

Source: GR No. 5/2021 and PR No. 10/2021.

Aside from requirements mentioned above, prevailing laws and regulations may impose different requirements for the PT PMA in certain business sectors.  For instance, insurance sector has a minimum amount of paid-up capital at Rp150.000.000.000,- (one hundred fifty billion Rupiah). 

The Qualification of PT PMA

Foreign investment is only allowed to be conducted by way of large enterprises in order to protect cooperatives and UMKM. This is in line with the provision of PR No. 10/2021 which stipulates that the foreign investors can only carry out business activities through large enterprises. Further elucidation on kinds of enterprise qualifications in Indonesia can be found below:

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Enterprise Qualifications in Indonesia

Source: Law No. 25/1992, Law No. 20/2008, and GR No. 7/2021.

Things which Foreign Investors Should Know

The Obligation to Incorporate a Limited Liability Company

      

One of the ways for the future foreign investors to conduct business activities in Indonesia is by incorporating a PT PMA. Moreover, the PT PMA is a limited liability company incorporated under Indonesian law and domiciled within the territory of the Republic of Indonesia.

The Investment Value and Capital Requirements

PT PMA must meet the following total investment value and capital requirements:

       

  • the total investment value must be greater than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and buildings, for each line of business per project location as determined by the relevant 5 (five) digits of the KBLI number;

  • the total investment value as mentioned above, is exempted:

  1. for large-scale trading business, the value shall be greater than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and building, determined by the 4 (four) first digits of the KBLI number;

  2. for food and beverages business, the value shall be greater than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and building, determined by the first 2 (two) first digits of the KBLI number per one point location;

  3. for construction business, the value shall be greater than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and building, determined by 4 (four) first digits of the KBLI number;

  4. for industrial business producing things with 5 (five) different KBLI digits within 1 (one) line of production, the value shall be greater than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and building; or

  5. for construction business and ventures in the property sector, the applicable rules are:

  • property in the form of completed building or housing complex, the value shall be greater than 10.000.000.000,- (ten billion Rupiah) including land and building; or

  • property not in the form 1 (one) completed building or 1 (one) housing complex, the value shall be greater than 10.000.000.000,- (ten billion Rupiah) excluding land and building;

Nevertheless, GR No. 5/2021 provides exemptions on the total investment value, which applies to a PT PMA who intends to engage in (i) large-scale trading; (ii) food and beverages; (iii) construction; and (iv) industrial business. Moreover, PR No. 10/2021 provides exemptions where PT PMA may meet the total investment value of equal to less than Rp10.000.000.000,- (ten billion Rupiah) excluding the value of its land and buildings. A further illustration of the total investment value requirements in certain sectors can be found below:

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The Prohibition to Conclude a Nominee Arrangement

       

A nominee agreement is defined as an arrangement where a person holds shares in a company for another person’s benefit. This arrangement is strictly prohibited by Law No. 25/2007. Likewise, BKPM stipulates that the entrepreneurs are prohibited from entering into agreements and/or statements which confirm share ownership in a company for and on behalf of other persons. Consequently, such arrangements are declared null and void by law.

 

The Obligation to Perform Divestment

       

Share divestment is defined as the number of foreign shares that must be offered for sale to Indonesian participants. In accordance with previous foreign investment law, namely Law Number 1 of 1967 on Foreign Investment as further implemented by GR No. 20/1994, a PT PMA whose capital is wholly owned by foreign citizens and/or legal entities, are required to sell part of their shares to Indonesian citizens and/or Indonesian legal entities after 15 (fifteen) years from commercial operation. However, enactment of Law No. 25/2007 removed the general divestment obligation for a PT PMA. Presently, the divestment obligation is not applicable to all PT PMAs but only to:

  • PT PMA whose existing approvals or business licenses are explicitly stated the divestment obligation prior to the enactment of BKPM Reg. No. 4/2021; or

  • PT PMA who carries out business activities in specific business sectors according to the prevailing laws and regulations.

The fulfilment of divestment obligation by PT PMA which meets the criteria above is done through a deed that states the agreement of the involved parties concerning the implementation of divestment obligation. In addition, divestment of shares may be conducted in 2 (two) ways, namely through (i) direct ownership of Indonesian citizens or Indonesian business entity whose share capital is wholly owned by Indonesian citizens through direct ownership in accordance with the agreement of the parties; and (ii) the domestic capital market. Direct ownership as referred before for Indonesian citizens or Indonesian business entity is at least Rp10,000,000,- (ten million Rupiah) for each shareholder.

       

After the divestment obligation has been met, the relevant PT PMA is required to make data changes through the OSS system. Moreover, the shares ownership of the Indonesian parties as a result of the implementation of Divestment of Shares, after obtaining approval from the MoLHR, can be resold to individual Indonesia individuals/foreign individuals/Indonesia business entities.

Furthermore, BKPM provides exemptions where divestment obligation does not need to be satisfied if the shareholders agree on the following conditions in the corporate deed of the company:

  • if the PT PMA is not 100% (one hundred percent) wholly foreign-owned company, the Indonesian shareholder(s) state that they do not wish to hold or demand for the ownership of the shares from the foreign shareholders in accordance with the provisions of the divestment of shares stated in the approval letter and/or business permit; or

  • if the PT PMA is a 100% (one hundred percent) wholly foreign-owned company, the shareholder(s) state that they do not have any commitment/agreement with any Indonesian party to sell their shares.

       

Lastly, the consequences of not implementing the divestment obligation in the Deed should be noted. According to Article 14 (9) BKPM Reg. No. 4/2021, the shareholders/companies are responsible if there are Indonesian parties who demand the implementation of the divestment obligation in the future.

Opening a Bank Account

Owning a bank account is an important aspect when someone wants to engage in business activities. Especially for foreign companies or foreigners who want to conduct transactions in Indonesia, there are many obstacles and additional charges if they do not have a bank account that can accommodate their business needs. This will eventually hinder the future cooperation between foreign companies or foreigners and their partners in Indonesia. However, Indonesia has many banks that have several different requirements when opening a bank account. Thus, it is essential to know the possible required documents needed to smoothen the process of doing business in Indonesia. 

Bank Account for Indonesian and Non-Indonesian Citizens 

Based on several internal banks’ regulation, to open a bank account for citizens, the following documents needs to be prepared and provided to facilitate the formation of the bank account: 

  • Identity Card

  1. For Indonesian citizens: KTP

  2. For Non-Indonesian citizens: passport and ITAS

  • NPWP

Furthermore, in the opening bank account process, several things need to be considered: (i) the bank will asked  for the above required documents and fill out the bank application form; (ii) submit an initial deposit of at least Rp500.000,- (five hundred thousand Rupiah) or Rp250.000,- (two hundred fifty thousand Rupiah) (for outside of Jabodetabek is Greater Jakarta region); and (iii) after the bank account is active, the bank will charge an administration fee every month. Most practices for banks in Indonesia would take only 15 - 30 minutes for the bank account to be active, depending on the busy period of the bank branch office. 

Bank Account for Companies and Foreign Entities

If a company wants to open a bank account, some banks in Indonesia has special accounts for companies with their own benefits. Further, regarding the documents required, it is confirmed that the requirements to establish bank account for Indonesian or foreign companies are the same. The required documents are as follows:

  • AoA & deed of incorporation that have received ratification or a cover note from a notary for deeds that have not received ratification; 

  • Deed of amendment (if any, especially concerning the company structure);

  • Company’s NPWP;

  • Business license;

  • Business registration number;

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

  • Identity card (KTP for Indonesian citizens and passport for non-Indonesian citizens) and NPWP of shareholders.

Furthermore, in the process of opening a bank account, several things need to be considered: (i) the bank will ask for the above required documents and fill out the bank application form; and (ii) it is required to submit an initial deposit of at least Rp1,000,000,- (one million Rupiah). There is no standard practice of how long it takes for the company’s account to be active. In relation to the company’s bank account, the verification process will depend on documents compliance. However, most banks have stated that it only took them one day to verified if all required documents were complete.  

Representative Offices

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

 

  • KPPA;

  • KP3A;

  • the representative office of BUJKA; and

  • the representative office of foreign electric power support services.

 

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

KPPA

       

The Establishment of KPPA

KPPA constitutes an office led by an Indonesian citizen or foreigner who is appointed by a foreign company or an alliance of foreign companies overseas as their representative in Indonesia. The person who leads the KPPA is called the head of KPPA and must satisfy certain obligation, namely:

  • he/she shall reside in Indonesia;

  • he/she shall fully be responsible for the continuity of the KPPA;

  • he/she shall not be justified to carry out activities beyond the activities of KPPA; and

  • he/she shall not hold concurrent positions as the head of a company and/or more than 1 (one) KPPA.

Subsequently, if the person appointed as the head of KPPA is a foreigner and/or such person employs foreign workers, the KPPA shall employ Indonesian workers. Additionally, it should be noted that the activities that KPPA can conduct are limited to the following matters:

Activities Conducted by KPPA
Source: BKPM Reg. No. 6/2018.

Moreover, in the event that the nominated head of KPPA is a foreigner and/or employs foreign workers, the KPPA shall employ local workers.      

The Licensing which shall be Satisfied to Carry Out the Activities of KPPA

      

By the enactment of Law No. 11/2020 which introduces a risk-based approach on business licensing, KPPA is considered as a low-risk business activity. Accordingly, the KPPA shall first obtain permits in the form of NIB to perform its activities in Indonesia. However, KPPA shall also submit SPPL before the NIB is issued.

 

NIB and SPPL can be obtained by filing an application through the OSS system.

KP3A

        

The Establishment of KP3A

       

KP3A is an office led by Indonesian citizens or foreigners appointed by a foreign trading company or an alliance of foreign companies overseas as its representative in Indonesia.

According to MoT Reg. No. 10/2006, the forms of KP3A are as follows:

  • selling agent/agen penjualan;

  • manufactures agent/agen pabrik; and/or

  • buying agent/agen pembelian.

Additionally, KP3A can be established in the capital city of provinces and regencies/cities in all Republic of Indonesia territories. The activities that can be conducted by KP3A in Indonesia are as follows:

Activities Conducted by KP3A.png

Activities Conducted by KP3A
Source: MoT Reg. No. 10/2006.

However, there are limitations which must be complied with by KP3A in conducting business activities. The KP3A is prohibited to carry out trading activities and sale transactions both in the early and settlement phases, among others (i) proposing tender; (ii) executing contract; and (iii) settling claims. 

In the event that KP3A employs 1 (one) foreign workers than KP3A is required to employ at least 3 (three) experts and/or administrative personnel who are Indonesian citizens, as evidenced by a Employment Agreement for Indonesian Workers by attaching a copy of their ID card and work contract or valid payslip.  It should be noted that the head of KP3A can employ foreign workers for the following positions.

  • the assistant of the head of KP3A; or

  • the assistant of the head of KP3A’s branch office who is assigned to manage the following fields of duty:

  1. promotion;

  2. market survey; and

  3. supervision of sales and purchases.

The Licensing which shall be Satisfied to Carry Out the Activities of KP3A

The regulation of licensing which should be complied by KP3A is slightly different from the regulation of licensing for KPPA. Specifically, before implementing its activities in Indonesia, KP3A is obliged to hold NIB and SIUP3A licenses issued by the OSS Agency. 

According to the Appendix I MoT Reg. No. 8/2020, SIUP3A is categorized as a business license. SIUP3A shall be valid for 3 (three) years after the date of issue, except where it is specified to be valid for less than 3 (three) years.  The validity can be extended provided that it is requested no later than 1 (one) month before the expiration date.

The Representative Office of BUJKA

        

The Establishment of the Representative Office of BUJKA

       

BUJKA or foreign individual construction services business which intend to conduct construction services business in Indonesia must establish:

  • representative office; and/or

  • business entity whose status is Indonesian legal entity by carrying out cooperation with BUJKN, namely construction services business entity in the form of BUMN, BUMD, or private-owned enterprise and whose all or majority of its shares are owned by the state, regional governments, an Indonesian citizen, and/or Indonesian business entity.

       

Moreover, the said representative office of BUJKA is required by the prevailing laws to:

  • be in the form of a business entity whose qualification is equal to the large qualification;

  • satisfy requirements of the business license;

  • incorporate joint operation with large qualified BUJKN which has satisfied requirements of the business license;

  • employ more Indonesian workers than foreign workers;

  • assign Indonesian citizen as the highest official in the representative office;

  • prioritize the usage of domestic construction materials and technologies;

  • have technology whose natures are high-end, sophisticated, efficient, environmentally friendly, as well as considering the local wisdom;

  • carry out the transfer of technology process; and

  • carry out other obligations in accordance with the provisions of the laws.

GR No. 5/2021 stipulates that the representative office of BUJKA must be in the form of a legal entity in the country of origin. Furthermore, the highest official at the representative office of BUJKA shall be held by Indonesian citizens as a technical manager. However, the highest official at the representative office of BUJKA responsible for the implementation of construction for the technology transfer process may be held by a foreign citizen.

The Licensing which shall be Satisfied to Carry Out the Activities of the Representative Office of BUJKA

The representative office of BUJKA is required to satisfy the business licensing. According to Article 81 (1) GR No. 5/2021, business licenses to support business activities in the construction services sub-sector consist of:

 

  • SBU construction;

  • SKK construction;

  • the representative office of BUJKA registration;

  • licensing for construction enterprise certificate agencies; and

  • licensing for professional certification agencies.

 

It should be noted that business licensing in the construction services is determined in accordance with the result of risk level analysis of any business activities consisting of:

 

  • construction consulting services

  • construction work; and

  • integrated construction work.

 

Based on the above matters, the business license required by the representative office of BUJKA depends on the risk level of business activities that are intended to be carried out. For instance, the construction of residential buildings under KBLI No. 41011 is considered a medium high-risk business activity. Thus, the representative office of BUJKA shall need NIB issued by the OSS agency and a standard certificate issued by the central government or regional governments in accordance with their respective authorities based on the verification results of compliance with business activity implementation standards by the business owner.

As an extension of the example above of construction of residential buildings as a medium high-risk business activity, the representative office of BUJKA shall satisfy the following obligations:

  • general obligations which comprise:

  1. annual report on business activities;

  2. record the experience of a business entity; and

  3. implement security, safety, health, and sustainability standards.

  • additional obligations which comprise:

  1. carrying out cooperation with BUJKN that meet the technical criteria for cooperation;

  2. complying with the provisions of cooperation;

  3. prioritizing the usage of domestic construction materials and technologies;

  4. having technology whose natures are high-end, sophisticated, efficient, environmentally friendly, as well as considering the local wisdom;

  5. carrying out the transfer of technology process;

  6. employing more Indonesian workers than foreign workers at the expert level; and

  7. employing Indonesian workers as companion workers in the management and technical fields at least two levels below foreign workers' position based on the appropriate scientific classification.

Furthermore, the representative office of BUJKA is determined as a large business entity qualification for construction consulting services, construction work, and integrated construction work. There are 2 (two) types of the determination of business entity qualifications, namely:

General Business Characteristic

The determination of business entity qualifications for general business characteristic is based on the feasibility                   assessment of documents, namely (i) annual sales; (ii) financial capacity; (iii) the availability of construction workers;           and (iv) capability to provide construction equipment.

Special Business Characteristics 

Special Business Characteristics 
Source: GR No. 5/2021.

Special Business Characteristic

 

The determination of business entity qualifications for special business characteristic is based on the feasibility assessment of documents, namely (i) the availability of assets; (ii) the availability of construction workers; and (iii) capability to provide construction equipment.

General Business Characteristics 

General Business Characteristics 
Source: GR No. 5/2021.

Based on the explanation above, it can be concluded that the representative office of BUJKA which will perform construction service activities in Indonesia is obliged to possess (i) NIB; (ii) SBU construction; (iii) SKK construction; and (iv) the representative office of BUJKA registration.

The Representative Office of Foreign Electric Power Support Services

       

The Establishment of the Representative Office of foreign electric power support services

       

Representative Office of foreign electric power support services is acknowledged as one of private business entities that carry out the business of supporting electric power services. The Representative Office of foreign electric power support services only permitted to carry out high-cost electrical power support services. High-cost electric power support services as referred to are:

  • construction and installation work of electrical power installation with the value at least Rp100.000.000.000,- (one hundred billion rupiah); and

  • consulting work in the field of electrical power installation or maintenance of electrical power installation with the value at least Rp10.000.000.000,- (ten billion rupiah).

       

Representative Office of foreign electric power support services shall:

  1. have qualifications equivalent to major qualifications;

  2. establish operational cooperation with domestic electric power support service business entities;

  3. employ more Indonesian workers than foreign workers;

  4. placing Indonesian citizens in charge of office business entities representative;

  5. prioritizing the use of domestic products;

  6. have high technology which is up-to-date, efficient, environmentally friendly, and pay attention to local wisdom;

  7. carry out the technology transfer process; and

  8. carry out other obligations in accordance with the provisions of laws and regulations.

The Representative Office of foreign electric power support services is required to employs technical personnel who meet competency standards as evidenced by certificates of competence in accordance with the current classification and qualifications in the electricity sector. Competency standards will be determined by MoEMR. Certificates of competence is granted by MoEMR or Competency Certification Institution accredited by MoEMR.

The Licensing which shall be Satisfied to Carry Out the Activities of the Representative Office of foreign electric power support services

The Representative Office of foreign electric power support services is required to satisfy business license. According to Article 32 (4) GR No. 25/2021, the Representative Office of foreign electric power support services can carry out the following activities:

 

  1. consultancy in the field of electrical power installation;

  2. construction and installation of electrical power installations;

  3. maintenance of electrical power installations.

According to Article 41 (3) jo. Article 42 (2) jo. Article 43 jo. Appendix II GR No. 5/2021, The business license required by the representative office of foreign electric power support services depends on the risk level of business activities that are intended to be carried out. For instance, the consultancy in the field of electrical power installation under KBLI No. 71102 is considered a medium high-risk business activity. Thus, the representative office of foreign electric power support services shall need NIB issued by the OSS agency and a standard certificate issued by the central government or regional governments in accordance with their respective authorities based on the verification results of compliance with business activity implementation standards by the business owner.

 

The Representative Office of foreign electric power support services also required to acquire certificate of business entity for electric power support services. certificate of business entity for electric power support services is acquired through the business entity certification. Business entity certification  is an assessment process to obtain formal acknowledgment of classification and qualification of the ability of business actors in the field of electricity support services. Certificate of business entity for electric power support services is granted by MoEMR or Business Entity Certification Agency accredited by  MoEMR.