Establishment of Foreign Direct Investment in Indonesia

Establishment of Foreign Direct Investment in Indonesia

The growth of the business world surely requires investment activities, especially for the economic growth in a country. Investment is an activity that is used for production activities that produce goods or services in the future. In other words, the investment becomes one of the important factors that can increase the growth and the economic development of a country. In addition, to build the infrastructure of the country is to open opportunities to foreign investors to do investment. The advantage of the presence of foreign investors can also be felt by businesses to develop their businesses. According to the Investment Law, it defines an investment activity to do business in the territory of the Republic of Indonesia conducted by the foreign investors, both  who use foreign capital completely or who are related to domestic investors.

To be able to carry out, the foreign investor concerned shall meet the following requirements below :

• Must be in the form of Limited Liability Company
• The company of the foreign investment, which was founded in Indonesia is obliged to employ an Indonesian citizen or Indonesian Legal Entities to run their business.
• The establishment of the foreign investment company must be under Indonesian law and domiciled in Indonesia

And there are other requirements for those who want to implement foreign investment (PMA) must pay attention to the following provisions:

• Have a total minimum capital of Rp. 10 Billion Rupiah
• In addition, for the paid-up capital of Rp. 2.5 Billion Rupiah
• And each shareholder must have a minimum share of at least  Rp10 Million Rupiah.

Furthermore for the shareholders of a company of the Foreign Direct Investment (PMA) must be based on the Negative Investment List. Which is, before foreign investors decided to register the establishment of a company of the Foreign Direct Investment (PMA) in Indonesia, it is recommended to investigate its business activities on the Negative Investment List (NIL). The Negative Investment List contains a list of business sectors compiled by the government as information for potential investors about businesses that are not allowed in Indonesia, restrictions on foreign ownership in the classification of business that has been determined. And the Indonesian Negative List issued will be ratified by the Investment Coordinating Board (BKPM). The percentage of Indonesia’s Negative List is regulated in Presidential Regulation No. 10/2021 about The Field of Investment Business which is regulated by closed investment requirements in only six sectors includes, cultivation of the drug industry, all forms of gambling, fishing of fish species listed in Appendix or CITES, taking or utilization of coral from nature, chemical weapons industry, ozone-destroying chemicals industry.
Related to licensing and non-licensing investment of a company of the Foreign Direct Investment (PMA) in Indonesia is regulated in the Regulation of the Head of The Indonesian Investment Coordinating Board (BKPM) No. 5/2013 which has been amended by BKPM Regulation No. 12/2013 concerning Guidelines and Procedures for Licensing and Non-licensing of Investments governing the following:

• Prepare some legal documents such as:

1. The notarial establishment  of a company of the Foreign Direct Investment (PMA) signed by a Notary
2. Domicile Letter from local government
3. NPWP and information of Taxable Entrepreneurs (PKP) from the tax office
4. Principle Permission from Investment Coordinating Board (BKPM)
5. Business Identification Number (NIB) and other business licenses
6. Required to do report employment and welfare report from the Minister of Labor
7. Notarial Sale & Purchase Agreement, Certificate of Land Rights, the lease agreement or an agreement to rent and use for group of companies
8. Evidence of the receipt of the Investment Activity Report
9. Procuration if the application is not made directly

• Obtained ratification for the legal entity status from the Minister of Law and Human Rights

And last, here is the procedure of application for the licensing of a company of the Foreign Direct Investment (PMA) :

• Investor submits application for business license through Investment Coordinating Board (BKPM);
• Completing the requirements of legal entity legal documents;
• If there is a deficiency, then the officer from Investment Coordinating Board (BKPM) will immediately return the application along with a detailed record of the verification results;
• And if the application for establishment is accepted, a business license will be issued no later than 3 days from the receipt of a complete and correct application;
• Please note the validity period of the Business License is valid as long as the company is still carrying out business activities
• Submit an Investment Activity Report every 3 months 
• Applying for Principle Permissions