PMA vs Local Companies: 7 Key Differences in Ownership, Tax, and Reporting for Investors

PMA vs Local Companies: 7 Key Differences in Ownership, Tax, and Reporting for Investors

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Table of Contents

1. What Are PMA and Local Companies?
2. Difference 1: Ownership Structure and Foreign Shareholding
3. Difference 2: Minimum Capital Requirements
4. Difference 3: Taxation Policies and Incentives
5. Difference 4: Reporting Obligations and Compliance
6. Difference 5: Sector Restrictions for Foreign Investors
7. Difference 6: Ease of Business Expansion
8. Difference 7: Legal Liability and Risk Management
9. Case Study: How Choosing the Wrong Structure Cost IDR 1 Billion
10. How Documenta.id Simplifies Company Setup and Compliance
11. Final Takeaways for Investors

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1. What Are PMA and Local Companies?

A PT PMA (Penanaman Modal Asing) is a foreign-owned company in Indonesia, while a Local PT (Perseroan Terbatas) is fully owned by Indonesian citizens. The choice between the two impacts:

• Ownership flexibility for foreign investors.
• Tax benefits and compliance burdens.
• Market access to restricted sectors.

Under Investment Law No. 25/2007, PMAs require BKPM approval and face stricter regulations but offer long-term growth potential. Alt text: PMA vs Local Companies Ownership, Tax, and Reporting Differences

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2. Difference 1: Ownership Structure and Foreign Shareholding

• PMA: Allows up to 100% foreign ownership in open sectors (e.g., manufacturing, tech).
• Local PT: Requires 100% domestic ownership, though foreign investors can partner via nominee agreements (risky and illegal).

Legal Risk: Using nominees violates BKPM Regulation No. 6/2021, risking fines up to IDR 10 billion.

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3. Difference 2: Minimum Capital Requirements

• PMA: Minimum paid-up capital of IDR 10 billion (≈ $640,000), excluding land and buildings.
• Local PT: No fixed minimum, but typically IDR 50 million (≈ $3,200) for small businesses.

Pro Tip: PMA capital must be deposited into an Indonesian bank account within 90 days of incorporation.

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4. Difference 3: Taxation Policies and Incentives

• PMA:
  • Corporate Tax: 22% (20% for public companies listing 40% shares).
  • Tax Incentives: 10-year tax holidays for priority sectors (e.g., renewable energy).
• Local PT:
  • Corporate Tax: 22% with no sector-specific incentives.
  • PPN (VAT): 11% for all goods/services.

Note: PMAs must file monthly VAT returns, while local SMEs can opt for the 0.5% final income tax under PP 23/2018.

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5. Difference 4: Reporting Obligations and Compliance

• PMA:
  • Quarterly reports to BKPM on investment realization.
  • Annual audits by certified public accountants.
• Local PT:
  • Simplified annual reports (laporan tahunan) to the Ministry of Law and Human Rights.
  • No mandatory audits for small businesses.

Penalty: Late PMA reports risk BKPM sanctions, including operational suspensions.

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6. Difference 5: Sector Restrictions for Foreign Investors

• Closed Sectors: PMAs cannot operate in 100+ sectors reserved for locals, such as:
  • Small-scale agriculture.
  • Traditional fisheries.
  • Retail businesses under 800m².
• Conditionally Open Sectors: PMAs require partnerships (e.g., construction, tourism).

Check the BKPM Negative Investment List for details.

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7. Difference 6: Ease of Business Expansion

• PMA: Streamlined processes for opening branches or increasing capital.
• Local PT: Requires complex approval from multiple ministries for expansion.

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8. Difference 7: Legal Liability and Risk Management

• PMA: Shareholders’ liability limited to invested capital.
• Local PT: Directors face personal liability for compliance failures.

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9. Case Study: How Choosing the Wrong Structure Cost IDR 1 Billion

A European food exporter set up a local PT via nominees to avoid BKPM rules. After a tax audit:

• IDR 1 billion fine for illegal foreign ownership.
• Business license revoked.
• Directors blacklisted from Indonesia.

Solution: They restructured as a PMA with Documenta.id’s guidance and regained compliance.

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10. How Documenta.id Simplifies Company Setup and Compliance

Avoid costly mistakes with Documenta.id’s services:

• PMA Registration: End-to-end BKPM approval and notarization.
• Tax Compliance: Monthly VAT and annual audit support.
• Legal Advisory: Navigate sector restrictions and ownership laws.

👉 Choose the Right Structure—Consult Documenta.id Now

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11. Final Takeaways for Investors

• PMAs offer ownership control but require higher capital and compliance.
• Local PTs are simpler but limit foreign investment opportunities.
• Partner with Documenta.id to align your business structure with Indonesian laws.

Need Help? 📞 Call +62 851-8322-7997 (DISA) or 📧 halo@documenta.id for a free consultation.