Setting Up a Company in Indonesia (Part Two)

Part Two of the article focuses on the Indonesian business entity known as Perseroan Terbatas Penanaman Modal Asing (PT PMA) and issues related to its establishment.

Part Two: PT PMA

What is a PT PMA?

PMA Indonesia (Penanaman Modal Asing) or PT PMA (Perseroan Terbatas Penanaman Modal Asing) is also known as a Foreign-Owned Company - the legal entity through which a foreign person, foreign company, or foreign government body can conduct business (generating revenue streams and profit) in Indonesia.

The establishment of a PT PMA is regulated by Law No. 40/2007 regarding Limited Liability Companies (Company Law). Such an entity can be entirely or partially owned by foreign investors.

In general, a PT PMA company must consist of at least:

• 1 director: a foreigner who can work as a director in a PT PMA and obtain a KITAS (stay permit).

• 1 commissioner: the commissioner can be either a local citizen or a foreigner. The main duty of a commissioner is to supervise and monitor the work of the directors in the company and to ensure that every activity commenced by the company is in order and consistent with the objectives of the company;

• Every PMA company should have at least 2 shareholders, be it an individual or a legal entity.

The minimum authorized and paid-up capital requirement to start a PT PMA is IDR 10 billion, or roughly USD 700,000. The paid-up capital does not have to be fully in cash. It can be in the form of pre-incorporation asset purchases and expenditures shown on a balance sheet. Something to keep in mind is that you may start a lower-scale company and upgrade it once you have more capital, but upgrading your company and making changes to the company’s capital is a complicated and costly thing. It is recommended to start your company with higher capital instead.

Business sectors in Indonesia

When you want to establish a PT PMA in Indonesia, your field of industry and business activities must be clear. It's important to note that foreign investment is prohibited in a number of sectors in Indonesia. The Indonesia Investment Coordinating Board (BKPM) compiles and regularly updates the Negative Investment List (Daftar Negatif Investasi) to determine which sectors are open to foreign investment.

Business sectors in Indonesia can be divided into three categories based on how open they are to the entry of PMAs. Business sectors are divided into open sectors, open sectors with conditions, and closed sectors.

Open sectors are business sectors in Indonesia that allow completely foreign-owned companies to exist and conduct business. There are no prerequisites for those planning to start a PMA in this sector. Bars, gyms, restaurants, sports fields, and swimming pools are examples of businesses in Indonesia that fall into this category.

Open sectors with conditions are those that allow foreign-owned businesses and foreign investment in those businesses if certain criteria are met. The amount of foreign capital in this sector varies. The foreign capital in most of these companies, however, will range from 49% to 70%. This is the largest of Indonesia’s three categories of business sectors. Energy companies, mining companies, hospitality companies, and sports facilities that are not classified as open-sector businesses are some of the businesses that fall under this category.

Closed sectors are sectors that disallow the involvement of any private businesses. The Indonesian government has complete control over the classification of closed-sector businesses. These businesses may not be started by foreigners; only Indonesian citizens may do so. Among the businesses in this category are certain companies related to travel, including some tour guide agencies. The Negative Investment List specifies which business sectors are classified under each category.

Considerations for Foreign Investors

With the help of an agency in Indonesia, it will usually take 2.5 to 3 months to set up the company and obtain all of the necessary licenses. PT PMA is fully established and legal to operate once it has its deed of establishment from a notary, Ministry Approval (SK Kemenkumham), Business License Number (NIB) from the Online Single Submission (OSS) system, Tax Number (NPWP), Business Operational License (Ijin Usaha) and Domicile Letter. Although the registration process can be quite simple thanks to the constant updates from the BKPM, it is not advised for foreign investors to do it on their own. There are so many documents and permits that you have to prepare to register your company, and making all of them by yourself will be a daunting task. Don’t risk having your application refused or delayed just because of your lack of understanding.

Speaking of hiring a local agency, you need to make sure that the local agent you use is  Indonesian-owned. The BKPM issued a new regulation that only a locally owned agent or at least a local entity can help with the registration process of PT PMA. You must also be sure that the agent must also be certified by BKPM, as only a certified agent is able to help you with your PT PMA registration.

Aside from the Negative Investment List, Indonesia has a number of other regulations that govern PMAs. Among the most important of these are Law Number 25 of 2007 and the Head of Investment Coordinating Board Regulation Number 14 of 2015. These regulations define a PMA in Indonesia, mention the licenses which may be required by one, and state the fact that a PMA in Indonesia requires a paid-up capital of IDR 10 billion before it can be set up; of this 10 billion, 25% of it must be paid to the Indonesian government prior to registration.

Taxes in Indonesia may also cause trouble for foreign investors and their PT PMAs. It is compulsory that any PT PMA has to pay taxes and report the company’s financial status as per standard accounting in Indonesia, regardless of whether it has already had activities or not. Among them are monthly and annual withholding taxes; monthly and annual income taxes; Value Added Tax (VAT); Luxury Goods Sales Tax (LGST)—if any; along with the company investment plan. These taxes must be paid at the local tax office where the business is located. In Indonesia, late payment of corporate and individual taxes can result in a financial penalty. For late payments, the taxpayer should be charged 2% interest per month.

In addition to paying taxes, a PT PMA’s owner will also need to do a quarterly investment report. This report usually contains the profit and loss statement of your company, information on the number of employees, etc. This report is important as it will show the government that your company is up and running instead of being dormant. Failing to provide such a report will attract the authorities to run an audit of your company.

Local PTs and PT PMAs continue to be Indonesia’s most popular forms of corporate entities, thanks to their unique characteristics and contribution to the economic well-being of the country. Setting up a PT or PT PMA in Indonesia can be quite a challenging experience. It is best to be accompanied by a trustworthy agency, who can provide reliable consultation and help you set up the right company entity based on your needs without wasting time and resources. Here at Viettonkin, we are confident in bringing the ideal solution to our clients who are looking for an investment opportunity in Indonesia. With an office in Central Jakarta, Viettonkin offers a multitude of services, ranging from legal counsel and foreign direct investment strategy to accounting firms and tax services. Contact us now to find out more.