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Friday, July 20, 2012

Foreign Investment in Indonesia – an Overview and How To

Foreign Investment Indonesia
Having a GDP size of nearly US$ 707 billion in 2010, Indonesia is the largest economy in Southeast Asia. Much less affected by the global financial crisis than its neighboring countries, Indonesia’s economy grew by 4.5% in 2009, 6.1% in 2010 and is expected to reach 6.4% this year, providing a case for Indonesia’s inclusion in the so-called BRIC economies. Future economic expansion is expected to include more inclusive growth as nominal per-capita GDP is expected to quadruple by 2020, according to a Standard Chartered report. 

A large part of our economic success is a result of prudent fiscal stewardship that focused on reducing the debt burden. Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to 26% by the end of 2010; the lowest among ASEAN countries, aside from Singapore which has no government debt. (Source: 


Foreign investment (Penanaman Modal Asing or “PMA”) company in Indonesia is regulated mainly by Law No.25 of 2007 on Investment (“Law 25/07”) and subject to Law No. 40 of 2007 on Limited Liability Companies (“Law 40/07”). Law 25/07 regulates mainly as follows :-
  1. Basic Policy of Investment; 
  2. Form of Corporation and Domicile; 
  3. Treatment to Investment; 
  4. Manpower; 
  5. Business Field; 
  6. Right, Obligation and Liability of Investor; 
  7. Investment Facility; 
  8. Company Legalisation and Licensing; 
  9. Coordination and Implementation of Investment Policy; 
  10. Dispute Settlement; and 
  11. Sanctions. 
Indonesian Investment Coordinating Board

In Indonesia, the government body that assigned to assist Indonesian Government in handling the foreign investment matters is called Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”). The BKPM is the central authorized body receiving, reviewing and approving investment capital applications as well as monitoring approved projects. Law 25/07 also regulates “one door-integrated services” pursuant to licensing process. The one door-integrated services are any licensing or non-licensing activity delegated or authorised by any institutions or agencies possessing licensing or non-licensing authority, whose issuance process shall begin with application stage up to the document issuance stage conducted in BKPM.

Business Fields 

Law 25/07 stipulates that any business fields or types are open to foreign investment, except for those declared as being closed and open with certain conditions. The business fields which are strictly closed to foreign investment are production of weapons, ammunition, explosive equipment, and warfare equipment. Presidential Regulation of the Republic of Indonesia No. 36 Year 2010 regarding List of Business Fields Closed and Open with Conditions to Investment (the “Negative Investment List”) further regulated business fields which are 100% open for foreign capital ownership or closed or open with certain conditions. It is imperative for foreign investors to check the Negative Investment List for required conditions in the business fields for their investment plan. 

Law 40/07 clearly regulated that a company (Perseroan Terbatas or “PT”) must be established by minimum of two (2) shareholders and this provision is also mandatory for foreign investment company. 


The next step for foreign investors after aligning the business fields for their investment plan with Negative Investment List is to establish foreign investment company (the “PT PMA”). The steps and documents needed for PT PMA establishment are as follows :- 
  1. Check for PT PMA name availability; 
  2. Obtain BKPM Investment Registration approval; 
  3. Obtain Domicile Letter from sub-district (Kelurahan) where the PT PMA’s office will be located; 
  4. Execute PT PMA Deed of Establishment (the “DOE”) in notarial deed; 
  5. Obtain the Ministry of Laws and Human Rights approval (“MLHR Approval”). 
By virtue of Law 40/07, the legal entity status of PT PMA is deemed exist after MLHR Approval. 

The next step after obtaining legal entity status of the PT PMA is to open a PMA bank account in Indonesia under the name of PMA Company and obtain Tax Payer Registration Number (“NPWP”) from relevant tax office. 

After the PT PMA has been established, the PT PMA must proceed immediately to take the following post formation steps :- 

Corporate Housekeeping

After MLHR Approval, the PT PMA must take several corporate actions :-

A first meeting of Shareholders, Directors and Commissioners must be held. The General Meeting of Shareholders (“GMS”) should confirm the appointment of the members of the Board of Commissioners (“BOC”) and the Board of Directors (“BOD”). The GMS together with BOD and BOC than also ratify all actions taken in PT PMA’s name prior to MLHR Approval. Moreover, the Share Certificates, the Share Registry and the Special Register shall be prepared too.

Permanent Business License

The Initial Investment Approval serves as a temporary operating license until PT PMA reaches the stage of commercial production. At that time, PT PMA shall apply for an IUT (“Permanent Business License”) to BKPM.


PT PMA also has the obligation to submit a report which is Capital Investment Activities Report (Laporan Kegiatan Penanaman Modal or “LKPM”) to BKPM. PT PMA that has not yet obtained a Permanent Business License (“IUT”) shall submit a Semi Annual Report of LKPM to BKPM. PT PMA that has obtained IUT must submit an Annual LKPM. This report is in the standard form of BKPM.

Employing People

PT PMA must apply for An Expatriate Manpower Utilization Plan (Rencana Penggunan Tenaga Kerja Asing or “RPTKA”) from the Department of Manpower (“DOM”) in order to employ expatriates. The RPTKA serves as basis for the expatriate to obtain their temporary stay permits (“KITAS”) and work permit (“IKTA”).

Importing Goods

PT PMA wishes to import capital goods/raw materials is required to have a Limited Importer License Number (Angka Pengenal Import Terbatas or “APIT”). The APIT is obtained through BKPM. Goods imported under an APIT are subject to a reduced withholding tax of 2.5% compared to the normal rate of 7.5%.

PT PMA may obtain favorable import duty reductions on imported production equipment, spare parts and raw materials that are not locally available. For the import duty reductions, PT PMA then must submit Master List application to BKPM or the Customs and Excise Office (in certain circumstances). After the Master List is approved, then PT PMA receives an import duty reduction on the item listed in the letter to a maximum 5% duty rate.

Note: You can find further update regarding foreign investment in Indonesia here.

by: tnrlawfirm