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NT

A D V O K AT

Nasution, Trisnoprasetio & Partners

LEGAL NOTE
ON
ESTABLISHING FOREIGN INVESTMENT
COMPANY IN INDONESIA

Prio Trisnoprasetio, S.H., LL.M., CN. (Senior Partner)


10/16/2010
General Definition

According to the provision of Article 1 Par. 3 The Law of The Republic of Indonesia Number: 25 of
2007 concerning Investment (“Law 25/2007”), Foreign Investment (“PMA”) shall be any investing
activity for running business within the territory of the Republic of Indonesia, made by any foreign
investor using either foreign capital entirely or joint capital with domestic capital.

Unless otherwise stipulated by the law, any foreign investment shall be in form of limited liability
company, based on the law of the Republic of Indonesia, which shall be carried out by:

1. having shares when such company is established;


2. purchasing the shares; and
3. executing any other way pursuant to the rules of law.

Based on those provisions, it could be said that every company in which has foreign investor,
should be treated as a PMA, disregard the amount of investment. For instance PT ABC, a domestic
company, in order to increase the company capital, put an option to sell 1% of its shares, and XYZ
Co. Ltd., a foreign company agreed to take option to buy those shares. Automatically, the transfer of
ABC shares will change the company status into a PMA Company.

Closed Business Line and Open Business with Conditions in Respect of Capital Investment

Based on Article 2 of The President of the Republic of Indonesia Regulation Number 76 of 2007,
regarding the Criteria and Establisment of Closed Business Line and Open Business with Conditions
in Respect of Capital Investment (“Pres 76/2007”), basically stipulated that:

1. All business lines or the types of business are open for capital investment activity, except for the
business lines declared as closed and open with conditions;
2. The closed business line is a certain type of business that is prohibited to be made a business
for capital investment activity by investor;
3. The open business line with conditions is a certain business line that can be made a business for
capital investment activity with certain conditions.

The list of closed business line and open business line with conditions is a reference for investors to
select business line to carry out investment activity, and moreover the selection of business line as
referred in paragraph (1) constitutes requirements to establish business legal entity for investors,
especially for foreign investors before carrying out an investment activity in Indonesia (Article 4
Pres 76/2007).

The criteria of closed business line for capital investment, both foreign and domestic are
determined on the basis of the following criteria: health, safety, national defense and
security, environment, moral, culture, and other national interests.

As stipulated in Article 1 Par. 1 and 2 Par. 1 of the President of the Republic of Indonesia Regulatio
Number 36 of 2010 on List of Business Fields Closed to Investment and Business Filed Open with
Condition to Invest (“Pres 36/2010”), Closed business fields are certain business fields that are
prohibited from conducting any investment activities, and Business fields open, with conditions, are
certain business fields that may conduct investment activities under certain requirements, that is:

− licensed businesses reserved for Micro, Small and Medium Enterprises and Cooperatives,
− licensed businesses requiring establishment under a partnership,
− licensed businesses requiring certain capital ownership,
− licensed businesses requiring a certain location, and
− licensed businesses requiring special permits.

Process and Procedure in establishing PMA Company

Based on Article 5 Par. 2 Law 25/2007, a PMA Company should be a limited liability company
(Perseroan Terbatas), which could be as a representative office, joint venture company, or any
other cooperation institution.

Formally, there are 3 main steps in establishing a PMA Company, Firstly filling an application to
Investment Coordination Board (“BKPM”) , as follows:

PERMIT LICENSE MECHANISM

Attachments required to be submitted with applications:

1. An Original copy Such of Joint Venture Agreement (JVA) or Memorandum of Understanding


(MoU) made by and between the shareholders;
2. Letter of recommendation from the related country or letter which is issued by the
Embassy/ Representative Office of the related country in Indonesia if the applicant is The
Government of another country;
3. Copy of valid passport if the applicant is a foreign individual;
4. Copy of Articles of Association of the company in English or its translations in Bahasa from
sworn translator if the applicant is a foreign company;
5. Copy of valid Identity Card (KTP) if the applicant is an Indonesian individual;
6. Copy of Articles of Establishment of the company and any amendment (s) and approval
from the Minister of Law and Human Rights if the applicant is incorporated under the law of
Republic of Indonesia;
7. Copy of Tax Registration Code Number (NPWP) for the applicant, either for Indonesian
individual or company which is incorporated under the law of the Republic of Indonesia;

This application should be properly and duly signed with sufficient stamp duty by all applicants (if
the company is not yet incorporated) or by the company's Board of Directors (if the company is
already incorporated) attached with Power of Attorney with sufficient stamp duty from whom signs
and/or submits the application if the applicant is represented by another party (provisions
concerning the Power of Attorney is strictly regulated in this regulation (article 63).

Secondly, a soon as BKPM issued their approval on investment license, the parties involved should
make a deed of the company establishment before the Notary or execute such of necessary
document in regard to the transfer of shares (if the PMA is established based on transfer of shares)
in accordance with the Law of the Republic of Indonesia Number 40 of 2007concerning Limited
Liability Company (“Law 40/2007”),which will follow with the application to have an approval
from the Ministry of Laws and Human Rights.

Thirdly, prior acquiring an approval from the Ministry of Laws and Human Rights, with a several
pre-conditions, the PMA Company should apply the Permanent Business Lincense to BKPM, as
stipulated on the following chart:

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