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General Explanations of Foreign investment law in Indonesia

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Indonesia considers attracting more foreign investment to the country. The government is targetting to gain foreign investment in the sector of the infrastructure projects. To realize the plan, Indonesian Government has made and issued some new foreign investment law in Indonesia. The foreign investment law in Indonesia obliges the investors to meet its necessities. The government tends to make the regulation of establishing a company in Indonesia easier which is poured on its new rules and regulations. Indonesia follows a civil law system and its form of constitution is a republic. The critical foreign investment law in Indonesia is written in Law No. 5 Years 2007 about investment, Presidential Regulation No. 39 Years 2014 about List of Business Fields, and Regulations of BKPM (Capital Investment Coordinating Board) including Regulation No. 14 and 15 Years 2015. In the foreign investment law in Indonesia, the negative investment law provides the sectors where the investment is closed to foreign investment and industries where there is particular investment restriction for international business. General Explanations of Foreign investment law in Indonesia Restrictions on Foreign Investment and Investment The Closed Business Regulation governs limitations for foreign investment. Example for which foreign investment is open in the foreign investment law in Indonesia : A distribution business is open for foreign investment up to 33 %. An insurance business is open for foreign investment up to 80 %. A construction services business is open for foreign investment up to 67 %. Occupation of Real Estate The government has just issued a regulation that allows foreigners to purchase a property at a specific value depending on its location. In the example, foreign individuals may buy a house in DKI Jakarta with a minimum amount of Rp. 10.000.000.000,-, and the regulation about the value will differ from one to another province. Other than the cost, the individuals are obliged to meet the foreign investment value in Indonesia issued by the Ministry of Agrarians. For investment purpose, foreign investors have to set up a Foreign Investment Company (PMA) under the rules of BKPM. Minimum Capital Requirements The minimum capital for foreign investment listed in the Foreign investment law in Indonesia is diverse from one industry to another. In general, the minimum capital is at least required to be Rp. 2.500.000.000,-. But, some industries have higher capital requirements, in the example : The insurance field has a minimum capital requirement of Rp. 10.000.000.000,-. Commercial Banks have a minimum capital requirement of Rp. 3.000.000.000.000,-. The construction businesses have a minimum capital requirement of RP. 50.000.000.000,-. Exchange Control and Currency Regulations In the foreign investment law in Indonesia, there are no relevant exchange controls, but there are some currency regulations. Bank of Indonesia published Regulation 17/3/PBI/2013 in which demands any non-cash and cash transactions in Indonesia to use the Indonesian Currency with specific exemptions. It is restricted in the foreign investment law in Indonesia to remit Indonesian currency which is rupiah abroad, but there is no restriction to remit profits overseas. Imports There is particular restriction in the foreign investment law in Indonesia about the commercial goods importation, depending on the specific products or goods. In the example, It is required a special license to import sugars to Indonesia. The restriction imposed by the foreign law investment in Indonesia is to protect domestic industries of sugar in Indonesia. The other restrictions in about the import of hazardous waste and shrimp. Import duties in Indonesia which are issued in the foreign investment law in Indonesia is about 0% to 150% on customs value of goods imported. However, the highest rate currently is 40%. Indonesia has its investment law that has to be followed by the investors. Knowing the basic of foreign investment law in Indonesia will be a much of help to invest in Indonesia. Hopefully, the article about foreign investment law in Indonesia above will be helpful and understandable.

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A Guide For Foreign Investment Company In Indonesia

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Indonesia offers vast opportunities to the foreign investment company in indonesia to invest their money. Its abundance of natural resources and strategic access to the global mobility due to its location in the major sea lanes gives foreign investment company in indonesia a great opportunity. Indonesia is ranked as the fourth country for the most population in the world. It has an annual growth rate of 5,78 % with its GDP at $ 867.500.000,- in 2013. Currently, Indonesia is ranked number 17 in the world’s largest economy. Indonesian Government also supports foreign investment company in indonesia by issuing policies and regulations that will make the investment license process simpler. Indonesia aims to be the top ten global economies in 2025. To achieve the goal, Indonesia focuses on developing its eight essential programs which are agriculture, industrial, energy, mining, tourism, telecommunication, marine, and strategic areas development. Following this issue, Indonesian Government is encouraging foreign investment company in indonesia to invest in these fields. Here is a field guide for investors to invest in Indonesia. Challenges for Foreign investment company in indonesia Corruption Corruption is a significant obstacle to the development of Indonesia. This matter is also one of the most significant problems for the foreign investment company in indonesia. Transparency in Indonesia is scored at 32 out of 100 in which the scales are from 0 as highly corrupt to 100 as very clean, even though the scale has increased steadily in recent years. Bureaucracy Many international investors consider administration in Indonesia as barriers to invest their money. The critical source of this issue is thought to be caused by disharmony between regulations in the central government and the regional level. The autonomy policy for the local government has led to generating regional regulations in which are not always consistent with the central law. Insufficient Infrastructure This matter is also considered as a barrier for the foreign investment company in indonesia to invest their money, especially if the investors want to invest in the eastern and middle part of Indonesia. Besides that, the insufficiencies in the sector of infrastructure offer challenging opportunities for the foreign investors. Indonesian Legal System The other critical challenges for the international investors are the characteristic of the Legal System in Indonesia. Finding conflicting laws from different authorities in Indonesia is not uncommon, and it causes an unclear regulation in which is applicable. There is also no reliable central sources to obtain a comprehensive law and regulations. Court proceedings in Indonesia are cumbersome and take a long time and process, and the judges also have a high level of discretion in deciding the matters. Common Key Forms of Foreign investment company in Indonesia Direct Investment Direct foreign investment in Indonesia is governed by Law No. 25 Years 2007 about investment and its implementing policies (the Investment Law). In the direct investment form, the foreign investment company in indonesia is investing capital in an existing or a new company to set up a business or business presence in Indonesia. The investors also participate in the management of the company they invested. When a foreign investment company in indonesia performs a direct investment, it registered as a PMA Company regarding with Law No. 40 Years 2007 about Limited Liability Companies. Indirect Investment Indirect investment or also known as portfolio investment is a form of investment where the investors invest their money throug the purchase of securities at the capital markets, such as debt, equity, or combination of both. Foreign investment company in indonesia as the investor is less participated in the management of the company they invested. This form of foreign investment is not regulated in the Investment Law. This form of foreign investment company in indonesia comes to Indonesia through stock exchange of the country in which is regulated by the OJK. Foreign investment company in indonesia is one of benefitable form of investment for Indonesia’s company. A simple guide about foreign investment company in indonesia will help to give a broad knowledge about it. Hopefully, this article can add more understanding about this type of investment.

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Benefits of Foreign Company in Indonesia

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Indonesia offers excellent opportunities to those who want to start their business in Indonesia, whether for the locals and also for the foreigners. To start a foreign company in Indonesia needs to be assigned in the form of Foreign Limited Liability Company or PT PMA in the Indonesian language. This kind of foreign company in Indonesia is regulated by the Company Law No. 40 Years 2007 about the Company Law. If the foreigners want to start their business in Indonesia, they will need an expert to help them navigate the regulations on registering their company in Indonesia. A company is in the form of PMA if the shares of the company are held partially or entirely by a foreign company or foreign national. The amount of the shares whether it is 1%, 51%, or 100%, as long as there are foreign shareholders, the company is a foreign company in Indonesia. Besides establishing a Company, foreign investors can also set up a representative office in which the international company represents an overseas company in Indonesia, but it doesn’t generate any income from its activities in Indonesia. Advantages and Disadvantage of Foreign company in Indonesia Advantages of PT PMA The foreign company in Indonesia will receive many benefits if it is in the form of PT PMA. PT PMA is allowed to become a 100% foreign-owned limited liability company or else it can also be established as a limited liability company in the form of joint venture with Indonesia partners. This type of foreign company in Indonesia can give the international investors a full control of their business, and it will also reduce the risk of finding a right local partner. This form of foreign company in Indonesia has the same rights and responsibilities as a local company. On-site tax and import duties are lower for PT PMA, and the company can sponsor many foreigner employees. Disadvantage of PT PMA There is also some disadvantage of the foreign company in the form of PT PMA. PT PMA is not allowed to establish some types of business activities that are closed for foreign ownership. Another disadvantage of this kind of foreign company in Indonesia is this company obliged to make monthly tax reports. The company is also required to report their business activities to the BKBM every three months. It is purposed so that BKPM can monitor the development of the company. The minimum investment plan for the foreign company in Indonesia is about US$ 1.000.000,- in which is a considerable amount. Advantage of Representative Office Representative office or KPPA is the foreign company in Indonesia in which is established by the international company abroad to take care of their business activities in Indonesia but not collecting any income from their operations in Indonesia. The benefits of establishing a representative office in Indonesia is it is not required any capital to develop this form of foreign company in Indonesia. It means that foreign investors can build a market presence legally in Indonesia in a cheap way. KPPA or representative company is also having the possibility of handling their sales and deliveries of their products or service. Disadvantage of Representative office There are some limitations for the representative office activities in Indonesia. The operation of representative in Indonesia is limited in the role of supervising, connecting, coordinating and caretaking of the Company interests or its affiliate company inside or outside of Indonesia. This type of foreign company in Indonesia is not allowed to fund any income from pursuing sales transaction and from the purchase of its products and services. The foreign company in Indonesia in which in the form of the representative office is also obliged to be located in the capital city of the province and must have an office building. Hopefully, the information above which is about some forms of the foreign company in Indonesia might help you to learn about the foreign-owned business entity that established in Indonesia.

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