Regulation of foreign investment

The legal aspects to be considered when the investors set up investments:

a. Foreign Direct Investment.
Further referred to as Penanaman Modal Asing (“PMA”), is a foreign investment activity to conduct business in the territory of the Republic of Indonesia, which is made by a foreign investor, whether using foreign capital or in a form of partnership with a domestic investor. This foreign investment is governed under the Capital Investment Law No. 25 year 2007.

b. Domestic Capital Investment.
Further referred to as Penanaman Modal Dalam Negeri (“PMDN”), is a status of conducting business operations for entities entirely owned by Indonesian capital, either jointly between company(ies) or individual(s) and is governed primarily by the Capital Investment Law No. 25 year 2007.

Application and Approval Procedures:

  • To invest in Indonesia, an investor should first look at the so-called “Negative List of Investment” (Daftar Negatif Investasi). This list contains the business sectors that are totally closed to foreign investors or, if open, only with some restriction. This means that it may be possible for foreign investors to enter these business sectors providing certain requirements are satisfied, but this does not apply to those totally closed sectors.
  • To apply for a foreign investment approval, an investor should file a Model I/PMA or Model I/PMDN form application to the Investment Coordinating Board (Badan Koordinasi Penanaman Modal) and append certain required documents such as: Power of Attorney to sign/submit the application (only if the application is submitted by their attorney); Articles of Association of the companies who wish to invest in Indonesia, in the case of an individual, a citizen’s identification is required; Tax Identification Card Number (for the Indonesian individual investor); Draft of Joint Venture Agreement; and Description of the production processes in the form of a flow chart block diagram. Failure to fulfil all these requirements may lead to a delay in the granting of approval.
  • After the approval from the Investment Coordinating Board has been issued, the PMA or PMDN Company is required to draft articles of association for the PMA or PMDN Company. For the legal establishment of a limited liability company, known as a “PT,” these articles of association have to be prepared in notarial deed form by a Public Notary and then approved by the Ministry of Law and Human Rights.
  • After the Ministry of Law and Human Rights has granted its approval, the limited liability company is legally established in Indonesia and the investors can conduct their business. Next, the Ministry of Law and Human Rights approval and the Deed of Establishment must be registered with the Company Registry office of the Department of Industry and Trade. After the registration, the Deed of Establishment must be announced in the State Gazette of RI.

Together with the above licenses, a PMA or PMDN Company has also to process certain other licenses related to, among others: taxation, import duties, manpower, land use and trade, depending on the business sector.

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