Incorporating Foreign Investment LLC in Indonesia: A Step-by-Step Guide

Establishing a foreign investment company, or PT PMA (Perseoran Terbatas Penanaman Modal Asing, or Foreign Investment Limited Liability Company), in Indonesia can open doors to one of Southeast Asia's largest investment markets. The Indonesian government promotes international investment; this goes hand-in-hand with the compliance and registration stage to operational activity that often involves legal professionals. In this legal insights, we will elaborate on the overview of the step-by-step legal guide to incorporating foreign investment LLC in Indonesia.

Legal Framework for PT PMA in Indonesia

Technically, in Indonesia, Limited Liability Company (LLC) are classified into two main categories:

1. Domestic LLC;

2. Foreign-Investment LLC (PT PMA), which includes foreign shareholders under the foreign direct investment scheme.

Here, we will focus on the establishment of foreign investment companies.

Key Requirements for Establishing a PT PMA

1. Minimum Capital Requirements

   under Article 7(1) of Presidential Regulation of the Republic of Indonesia Number 10 of 2021 on Business Fields for Investment in conjunction with Article 12 Paragraphs (1) and (2) of the Regulation of the Indonesian Investment Coordinating Board Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing and Investment Facilities in conjunction with Article 189 (2) of Government Regulation of the Republic of Indonesia Number 5 of 2021 on Risk-Based Business Licensing, a PT PMA must have a minimum investment of IDR 10 billion (approx. USD 700,000) per five Standard Classification of Indonesian Business Fields (Klasifikasi Baku Lapangan Usaha Indonesia- KBLI), excluding land and building values.

   
   

   This regulation ensures that PT PMAs are focused on large-scale businesses, as small and medium enterprises (SMEs) are generally restricted for foreign investors. However, under Presidential Regulation of the Republic of Indonesia Number 10 of 2021, Article8(2), these requirements do not apply to PT PMAs located in Special Economic Zones (SEZs) that focus on technology-based startup sectors. In these zones, PT PMAs in technology startups are allowed to invest with an amount equal to or less than IDR 10 billion, excluding the value of land and buildings.

   
   

2. Company owners

   ––in Indonesia can be either individual foreign nationals or foreign legal entities, as stipulated in Article 1(6) of Indonesian Law Number 25 of 2007 on Investment. Domestic shareholders may also participate, allowing for joint ventures between foreign and domestic investors, although foreign parties are often required to hold a significant stake. Recent regulatory changes have made it possible for foreign investors to own 100% of company shares in certain sector-specific industries.

   
   

   Additionally, the Indonesian government offers various incentives to foreign investors in priority sectors, including tax benefits, streamlined licensing processes, and access to special economic zones, encouraging more international investment and fostering economic growth.

   
   

3. Legal Process for Incorporation

   1. Preparation of Documents

      The incorporation process begins with preparing essential documents, as required by Indonesian Law Number 40 of 2007 on Limited Liability Companies (PT). These documents include:

      1. Statement from the company’s founders

      2. Proof of capital injection

      3. Articles of association

      4. Identification documents for shareholders (including proof of foreign nationality for foreign shareholders)

      
      

      Generally, in Indonesia, company registration is handled by legal professionals, i.e., lawyers and notary public.

      
      

   2. Legal Name and Articles of Association Registration

      All PT PMAs must register their company name and articles of association with the Ministry of Law and Human Rights. According to Articles 5 and 6 of the Regulation of the Indonesian Minister of Law and Human Rights Number 21 of 2021, this process must be done electronically via theDITJEN AHU ONLINE (Direktorat Jenderal Administrasi Hukum Umum Online or Directorate General of General Legal Administration Online) website (www.ahu.go.id). This process will be done by a notary public in Indonesia. Once completed, the company receives a Certificate of Legal Entity Status.

      
      

      When choosing and registering a name for a PT in Indonesia, there are specific regulations that must be followed. As outlined in Government Regulation of the Republic of Indonesia Number 43 of 2011 on Procedure for Submission and Use of Limited Liability Company Names, the company name must be unique and distinctive, appropriate and lawful, and the name must be written in Latin characters and cannot consist solely of numbers of letters that do not form words. Once approved by the Minister of Law and Human Rights, the name will be officially registered and must be included in the company’s articles of association.

      
      

   3. Risk-Based Licensing System

      Under Article 5(1) of Government Regulation of the Republic of Indonesia Number 5 of 2021 on Risk-Based Business Licensing, PT PMAs must apply for business licenses based on the risk level of their activities through the OSS-RBA (Online Single Submission—Risk-Based Approach) system (www.oss.go.id). This regulation ensures that companies involved in high-risk activities must meet stricter licensing requirements. For example:

      1. Low-risk activities only require a Business Registration Number (Nomor Induk Berusaha or NIB).

      2. Medium-risk activities require both an NIB and a standard certification.

      3. High-risk activities require an NIB, standard certification, and operating licences.

         
         

4. The Positive Investment List

   Not all business sectors are open to foreign investment. The Positive Investment List, which is part of Presidential Regulation of the Republic of Indonesia Number 49 of 2021 on Amendments to Presidential Regulation of the Republic of Indonesia Number 10 of 2021 on Business Fields for Investment, defines sectors that are both opened and closed for limited foreign ownership. Investments that are encouraged by the Indonesian government with a lot of given incentives, such as: upstream basic metal industry (iron steel or non-iron steel),manufacturing industry of irradiation, electromedical, or electrotherapy equipment, various chemical industries, and many more that are provided by Appendix 1 of the said law.

   
   

5. Conclusion

   Incorporating a PT PMA in Indonesia offers foreign investors a gateway to Indonesia's growing economy. However, it is critical to look into the legal landscape carefully, ensuring compliance with Indonesian Law Number 25 of 2007 on Investment, Indonesian Law Number 40 of 2007 on Limited Liability Companies, Indonesian Law Number 6 of 2023 on Job Creation, and other relevant regulations.

   
   

   Before taking any steps, it is strongly recommended to seek legal counsel familiar with Indonesian corporate law and foreign investment regulations to ensure that your PT PMA is established smoothly and operates within the bounds of Indonesian law.

References:

1. Indonesian Law Number 6 of 2023 concerning the Stipulation of Government Regulation of the Republic of Indonesia in Lieu of Law Number 2 of 2022 on Job Creation into Law;

2. Indonesian Law Number 25 of 2007 on Investment;

3. Indonesian Law Number 40 of 2007 on Limited Liability Companies (PT);

4. Government Regulation of the Republic of Indonesia Number 5 of 2021 on Risk-Based Business Licensing as lastly amended by Government Regulation of the Republic of Indonesia Number 11 of 2023 on Measured Fishing;

5. Government Regulation of the Republic of Indonesia Number 43 of 2011 on Procedures for Submission and Use of Limited Liability Company Names;

6. Presidential Regulation of the Republic of Indonesia Number 10 of 2021 on Business Fields for Investment;

7. Presidential Regulation of the Republic of Indonesia Number 49 of 2021 on Amendments to Presidential Regulation Number 10 of 2021 on Business Fields for Investment;

8. Regulation of the Indonesian Minister of Law and Human Rights Number 21 of 2021;

9. Regulation of the Indonesian Investment Coordinating Board Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing and Investment Facilities.

This article was written in collaboration with Kingbridge Law Firm Guangzhou, China.

To read this article in Chinese, please refer to this webpage: https://mp.weixin.qq.com/s/Z_NGZzWDhXz9Bn8hazcWGw

For more information or to begin the incorporation process, feel free to contact our legal team.

Disclaimer: This newsletter does not constitute legal advice from both of our firms. We disclaim any responsibility for loss or damage arising from accessing or relying on the information from this newsletter.