The most common option for an overseas company establishing a presence in Indonesia is to set up a limited liability company with foreign ownership (PT PMA). The first step in establishing a PT PMA is to determine whether the PT PMA can be wholly owned or only partially owned by foreign shareholders. This involves consulting the Negative Investment List (DNI). The most recent DNI is included in Presidential Regulation No. 44 dated 12 May 2016 regarding the List of Business Fields that Are Closed and Business Fields that Are Open with Requirements for Investment (PR 44/2016).
To establish a PT PMA, the founding shareholders or their proxies must execute a deed of establishment containing the PT PMA's articles of association (AOA), which must be signed before a notary public and filed for approval with the Ministry of Law and Human Rights (MOLHR). The filing process at the MOLHR will be handled by the notary.
Once the MOLHR approves the AOA, the PT PMA must register with the Online Single Submission (OSS) system. The OSS system will issue a business registration number (Nomor Induk Berusaha or NIB) and business license. For some lines of business, companies can immediately start commercial activities after obtaining the business license.
After they obtain a business license, companies in certain business sectors (such as industry, natural resource management, or energy) must secure a commercial/operational license before starting commercial activities. The commercial/operational license will only be issued after a company has met or obtained all the standards, certificates, licenses, and/or registrations required for the product and/or service being sold.
The advantages of establishing a new PT PMA are as follows:
- Foreign investors have immediate control over the PT PMA once it is established.
- Management can be set up to suit the investors' preferences.
The disadvantages are that establishing a new PT PMA requires:
- Permits, setting up a physical presence (office) and hiring employees, which is time-consuming compared to acquiring an existing PT PMA.
- Going through an administrative process with government institutions and agencies.
Acquiring an existing PT PMA
Another common option for an overseas company establishing a presence in Indonesia is to acquire an existing PT PMA. Such an acquisition is also subject to MOLHR approval and OSS registration.
The advantages of acquiring an existing PT PMA are as follows:
- Pre-existing brand recognition in market if existing PT PMA is widely known and in good standing.
- The existing PT PMA already has the required licenses/authorizations, an office and employees.
The disadvantages of acquiring an existing PT PMA are as follows:
- Before acquiring an existing PT PMA, an investor should conduct legal due diligence on the PT PMA to ascertain the soundness of the company, specifically with regard to its outstanding taxes and financial obligations and whether the PT PMA is involved in any disputes with third parties. Legal due diligence can incur legal costs and require time before the foreign investor can proceed to the next steps.
- Certain administrative procedures must be followed, such as notification to/registration with government institutions and agencies.
This first appeared in the Thomson Reuters
Practical Law Q&A guide to Establishing a Business in
Indonesia. You can find the full Q&A guide
here.
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