Complete Guide on How Foreigner Can Invest in Indonesia

How foreigner can invest in Indonesia? this article aim to help you understand the process on foreign direct investment in Indonesia. Indonesia projected to become the fourth largest economies in the world by 2050. If that become reality then it is a large improvement from Indonesia current 16th position. This projection can be a reality considering that Indonesia economic growth is 5.3 percent in 2022, making it the second-highest among G20. The driving force behind this economic surge lies in Indonesia’s favorable conditions. A substantial and youthful population, coupled with a sustained and comparatively high economic growth rate is among highly important factors. These elements collectively create a landscape teeming with opportunities for savvy investors keen on harnessing the vast potential that Indonesia holds.

source: Katadata

Furthermore, Indonesia has undertaken significant reforms aimed at enhancing the ease of investment within its borders. Notably, the government has streamlined the bureaucratic process by reducing the number of permits required for business operations. This concerted effort extends to expediting the timeframe for company establishment, and a decisive move towards digitizing the investment application process.

For astute investors contemplating opportunities in Indonesia, these reforms signify a proactive approach to fostering a more investor-friendly environment. The deliberate steps taken by the government to simplify bureaucratic procedures and embrace digital application help investor to get started invest in Indonesia. If you have some interest in exploring investment prospects in Indonesia and want to know more about the process on how foreigner can invest in Indonesia then this article can serves you as a guide.

How Foreign Investor Invest In Indonesia?

Before we get delve deeper into the process of how foreigner can invest in Indonesia we need to clarify that this article intended to cover foreign direct investment process. Foreign direct investment in this case refer to real sector investment such as building a factory, hotel, which essentially owning a operating business. This guide does not cover indirect investment which is through securities such as stocks and bonds.

Foreign investors in Indonesia can choose from two primary legal entities: the Foreign Investment Company (PT PMA) and the Representative Office (KPPA). Each entity offers unique advantages and is suited for different types of investment activities.

Foreign Investment Company (PT PMA)

The PT PMA is an Indonesian-based company that allows for the combination of foreign and domestic shares. It operates as an independent limited liability company within the business classification and is ideal for foreign investors looking to engage in commercial activities in Indonesia. To establish a PT PMA, foreign investors must meet certain requirements, including minimum capital investment and shareholder composition.

Representative Office (KPPA)

A Representative Office, or KPPA, is a foreign company that opens its office in Indonesia for market research and local representation purposes. While a KPPA cannot engage in commercial activities or generate profit directly, it serves as a valuable platform for networking, gaining market insights, and establishing a presence in the Indonesian market.

Differences between PT PMA and KPPA

To determine the most suitable legal entity for your investment in Indonesia, it is crucial to understand the differences between PT PMA and KPPA.

PT PMA Characteristics

Can be fully owned by foreign individuals or entities, subject to the Negative Investment List
Operates as a limited liability company
Requires a minimum of one director, one commissioner, and two shareholders
Must fulfill specific trading licenses based on the size of the business

KPPA Characteristics

Primarily used for market research and local representation
Cannot engage in commercial activities or generate profit directly
Minimum capital investment is not required
Requires a chief representative and limited number of Indonesian employees

Understanding the Negative Investment List

The Indonesian government issues a Negative Investment List, which outlines the business fields that are either closed for foreign investment or subject to certain restrictions. It is essential for foreign investors to familiarize themselves with this list to ensure compliance with the regulations when establishing a business in Indonesia.

The Negative Investment List categorizes business fields into three categories:

Open for FDI – These business fields allow for 100% foreign ownership.
Conditionally open for FDI – These business fields have specific ownership or percentage requirements between domestic and foreign capital.
Closed for FDI – These business fields are strategically important, prohibited by law, or pose potential hazards.

The latest Presidential Regulation 44/2016 details the sectors closed for FDI, such as property brokerage, surveys, retail of alcoholic beverages, and supervision. On the other hand, the regulation also includes 35 new business fields that allow for 100% foreign capital, including the film industry and hospitality.

Establishing a PT PMA in Indonesia

To establish a PT PMA in Indonesia, foreign investors must go through a series of procedures and fulfill specific requirements. While the process may seem complex, enlisting the assistance of professional services providers can simplify the establishment process and ensure compliance with Indonesian laws and regulations.

Minimum Capital Requirements

A PT PMA is required to have a minimum capital investment of IDR 10 billion. During the establishment, the founders or shareholders must have paid at least 25% of the investment plan, with the remaining 75% potentially injected as shareholders’ loans.

Procedure for Establishing a PT PMA

The process of establishing a PT PMA involves several steps, including:

Submission of a principle license application to the Indonesia Investment Coordinating Board (BKPM)
Requesting a company name from the Ministry of Law and Human Rights
Drafting the Articles of Association and Deed of Establishment
Obtaining a certificate of domicile for the company
Acquiring a Tax Identification Number (NPWP)
Legalization of the Articles of Association by the Ministry of Law and Human Rights

Representative Office in Indonesia

A Representative Office (KPPA) offers foreign investors an alternative way to establish a presence in Indonesia without engaging in commercial activities. While a KPPA cannot generate profit, it serves as a valuable platform for market research, networking, and understanding the local business landscape.

Types of Representative Offices

There are three main types of Representative Offices in Indonesia:

Foreign Representative Office (KPPA) – Primarily used for the parent company’s management purposes.
Foreign Construction Representative Office (BUJKA) – Established for organizations involved in the construction sector.
Foreign Trade Representative Office (KP3A) – Can perform activities similar to a KPPA and serve as selling and/or buying agents.

Investment Licenses in Indonesia

In order to answer how foreigner can invest in Indonesia, to be legally operate in Indonesia, foreign investors must obtain various licenses depending on their business activities. These licenses include:

Principle Investment License – Obtained before making any foreign investment or changing the structure of a domestically-owned company.
Tax Identification Number (NPWP) – Required for corporate tax purposes.
Business License – Obtained before commencing commercial activities or production.
General Identification Number (API-U) – Permit to import materials, goods, and machinery for trading purposes.
Plan to Hire Foreign Workers (RPTKA) – Required for hiring foreign workers in Indonesia.
Permit to Hire Foreign Workers (IMTA) – Issued after obtaining the RPTKA and allows for the recruitment of foreign workers.

Investment Incentives in Indonesia

The Indonesian government provides various fiscal and non-fiscal incentives to attract foreign investment. These incentives include:

Easier immigration processes for foreign workers
Reductions in corporate income tax
Exemptions on import duties and excise duties
Access to special economic zones with integrated infrastructure
Support for research and development activities
Facilitation of technology transfer

Choosing the Right Region for Investment

Indonesia’s vast landscape offers different regions with varying levels of infrastructure, logistics, and utility services. It is crucial for foreign investors to carefully evaluate the potential of each region and choose the one that aligns with their business requirements. The Indonesian government has designated special economic zones (SEZs) in various locations, offering specific benefits and incentives for investment.

Conclusion

Investing in Indonesia offers tremendous opportunities for foreign investors, thanks to its robust economy, supportive government policies, and vast market potential. By understanding the available legal entities, complying with the regulations outlined in the Negative Investment List, and taking advantage of the investment incentives offered by the government, foreign investors can navigate the Indonesian market successfully. With careful planning and the assistance of professional services providers, foreign investors can confidently establish their presence in Indonesia and capitalize on the country’s thriving economy. Lastly, we hope that this article help you to understand better on how foreigner can invest in Indonesia.