Establishing a presence in Indonesia, whilst mainly procedural, requires a broad range of considerations within the parameters of the following which includes mainly (at the time of this publication), Law No. 25 of Year 2007 on Capital Investment (“Investment Law”), Law No. 40 of Year 2007 on Limited Liability Company (“Company Law”), and Presidential Regulation No. 44 of Year 2016 (“Negative List”).
Indonesian Company Law requires a minimum of 2 shareholders, and have a dual board structure, namely the board of directors, and board of commissioners, where the former is executory in function, whilst the latter, supervisory in nature. Foreign nationals may populate the boards and there is no expressed requirement for an Indonesian board member unless the particular portfolio is HR related (say, HR director). However, and be that as it may, having a local Indonesian on the board of directors will help and ensure an efficient operation of matters in the event other directors are based overseas.
Another important point to take note of is the Negative List, which regulates foreign the shareholding limitations (if any) according to the business activities of the PT PMA. Under the current Negative List, foreign shareholding is not restricted (i.e. 100% foreign owned allowed) for activities such as but not limited to, property development, manufacturing and trading. It cannot be stressed enough that choosing the right business activities with reference to the Negative List is of paramount importance to foreign investors.
Establishing a Foreign Representative Office (“RO”) is also an effective means in getting acquainted with the Indonesian market and explore opportunities, as the establishment of a RO does not require any capital injection. However, as a RO is simply an ‘extension’ of its parent company, it is itself not a legal entity and as such is prohibited from generating revenue and may only conduct marketing and promotional activities of the trade or services of its parent company. Nevertheless, the RO option is the most economically efficient way to establish a presence in Indonesia without the need to commit to the various investment and paid-up capital amounts that are applicable to the PT PMA as raised above.
As Indonesia moves towards greater corporate governance, and as such foreign investors will need to pay greater attention in adhering to basic compliance matters such as, inter alia, monthly and annual tax filings, mandatory manpower and facilities reports, investment activities report, and registration of the national insurance programmes for employee welfare and healthcare.
For easy reference, the above may be easily compartmentalised into three categories, namely Core, Fringe, and Specific:
Core:
In connection with your legal entity, such as tax compliance, business identification, business licence, and import licence.
Fringe:
Certificates for employee welfare and healthcare insurance, environmental permit, manpower and facilities reports.
Specific:
Technical licences/permits and allows and enables the legal entity to undertake or perform a specific activity and/or is required due to the sector/industry. These include applicable regional licences.
In addition, it is worth paying attention to certification requirements from secondary authorities in relation to machinery certificate, structural approvals etc.
Whilst the above may seem somewhat cumbersome, familiarisation of the same from the outset will provide a cleaner understanding of the basic compliance activities required.
The recent enactment of Law No. 11 of 2020 posits substantial changes are expected in Q1 of 2021. Potential foreign investors may find less restrictions on foreign shareholding, capital requirements, and even property ownership. From the perspective of licences and permits, the Indonesian government is accelerating its drive for digitisation and minimalism. Overall, the changes should change past impressions of Indonesia as an investment destination, where derisive attitudes with the infamous bureaucracy from days of yesteryear may dissipate and disappear.
No doubt foreign investors, existing and potential, await with bated breath on the dawn of new era in their investment journey in the Indonesian archipelago. For further information about this topic, please to access the link https://kfmap.asia/research/indonesia-industrial-property-investment-guide/773.
Writer : Andrew Tuah & Anthoni Tuah from Tuah & Suparto Advocates and Solicitors.
Source : https://kfmap.asia/research/indonesia-industrial-property-investment-guide/773
