Establishing a Foreign Company (PT PMA) in Indonesia: A Guide for Investors

Foreign investors looking to establish a business in Indonesia must do so in the form of a Limited Liability Company (Perseroan Terbatas or PT) known as a PT PMA (Penanaman Modal Asing). The PT PMA must be based within Indonesia unless specific exceptions are outlined by law. This regulation is part of the government's efforts to ensure legal clarity and certainty for foreign investors.

Foreign investors are limited to operating in larger business sectors and are prohibited from engaging in micro, small, and medium enterprises (MSMEs). This restriction underscores Indonesia's aim to protect and promote local small businesses while opening its market to foreign investment in sectors where large-scale operations are more beneficial.

Key Aspects of Foreign Investment in Indonesia
A crucial factor for foreign companies operating in Indonesia is the allocation and use of capital. In a PT PMA, business decisions regarding capital use must be approved collectively by shareholders, as outlined in the company’s articles of association. This governance structure, which requires at least two shareholders, ensures that business actions represent the company rather than individual shareholders.

Here are the primary requirements for establishing a PT PMA in Indonesia:
1. Form of the Company: Must be established as a Limited Liability Company (PT).
2. Shareholders: A minimum of two shareholders is required.
3. Business Scale: PT PMA can only operate in large-scale businesses.
4. Investment Value: The minimum investment value is IDR 10 billion.
5. Paid-up Capital: The paid-up capital must also be at least IDR 10 billion.

Foreign Investment Regulations under the Omnibus Law
The introduction of the Omnibus Law 2020 significantly expanded opportunities for foreign investors by opening up most business sectors, except for those specifically declared closed or limited by law. Among the business sectors closed to foreign investors are industries involved in the production of weapons, ammunition, explosives, and military equipment. Other closed business fields are those explicitly mentioned in applicable Indonesian laws.

For more detailed information about specific industries and their eligibility for foreign investment, potential investors can refer to Presidential Regulation 49/2021, which includes the Positive Investment List—a comprehensive list of business fields open to foreign investment, as well as conditions for entry.

Minimum Capital and Investment Requirements
When establishing a PT PMA, foreign investors must adhere to the minimum investment requirement of IDR 10 billion for each five-digit KBLI (Indonesian Standard Industrial Classification) code per project location. The KBLI system is a classification framework used to categorize businesses based on their economic activities, and it plays a crucial role in determining the regulatory framework for investment.

Importantly, the minimum capital requirement excludes land and building costs. The paid-up capital, typically set at 25% of the minimum investment, amounts to IDR 2.5 billion. However, in certain industries that require significant capital, this amount may be higher.

Licenses and Documentation for PT PMA
To establish a PT PMA in Indonesia, foreign investors must secure various licenses and documents. These including but not limited to:
● Legalized Deed of Establishment: Formalized by a Public Notary and registered with the Ministry of Law and Human Rights.
● Legal Entity Status: Confirmation from the Ministry of Law and Human Rights.
● Risk-Based Business Licensing: Issued by the Indonesian Investment Coordinating Board (BKPM).
● Domicile Letter: Issued by the local district authorities.
● Tax Identification Number (NPWP) and Taxable Entrepreneur Confirmation (PKP): Issued by the local tax office.

Compliance with these requirements ensures that foreign investors can legally establish and operate their businesses in Indonesia, contributing to the country's dynamic and growing economy. With clear regulatory guidelines and a comprehensive investment framework, Indonesia offers significant opportunities for foreign companies to expand their operations in Southeast Asia’s largest market.