Establishing a PT PMA in Indonesia can be a great way to tap into the country’s growing economy and business opportunities. However, the process requires compliance with various legal and financial regulations, making it essential to understand the steps involved.
In this article, we will guide you through the necessary steps, making the process clear and manageable.
What is a PMA in Indonesia?
The meaning of PMA, or Penanaman Modal Asing (Foreign-Owned Company), is a widely preferred option for foreign companies looking to enter the Indonesian market. One key advantage of establishing a foreign-owned company in Indonesia is that it provides the ideal legal framework for foreign-owned businesses to operate and generate revenue there.
However, there are some challenges. The required start-up capital is relatively high, with a total initial investment of about USD 700,000, and the incorporation process can take up to 10 weeks.
Although the minimum investment is IDR 10 billion, this amount can be committed over five years rather than upfront. In addition, foreign ownership is restricted to specific sectors.
The benefits of setting up a PT PMA in Indonesia
Establishing a PMA company in Indonesia offers numerous advantages for foreign investors, from market access to government support. Here are several key benefits:
Access to a large consumer market
With over 270 million people, Indonesia offers a vast consumer base, providing significant opportunities for products and services to thrive.
Rich natural resources
Industries like mining, energy, and agriculture benefit from Indonesia’s abundant natural resources, giving businesses a competitive edge in securing essential raw materials.
Favorable investment environment
The Indonesian government has introduced reforms, such as streamlined licensing processes and legal clarity, to make the investment landscape more appealing and accessible to foreign investors.
Expanded market potential in Southeast Asia
Indonesia’s strategic location offers access to the ASEAN market, with over 650 million consumers, through the ASEAN Economic Community, enhancing trade and market potential.
Competitive labor market
Indonesia’s young, dynamic workforce offers skilled labor at competitive rates, providing businesses with the talent necessary for growth and success.
Government support and incentives
Foreign investors benefit from government incentives such as tax breaks, customs exemptions, and fiscal advantages, creating a favorable environment for establishing and growing a foreign-owned company.
Read more: Market entry strategy: 9 ways to expand your business
What are the requirements for PMA in Indonesia?
The following specific regulations apply to foreign-owned companies wishing to invest in Indonesia:
- Enterprise classification: These provisions apply to large-scale enterprises and do not pertain to micro, small, and medium enterprises.
- Foreign ownership: Only business activities that allow for foreign ownership are included.
- Minimum capital requirement for PT PMA: PT PMA entities are classified as large-scale enterprises. Unless otherwise specified by law, they must comply with a minimum capital requirement of at least IDR 10 billion (Article 12, paragraphs (1) and (2) of BKPM Regulation 4/2021).
10 PMA establishment requirements in Indonesia
Establishing a foreign-owned company in Indonesia involves understanding various regulations and requirements. Here are key points to consider:
- 100% foreign ownership: PT PMAs can be wholly foreign-owned in many sectors, though some industries are restricted under the Negative Investment List (DNI).
- Minimum capital requirement: Foreign-owned companies must invest at least IDR 10 billion, but the actual paid-up capital may need to be deposited over time.
- Two shareholders required: PT PMAs need a minimum of two shareholders, which can be foreign individuals or corporations from any country.
- Directors and commissioners: At least one director and one commissioner, both of whom can be foreign nationals, are required.
- Limitations on commercial activities: PT PMAs must align their business activities with the Indonesia Standard Business Classification (KBLI) and adhere to DNI restrictions.
- Additional licenses and permits: Depending on the business type, various licenses, such as environmental or specific business permits, may be needed.
- Compliance with tax obligations: PT PMAs must register for taxes, file monthly and annual returns, and follow Indonesian tax regulations.
- Employment laws: Businesses must obey local labor laws, including minimum wage and employee benefits.
- Reporting and audits: Annual activity reports and financial statements must be submitted to the Indonesian Investment Coordinating Board (BKPM), with audits required for larger companies.
- Office address requirement: A physical office in Indonesia is mandatory, though virtual offices can fulfill this requirement.
Guide to Doing Business in Jakarta
Kickstart your PT PMA Indonesia easily with InCorp
Establishing a foreign-owned company in Indonesia offers several benefits for investors, making it an attractive option for business expansion.
With the right guidance and a clear understanding of the process, you can take full advantage of the opportunities Indonesia has to offer.
To simplify the process, InCorp provides comprehensive services such as:
Click the button below to kickstart your smooth PMA establishment in Indonesia.
Daris Salam
COO Indonesia at InCorp Indonesia
With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Frequently Asked Questions
Under Indonesian Company Law, shareholders can hold shares with various preferential rights, such as voting rights, nomination rights for board members, priority dividend or liquidation proceeds, and options for conversion or withdrawal after a set period.
Investors considering investments in Indonesia should assess existing International Investment Agreements between Indonesia and other countries. Having a business presence in countries with such agreements may offer incentives like stronger investment protection and higher foreign shareholding in Indonesia.
The difficulty level depends on your country of origin. Indonesia lists restricted countries, including Afghanistan, Guinea, Israel, North Korea, Cameroon, Liberia, Niger, Nigeria, and Somalia. Citizens from those countries will find the process complicated and challenging, with a high possibility that their application will be rejected.
Limited liability company with foreign direct investment ranging from 1-100%
