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
- Import facilities
Investors in Indonesia, particularly in manufacturing, may benefit from import tax exemptions for capital goods and raw materials through the Master List Facility. The imported goods must meet specific criteria, such as not being produced locally or not meeting industry demand despite local production. - Tax holiday
The government offers CIT reductions of 50% or 100% for 5–20 years for listed pioneer industries, based on investment value. After this period, a CIT reduction of 25% or 50% applies for two fiscal years. Non-listed sectors can also apply by meeting criteria demonstrating pioneer industry status. - Tax allowance
For companies in certain designated areas or regions, the government may provide the following tax concessions:
Net income reduction up to 30% of the amount invested, prorated at 5% annually for six years, on condition that the assets invested are retained for the same duration.
Accelerated depreciation and/or amortisation deductions
An extension of tax losses carried forward for a maximum of ten years
A 10% (or lower if treaty relief is available) withholding tax rate on dividends paid to non-residents
The applicant eligible has to meet high-level-criteria for the above tax facilities:
High investment value or for export purposes
High manpower absorption
High level of local content - Investment allowance
The government offers a reduction in net income of up to 60% of the investment, distributed at 5% annually over six years of commercial production, contingent upon the retention of invested assets for the same duration. To qualify, applicants must meet business line eligibility criteria and employ a minimum of 300 Indonesian workers in the project. - Super deduction
This facility could be granted to certain businesses, such as:
60% reduction in net income of the amount of tangible fixed assets invested for labor-intensive industries, distributed throughout a certain time frame.
Up to 200% reduction in the gross income of the amount spent for human resources development in certain competency activities.
Up to 300% reduction in gross income of the amount spent for certain R&D activities in Indonesia. - Conduct a general shareholder meeting to approve the liquidation and the liquidator’s nomination
- Notify the Ministry of Law and Human Rights as well as the creditors of the liquidation and the distribution plan for the assets by newspaper notice
- All business licenses and tax numbers should be canceled or revoked; the tax office will conduct a tax audit to revoke the tax number
- Make sure creditors are paid and that any liquidation funds are distributed to shareholders (if any)
- Conduct a general meeting of shareholders to approve the liquidator’s discharge and acquittal
- Notify the Ministry of Law and Human Rights of the liquidation’s outcome. After receiving the notification, the Ministry of Law and Human Rights will deregister the company’s status as a legal entity and remove its name from the Company Registry
- Release the liquidation’s outcome in a newspaper
- PT: limited liability company (shareholders are not legally liable for company liabilities)
- CV: a proprietary company where liability falls on the shareholders
A newly established PMA company in Indonesia is typically provided with import facilities, tax holidays, tax allowances, or investment allowances.
Pioneer industries are industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy.
To provide you with accurate pricing information for our visa and immigration consultation services, we consider the complexities of your inquiries and the dynamic nature of regulations in Indonesia. As a result, the pricing for the services may vary accordingly. For pricing details, please talk to our experts.
The procedures for (voluntarily) liquidation typically involve the following steps:
Completing the liquidation process can take around two years.
You can find the difference below:
