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Exploring PT PMA in Indonesia: How to establish a foreign-owned company

Exploring PT PMA in Indonesia: How to establish a foreign-owned company

PT PMA is the answer to Indonesia’s dynamic economy, which drives appeal to global investors. PT PMA, a foreign-owned company, is an entity equal to a Limited Liability Company but designed only for foreign direct investment.

Before starting to make a mark in Indonesia’s market, you need to understand how to open a PT PMA in Indonesia. This understanding must cover the legalities of navigating the streamlined registration process you’ll experience.

Understanding the nature of PT PMA in Indonesia

The foreign-owned company refers to every overseas corporation operating in Indonesia. It is categorized as a PT PMA (Limited Liability Company (LLC) with Foreign Direct Investment), indicating a company established with foreign capital.

A business is designated as a PMA if it has any foreign individual or entity as a shareholder, regardless of the percentage—100%, 51%, or even just 1%. As long as foreign shareholders are involved, the company is considered foreign-owned.

Opportunities for foreign businesses in Indonesia

Global enterprises have recently explored the prospect of establishing operations in Indonesia. Foreign investors value Indonesia as their next business venture. One reason is that Indonesia ranks among the top countries in Southeast Asia in terms of prospects, regulations, and incentives.

Furthermore, Indonesia has abundant natural resources, a sizable population, and a strategic geographic location. Indonesia offers ample business potential for local and international entrepreneurs.

To operate a successful business in Indonesia, foreign investors must establish a legal entity known as a foreign-owned company or PT PMA. Alternatively, foreigners can set up representative offices.

Representative offices may sometimes be preferable for foreigners. Operating with representative offices may circumvent the constraints of establishing a PT PMA in Indonesia and prefer managing their business operations remotely.

Read more: A closer look at how a public limited company works

Advantages of incorporating a PT PMA in Indonesia

How to establish PT PMA in Indonesia

It is widely known that setting up a PT PMA in Indonesia can be challenging. This process is designed to protect Indonesia’s economy and benefit all citizens. Once the establishment process is completed, you can start operating in Indonesia and participate in various appealing activities, including

  • Purchasing property and assets on behalf of your company
  • Registering your products (e.g., cosmetics, food, IT equipment)
  • Acquiring industry licenses, such as import licenses for importing goods into Indonesia
  • Initiating other necessary preparations for your operations, such as hiring staff, organizing office renovations, etc.
  • Proceeding to obtain work and residency permits for foreign employees in your company

Choosing the right entity type

PT PMA is regulated by the Indonesia Investment Coordinating Board (BKPM). The policy is favorable to foreign investors seeking to operate in Indonesia.

The PT PMA entity, similar to an LLC, has various legal obligations. The key difference lies in the capital requirement, which must be at least IDR 10,000,000,000 (USD 696,000).

Furthermore, such businesses in Indonesia must adhere to shareholder requirements stipulated in foreign capital investment law. Additionally, the director and commissioner must obtain work and residence permits (KITAS) to work in Indonesia.

Key requirements for establishing a PT PMA

Other than paid-up capital, several key requirements must be met before incorporating PT PMA in Indonesia. Here are the requirements that you need to know.

  • A minimum of two shareholders is required for company incorporation, ensuring a diversified ownership structure from the outset.
  • The mere ownership of even a single share by a foreign shareholder classifies the company as a PT PMA, necessitating compliance with foreign investment regulations and procedures.
  • A registered address is mandatory for the company, providing a formal location for business operations and legal correspondence.
  • Numerous business classifications (KBLI) fall under the Negative Investment List (DNI), imposing restrictions on the maximum permissible foreign ownership percentage. Conversely, classifications not listed in the negative list offer the flexibility for foreign shareholders to hold up to 100% ownership.
  • The minimum paid-up capital requirement stands at IDR. 10 billion (~700,000 USD), underscoring the commitment to sufficient financial resources for business operations.
  • Certain business activities necessitate additional licenses and/or capital beyond the basic registration requirements. For instance, activities such as importation or construction may require specialized licenses or heightened capital investment to comply with regulatory standards.

How to set up a PT PMA in Indonesia

Significant changes have been made to the registration of PMAs in Indonesia. The Indonesian government has implemented measures to simplify and ease the country’s registration and establishment of PT PMAs. The key updates in 2021 are outlined below:

Requirements for PMA Establishment

In Indonesia, setting up a PT PMA company now requires a minimum capital investment of IDR 10 billion (equivalent to USD 750,000), serving as the revised paid-up capital prerequisite.

Notably, obtaining a domicile letter is no longer a prerequisite for registering a company in Jakarta. It’s important to emphasize that conducting business activities from a residential address is strictly prohibited in Indonesia.

Entrepreneurs can choose a virtual or serviced office in the country to circumvent the substantial expense of constructing a new office.

PMA Establishment via OSS

Implementing the Online Single Submission (OSS) system has transformed the company registration process by facilitating smooth online registration. This digital platform has greatly simplified the registration procedures.

In summary, the process of PMA registration entails the following steps:

No Steps Descriptions
1 Approval of Company Name The chosen name must contain three words that are neither vulgar nor obscene.
2 Deed of Incorporation This document should include the Article of Association, with the presence of a notary public during its drafting.
3 Approval of Legal Entity The Ministry of Law and Human Rights will approve the submission of the Deed of Incorporation.
4 Registration of Tax Identification Number (NPWP) A valid NPWP is essential for obtaining other licenses, conducting banking transactions, and fulfilling tax obligations.
5 Domicile Letter This document must indicate the business location.
6 Application for NIB The NIB (Nomor Induk Berusaha) is a unique company profile number that facilitates immediate operations, provided no additional licenses are required. Alongside the NIB, a Business License(s) and Location Permit will be issued within one day following registration via OSS. The NIB also functions as an import license and customs identification number for customs clearance.
7 Application for Additional Licenses Additional permits, such as commercial and tourism licenses, may be necessary for the specific business sector before commencing operations.

Representative office as a PT PMA alternative

While this approach may prove beneficial during the initial phases of business development, it might need more flexibility for specific ventures. While it does provide a company with a legal footing in Indonesia, it does not grant authorization for business transactions or the acceptance of sales payments.

For companies solely interested in selling products within Indonesia, engaging a local partner can assist in identifying suitable agents and distributors and pursuing product licensing in the country.

This business arrangement is better suited for marketing initiatives and market research endeavors before establishing a fully-fledged legal entity like a PT PMA in Indonesia.

Guide to Doing Business in Jakarta

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Start your journey with InCorp Indonesia

InCorp Indonesia cuts through the red tape to establish your PT PMA. We specialize in company registration and business licenses so you can focus on what matters most: growing your business.

Our comprehensive services ensure seamless regulatory compliance, freeing you to pursue expansion and success. Leverage our expertise to streamline the process and achieve your entrepreneurial goals faster.

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    Pandu Biasramadhan

    Senior Consulting Manager at InCorp Indonesia

    An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Frequently Asked Questions

    To provide you with accurate pricing information for our product registration services, we consider the complexities of your inquiries and the dynamic nature of regulations in Indonesia. As a result, the pricing for the service may vary accordingly. For detailed information, don’t hesitate to contact our consultants.

    In Indonesia, there are three company types that you can establish based on your business nature, requirements, and preferences.

    • Local Company (PT): 100% local ownership.
    • Foreign Company (PT PMA): can be entirely owned by foreigners; however, restrictions in business sectors apply
    • Representative Office: a branch of the parent company overseas whose purpose is to conduct marketing-related activities without generating income or profits

    The procedures for (voluntarily) liquidation typically involve the following steps:

    • 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

    Completing the liquidation process can take around two years.

    According to the latest provision regarding Halal Product Assurance, halal certification for many consumer products in Indonesia that was previously voluntary has now been mandatory. Food and beverage products are the first Halal certified before 17 October 2024.

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