4 Misconceptions Regarding the Establishment of a PMA Company in Indonesia

4 Misconceptions Regarding the Establishment of a PMA Company in Indonesia

4 Misconceptions Regarding the Establishment of a PMA Company in Indonesia

29 Dec 2020

4 Misconceptions Regarding the Establishment of a PMA Company in Indonesia

Indonesia is one of the countries in Southeast Asia that has the potential for natural resources and a well-developed economic climate. Besides, the Indonesian government keeps trying to make the access to investment development easier by issuing many laws and regulations related to simplifying licensing. These things have led to an increasing number of foreign investors who are planning and interested in developing their business in Indonesia.

However, as there are many foreign investors developing their business in Indonesia, there are many misconceptions or things that are often misunderstood regarding the establishment of a Foreign Investment Company (PMA) in Indonesia. This article will explain what misconceptions often occur regarding the establishment of PMA in Indonesia and what the actual rules are.

  1. Authorized Capital is a Minimum of 10 Billion Rupiah

Many foreign investors understand that the capital requirement to set up a PMA in Indonesia is a minimum of 10 billion rupiah. This is not wrong, but it is often not understood that the value of 10 billion rupiah is for one business sector of 5 (five) digits Indonesia Standard Industrial Classification (KBLI) per project location. This provision is regulated in Article 6 paragraph (2) point a of BKPM Regulation Number 1 of 2020 concerning Guidelines for the Implementation of Business Licensing Services (BKPM Regulation 1/2020).

Furthermore, in Article 6 paragraph (3) point a of BKPM Regulation 1/2020, it is excluded for large trading companies to have investment value of 10 billion per the first two digit of the KBLI. Thus, if a foreign investor wants to do a large trading business of several different goods, the investor can have 10 billion as his authorized capital as long as the initial two digits of the KBLI traded goods are the same.

Another exception is for PMA whose business activities are food and beverage services, the investment value of 10 billion applies as long as the business is still in one city. Furthermore, this also applies to PMAs engaged in construction. Namely the minimum investment value of 10 billion as long as it is still in one activity.

Thus, foreign investors first need to make sure whether the business sector being established consists of several KBLIs or not. Then, it needs to be traced again, whether its business activities are included in the exemption as described above because it is not merely the requirement for foreign investment is only 10 billion.

  1. An Investment Value of 10 Billion Does Not Need To Be Fulfilled (?)

The understanding that the investment value of 10 billion does not need to be fulfilled at the time of PMA establishment is very common among foreign investors. Actually, the statement is true because based on Article 6 paragraph (2) point b of BKPM Regulation 1/2020, the obligations that must be fulfilled at the time of establishment as authorized and issued capital are at least 25% of the total investment value. Therefore, what investors need to fulfill is IDR 2,500,000,000 (two billion five hundred million Rupiah).

However, foreign investors often assume that as long as the authorized capital is included in the Deed of Establishment and meets the investment value of 25% of the authorized capital, it is no longer necessary to fulfill the investment value. This is not quite right because based on Article 6 paragraph (5) of BKPM Regulation Number 5 of 2019 concerning Amendments of the Investment Coordinating Board Regulation Number 6 of 2018 concerning Guidelines and Procedures for Licensing and Investment Facilities (BKPM Regulation 5/2019), the total value of the investment as authorized capital must be fulfilled within 1 (one) year from the date the company obtained a business license.

Thus, right after the foreign company obtains its business license, it is obliged to start fulfilling the total investment value stated in the Deed of Establishment as Authorized Capital.

Also Read: Terms & Procedure Establishment PT PMA Latest

  1. Directors and Commissioners Can Be Served by the Same person

Another misconception that is often done by foreign investors is that a person can simultaneously hold the position of director and commissioner in a PMA company. This is because corporate laws in several other countries allow it to occur where there is only one person acting as manager of the company. Whereas in Indonesia, the positions of commissioners and directors in a company must be held by different person.

Law Number 40 of 2007 on Limited Liability Companies (UUPT) clearly regulates the duties and obligations of the directors and commissioners. Directors and commissioners have specifically different duties, responsibilities and authorities, so it is impossible for the two positions to be held by the same person in a company. Moreover, the duties of the commissioners are to supervise whether the directors have acted in accordance with the articles of association and the legal provisions.

  1. Foreign Directors and Commissioners who do not live in Indonesia do not require a work permit

Many foreign investors think that Foreign (WNA) Directors and Commissioners who do not live in Indonesia do not need a work permit. In simple terms, they assume that a work permit must only be obtained by foreigners who stay and reside in Indonesia during their term of office. However, this perception is not quite right.

Foreigners who hold positions as Directors or Commissioners in a PMA in Indonesia are required to have a Work Permit even though the foreigner does not live in Indonesia and performs all his work remotely.

Article 7 paragraph (1) of Presidential Regulation Number 20 of 2018 concerning the Use of Foreign Workers (Perpres 20/2018), states that every Foreign Workers (TKA) Employer who employs TKA must have a Manpower Utilization Plan (RPTKA), then proceed with the submission of Notifications and payment of Non-Tax State Revenue (PNBP) in the form of a Foreign Manpower Compensation Fund (DKPTKA).

However, if the foreign director or commissioner owns shares in the company, then they are not required to have RPTKA as stipulated in Article 10 paragraph (1) point a of Perpres 20/2018. Thus, Directors or Commissioners who do not need a work permit are those who also own shares in the company. The minimum required share value is 1 billion rupiah.

Conclusion

Before establishing a foreign company in Indonesia, it is best to have a discussion and ask for advice from experts because there are many misconceptions that often circulate among investors regarding the establishment of PMA in Indonesia. This misconception can have fatal consequences if it is continued because the business actors can be subject to sanctions in accordance with the regulations applied.

If you need advice and direction in the process of establishing a PMA, please contact BP Lawyers at: ask@bplawyers.co.id or 082112341235