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Investment Opportunities in Indonesia
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INVESTMENT OPPORTUNITIES IN INDONESIA


Indonesia is an archipelago country with the total number of population around 253 million people. Recorded as the 4th most populated country in the world after China, India and USA. Indonesia is also an archipelago country consisting of more than 17,000 islands and making Indonesia as the largest archipelago country in the world. Based on World Bank data and other institutions, the number of middle class income in Indonesia has already reached 60% figure of the total population number.

Based on the prediction by the consultant company McKinsey & Other Companies, in year 2030 the volume of Gross Domestic Product/GDP of Indonesia shall reach up to 1,8 trillion dollar AS. Indonesia shall occupy the seventh position by the economic value of the world, above several developed countries such as England and Germany. The prediction of those analysts is based on the growth of Indonesian GDP in the last four years. The economic growth of Indonesia in year 2010 to 2012 is more than 6 percent, while in 2013 the  economic growth reaching up to 5,68 percent. Besides that, the reserved resources owned by Indonesia has also become an interesting thing. In Indonesia there are around 8,4 billion barrels of reserved oil and 182 trillion cubic feet of reserved natural gas. Both have become the primary magnet for foreign investors to invest in Indonesia.

The most updated development of the investment climate in Indonesia, among other things is marked by the continuous increase of Indonesia economic outlook as reflected from various third party’s assessment indicators as well as continual economic growth, increased number of middle class income, also maintained fundamental economics.
In reality the potential owned by Indonesia is not only having its source in its economic growth and richness of its natural resources, but also its demographic bonus that is the large number of population and mostly in their young ages therefore they are productive labors, as well as the exorbitant increase on the number of middle class income in Indonesia.  The soon valid ASEAN Community in 2015 surely will also carry several new opportunities that are necessary to be used by business world, in this case, Indonesia as the largest country in ASEAN both in the aspect of its territorial width, population number, as well as GDP, surely may become the strategic basis for operation and production.

The success of General Election holding in Indonesia this year shows the increasing maturity of democracy in Indonesia, whereas democracy along with stability and economic growth are the keys for continual economic growth. Related to this, currently there are only few countries in the area capable to integrate those three things, including Indonesia in them. Therefore, Indonesia provides strong foundation for foreign investment.

The economic growth of Indonesia in the recent several years is expected to increase the total amount of investment in Indonesia. The continuous development of Indonesia positively both in the economic field and politics, surely would create conducive and continual investment climate.

Currently a number of efforts have been continuously performed by the Government. From bureaucratic aspect, the government has applied PTSP (One Door Integrated Service/Pelayanan Terpadu Satu Pintu). Therefore investors desiring to invest are no longer required to go through long and many bureaucratic paths. Through this PTSP, the matter of permit is easier by far and PTSP has also been applied throughout all the provinces of Indonesia.

As a large country, investment opportunities in Indonesia are not available only in Jakarta, but also in various areas in Indonesia, each having its own potential and superiority. For that reason, the Government invites foreign investors to enlarge their scope of investment to other areas in Indonesia.

Indonesia is mentioned as a country with successful story of arising from its collapse. Last year, the foreign investment reached its record of 16.1 million dollar – twice as much than five years ago and almost four times larger than the previous decade. In the last two years, the stock markets have increased 133 percent and that continues to supersede the regional countries around it.

From the industrial sector, currently the government shall prepare for six favorite industrial sectors to be made as priorities in order too capture the investment opportunities because the rating of investment grade Indonesia is on the increase. Those six industrial sectors are intensive labor industries, small and middle class industries, capital goods industries, natural resource-based industries, industries with high level of growth including automotives, electronics and telemetric as well as special priority industries such as cement and petrochemical.

Selecting these six priorities, according to the government, because they can absorb large amount of labors. For example, textile industry and textile products that industry up to 2014 shall be able to absorb labors as many as 300.000 people. As for Small and Middle Class Industrial sectors are predicted capable to absorb 120.000 people per year.

The government in the near future shall arrange for the technical policies in order for the investors are interested to those six industrial sectors, even though the government has seen the barriers for investors to invest their finances in the Motherland. One of them is the regulation related to investment such as Laws on Land Procurement and Laws on Labors.
 

For those who plan to invest in Indonesia by means of moving your company situated overseas to Indonesia or who would establish new company in the form of foreign investment with its share ownership 100% or part of it by foreigner, then we can help you to immediately make it happen. We will guide and help you stage by stage in the process of establishing the company. We have had the experience for years in helping the handling to establish quite large foreign companies with many branches in various countries, running business in various sectors such as: Mining, industry, export-import trade, service, entertainment, etc. We are ready to help you in handling the registration of your company and also in handling various types of business permits necessary for your company. We have had extended experiences in the field of handling business permits in various government institutions such as documents of export-import permit, industrial permit, permits from custom office, freight forwarding and other business permits.





Ever since Indonesia's independence, foreign companies have made major investments in Indonesia to develop its resources, build infrastructure, establish manufacturing facilities for export and/or provide products and services for the domestic market. The intricacies of setting up a company and making an investment in Indonesia are many. This article will serve as but a brief introduction to the topic.

Setting up Business Activities and a Company in Indonesia

To establish a business in Indonesia, if you do not require a local legal entity for the investment proposed, you could choose to appoint an Agent or Distributor, or set up a Representative Office. Many foreign investors at the early stage of entering the Indonesia market choose to set up an Agency Agreement or Representative Office, then later after the business starts to grow they will apply for a Foreign Direct Investment Company (FDI) status.

This is referred to most commonly in Indonesia by its Indonesian acronym PMA, or Penanaman Modal Asing.

Representative Office

A Representative Office can be established depending upon the line of business and the necessary licenses issued by the related government department. The limitation of a Representative Office is that they are not allowed to conduct direct sales and cannot issue Bills of Lading.

Representative offices are set up primarily for marketing, market research, or as buying or selling agents. The related government ministries are:

  •     Representative Office from Ministry of Industry & Trade - for bilateral trade
  •     Representative Office from Ministry of Public Work - for consultant or contractor
  •     Representative Office from Ministry of Mining - for mining activities
  •     Representative Office from Ministry of Finance - for banking
  •     Representative Office from Ministry of Trading - for trading
  •     Representative Office from Investment Board (BKPM) - regional representative


Limited Liability Company or Perusahaan Terbatas (PT)

Foreign Direct Investment, most often referred to by its Indonesian abbreviation PMA, is governed primarily by the Foreign Capital Investment Law No. 25 of 2007. As a legal basis, the law is fairly accommodative to various deregulatory policies and measures to date, and those that will be taken by the government in the foreseeable future.

In addition to Investment Law No. 25/2007, PMA companies as well as other companies in their business operations are still subject to sector/industrial policies as required by corresponding ministries.

Incorporation of PMA Company

The Investment Coordinating Board (BKPM), the government body which processes and handles FDI companies, issued an important deregulation package on PMA in 2010 referred to as Presidential Decree No. 39 year 2014. It was seen as a very significant step toward a much more conducive and attractive investment environment in Indonesia. Some highlights of the new regulation:
 

  • Allows 100% FDI investment in selected areas of business
  • Limits foreign direct investment to 95%, with a minimum of 5% ownership by an Indonesian
  • Allows FDI investment with certain conditions
  • Stipulates the sectors which are closed to FDI investment (Negative List)


You can obtain a copy of the FDI application sin English from Indonesian embassies overseas or from Investment Coordinating Board office - either from the head office in Jakarta or from regional offices in the provinces.

The amount of capital to be invested in a foreign-owned company is decided by the investing parties themselves, and the BKPM approval is based on the economics and scale of the project. Foreign investment companies are basically free to choose where in Indonesia they will set up operations, with the proviso that factories must be in areas zoned for industry or in an industrial estate.

The life of foreign investment companies has been extended by allowing the renewal of the fixed/permanent operating license (IUT) for an additional 30 years. The process of incorporation of a new foreign direct investment company:

Principle License will be valid for 3 years

Step 1:
Obtain the standard form of the company deed; arrange for a notary electronically; obtain clearance for the Indonesian company's name at the Ministry of Law and Human Rights.

The uniqueness of the company name (should use 3 words) must be checked to ensure that it has not been used by another Indonesian company, to avoid rejection by the Ministry of Justice and Human Rights of the company's deed of establishment and articles of association. Because the process must be done through a computerized processing system, the reservation and clearance must be done by a notary public (because the new computerized system for non-tax state revenue payments may be accessed only by a notary public). The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not necessary.

Under Article 16 of Law No. 40 of 2007, Limited Liability Companies Companies may not use names which:

    a. have been legally used by another Company or are in principle the same as the name of another Company;
    b. conflict with public order and/or morality;
    c. are the same as or similar to names of state institutions, government institutions, or international institutions, except with the permission of those concerned;
    d. are not in accordance with the purpose and objective as well as business activities or only show the purpose and objective of the Company without its own name;
    e. consist of figures or series of figures, characters or series of characters which do not form words.
    f. have the meaning as Company, legal entity, or civil association

(2) The name of the Company must be preceded by the phrase “Perseroan Terbatas” (Limited Liability Company) or the abbreviation “PT”.

(3) In the case of a Public Company (Perseroan Terbuka), apart from the provisions referred to in paragraph (2) being applicable, the abbreviation “Tbk” shall be added at the end of the Company’s name.

(4) Further provisions regarding the procedures for the use of Company names shall be stipulated by Government Regulation.

The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same as or resembles the name of other companies.

Government Regulation No. 43 of 2011 on Use of Names of Limited Liability Companies also provides that an application to use a name that is the same as or similar to a well known trademark shall be rejected unless approval is obtained from the holder of the trademark.

Step 2:
 

  • Prepare and send the application with required documentation, compiled according to the investment plan (production chart for industry or description of the activity for services) and the planned use of business capital.
  • Set up a joint venture agreement if you are making the investment with Indonesian partners. For a consulting services company you are required make a presentation to the leadership of BKPM before applying for a Principle License.
  • Foreign Investment Regulations in accordance with the Head of BKPM Rule No. 5 year 2013, unless otherwise specified by legislation, must adhere to the following conditions:
    1. Total investment value greater than Rp 10,000,000,000 (ten billion rupiah) or its equivalent value in US dollars, excluding land and buildings;
    2. Equity and paid up of shares equal to the value of paid-up capital of at least Rp 2.500.000.000 (two billion five hundred million Rupiah) or its equivalent value in US dollars,
    3. inclusion in the company's capital, for each shareholders at least Rp 10,000,000 (ten million Rupiah) or its equivalent value in US dollars and percentage shareholding is calculated based on the value of nomimal shares.

Step 3:

Obtain the Principle License (Izin Prinsip), valid a maximum of three (3) years from the date of issuance of the principle license, except for certain sectors which require a longer project completion time and may be given an extension in accordance with an applicable period prior to giving permission.

Step 4: Incorporation of Izin Prinsip BKPM
 

  • Establish Articles of Association with a Public Notary detailing proof of capital investment, and send it to the Ministry of Justice for approval and issuance in the State Gazette
  • Registration of company address with local council (domicile). It should be in an office building or busines area/district.
  • President Director's personal Tax Identity Number (NPWP)
  • Obtain a company taxpayer registration number (NPWP) and a VAT collector number (NPPKP)
  • Registration with the Department of Industry and Trade (TDP)


Step 5: Apply for the Workers Social Security Program (BPJS Program)

 According to legal provisions on workers’ social security (Manpower Minister Regulation  12/MEN/VI/2007), it is mandatory for every company to apply for the Workers Social Security Program (BPJS), operated by the executing agency. This social security program covers occupational accident security, death security, old age security, and health maintenance.

Fixed Operating License (IUT) - Forever

Step 1:

Prepare and send the 3-month report (LKPM) of the last period to the BKPM office as well as UUG (HO) nuisance act and enviromental management (SPPL/ UKL-UPL/Amdal) to BKPM and required financial audits for several businesses, if necessary.

Step 2: Fixed Operating License (IUT)

A Limited Liability company is established either under foreign shareholders or through a joint venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability company, they must comply with Indonesian law and are considered an Indonesian company and the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.

To get a license for Change of Capital and Change of Owner the applications should be submitted to BKPM. According to BKPM, there's no charge to arrange licences.

Taxation and Labor Law

Another important matter is the Taxation and Labor Law. It is compulsory to report taxes on a monthly basis and follow Indonesian labor law.

As you can see from this very brief introduction, the process is a complicated and lengthy one and can be a virtual mine field for those who are unfamiliar with dealing with Indonesian ministries. Because of this, many foreign companies choose to acquire the advisory services of a professional investment consultant which specializes in assisting foreign companies who want to establish businesses in Indonesia.

 

 

 
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