Investing in Indonesia as a foreigner: an overview
Jack Wiston
Why invest in Indonesia?
Indonesia has a rapidly growing economy with exports at a high, projecting the country to be the fourth-largest economy by 2045. This creates a very attractive environment for foreign investment, either as creating a company based in Indonesia or through purchasing shares of an existing company.
The investment process in PT PMA
Foreign investment in Indonesia is governed by Investment Law No. 25 of 2007 concerning Capital Investment (“Law 25/2007”). This law helps provide foreigners with the same treatment as domestic investors. A foreign investor is defined as any foreign individual, corporation or government conducting investment within the territory of the Republic of Indonesia (Article 1 s.6 Law 25/2007). A limited company (“PT”) with solely domestic investment is classified as ‘penanaman modal dalam negeri’ (“PMDN”). Article 1 s.1 Law 25/2007 describes domestic investment as investment activity by domestic investors, using domestic capital within the territory of the Republic of Indonesia.
Should a foreigner invest into a domestic company, the activity then becomes ‘penanaman modal asing’ (“PMA”). PMA may only occur in a limited liability company (Art. 5 s.2 Law 25/2007). A PT PMA can have investment undertaken by foreign investors with foreign capital, or as a joint venture with domestic investors.
Foreign investment can be achieved through a subscription of shares at the time of incorporation, a purchase of shares, or another method in accordance with the provisions of laws and regulations, as described in Article 5 s.3 Law 25/2007.
There is a minimum requirement for an investment value of IDR 10 billion. The exception is for technology-based start-ups in special economic zones (KEK). There is no longer a requirement for a minimum IDR 2.5 billion to be paid up, instead the capital must be fully paid up after April 2021 in accordance with BKPM Regulation No. 6 of 2021.
Should a foreign purchase of a company’s shares be completed, data adjustments must be made through amendments to the articles of association by general meeting. Article 21 Law 40/2007 requires these changes to be approved by the Minister of Law and Human Rights. Changes must also be made through online single submission (OSS) in accordance with Article 7 Regulation of the Minister of Trade 76/2018. Once completed, the company can then change business identification number and other licences related to its business activity. Changing from domestic to foreign status may result in changes to the management; this must also be reported.
Restrictions and requirements
There are some limitations to the nature of the business a foreigner can invest in. The following are considered closed for investment: Business fields that cannot be cultivated such as agriculture, forestry, energy and public works, and the Alcoholic liquor industry. Furthermore, there are other fields where investment is allowed but with restrictions on foreign capital ownership, such as business activities in the form of leasing. These limitations do not apply to foreign investors who have been approved in certain business fields prior to the Presidential Decree 10/2021 being enacted, and to investors who obtained special rights based on an agreement between Indonesia and their country of origin.
Other considerations
A foreign investor also benefits from a limited stay permit for two years, after which multiple reentry permits or a permanent stay permit is available (Art. 23 s.3 Law 25/2007). Provided the foreigner is a direct investor and director/commissioner with a minimum of IDR 1.2 billion in shares, there is also no requirement for a work permit for undertaking work within the company (Art. 30 Minister of Manpower Regulation No.8 2021).
It should also be noted that individual foreign investors are prohibited from owning land in Indonesia. They are limited to a leasing period of 80 years, which can be extended up to 95 years if the land is used for strategic business activity. Foreigners can own a house in Indonesia with a minimum size of 150 square metres and a minimum price of 10 billion rupiah. This is based on the current regulation that allows foreigners to own property in Indonesia, which was issued in 2015. It’s worth noting that this regulation only applies to houses, not land.
However, there are some exceptions to this rule. For example, foreign individuals or companies may be able to obtain land in Indonesia by way of a leasehold arrangement, where the land is leased from the owner for a certain period of time. In addition, foreigners who are married to Indonesian citizens may be able to own land under certain circumstances. It’s worth noting that these arrangements are subject to specific regulations and requirements, and it’s important to seek professional legal advice before entering into any such agreements.
