The Investment Coordinating Board (BKPM), the government body which processes and handles FDI companies, issued an important deregulation package on PMA in May 1994 referred to as PP-20/1994. It was seen as a very significant step toward a much more conducive and attractive investment environment in Indonesia. The 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 investmentYou can obtain a copy of the FDI application in English from Indonesian embassies overseas or from the Investment Coordinating Board office either from the head office in Jakarta or from regional offices in the provinces.
For those companies choosing to make a 100% foreign investment, there is a requirement that 15 years from the commencement of commercial operations, the 100% foreign shareholder must sell at least 5% of the firm to an Indonesian entity. A company which is initially 95% foreign owned is not subject to any divestment requirement.
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 operating license (IUT) for an additional 30 years. In other words, the initial licenses are valid for 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.
The process of incorporation of a new foreign direct investment company:
Initial License (valid for 3 years)
Step 1. Prepare and send the application with required documentation, compiled according to the investment plan. Set up a joint venture agreement if you are making the investment with Indonesian partners.
Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.
Step 3. Incorporation of SPPP 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 of State Gazette
Registration of company address with local council (domicile)
IRD registration (NPWP + PKP)
Registration with the Department of Industry and Trade (TDP)
Step 4. Key expatriate positions (work permits)
Fixed Operating License (30 years)
Step 5. Prepare and send the 6-month report (LKPM) to the provincial BKPM office as well as UUG (HO) nuisance act to the regional office of BKPM
Step 6. Incorporate facilities - Master list/APIT or property ownership
Step 7. Provincial approval for Fixed Licenses (BAP)
Step 8. Fixed License (IUT) for 30 years is issued
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 license of Change of Capital and Change of Owner the applications should be submitted to BKPM. According to BKPM, there's no charge to arrange licences.