FAQs: Investing in Indonesia
If you are looking to invest in Indonesia or open a new branch office, you might be interested to know about this top 10 FAQs that I'm often asked by foreign investors.
1. How do I know whether my business sector is open for foreign investment?
Answer: On April 2014, Government of RI has issued a Presidential Decree (PR 39/2014) concerning on business fields that are closed and conditionally open for investment. PR 39/2014 replaced the previous negative list (PR 36/2010). Unlike PR 36/2010, there is flexibility on PR 39/2014 for few business field intended for ASEAN investors and government-private cooperations.
2. What happen to an existng foreign investment company that has foreign’s share more than the cap under new negative list?
Answer: As it is an existing one, it does not have to follow the new negative list. However, if the company would like to expand, it is compulsory to follow the new regulation. The foreign shareholder will be given 2 years to sell its share to local partner(s). Or to put the excess under treasury stocks which will not be taken into account for devidend, general meeting of shareholder and qourum calculation.
3. How often does govt of RI issued new regulation concerning on foreign ownership cap?
Answer: Government of RI renew its negative list every 3-4 years. The previous versions were issued in 2007 and 2010.
4. How do I open a foreign investment company in Indonesia?
Answer: Indonesia applies one-door policy to ease its foreign investor to invest in Indonesia through Indonesia Investment Coordinating Board (called as BKPM) . Based BKPM regulation number 5/2013, the procedure starts with the registration for principle license to BKPM
Principle license can be obtained before or after the company incorporation. Applicant needs to submit their identity as well as the business plan. BKPM will issue the licence in 3 working days.
After principle licence obtained and the company has been legally established, it can start the commercial operation. The foreign investment (PMA) company needs to submit investment activity report to BKPM every 6 months
The next procedure is applying for busines license that requires PMA company to submit the pinciple license, company establishment certificate, Min of Law & Human Rights approval, tax id or NPWP, domicile letter (together with land certificate, lease agreement, or cooperation agreement), other related legal document from regional govt, environmental impact analisys certificate, field test result for selected business field, investment activity report, recommendation letters from ministries (if any), application letter that is signed by head of the company and stamped and power attorney letter to the person who take care of it. The regulation states that it is maximum 3 years for a foreign investment company to obtain its business license. However, BKPM might extend the period based on the company’s performance
Minimum investment for foreign investment is IDR10bn (exclude land and building) with min paid up capital of 25%.
5. BKPM sometimes extends the assessment time to grant the permanent business license to a PMA company. Why would BKPM do it?
Answer: there are several reasons for BKPM to postpone the business license granted for a PMA such as PMA company does not submit the investment activity report, minimum investment has not been reached and etc
6. What are difficulties typically encounter by new established foreign companies?
Answer: Indonesia is such an interesting market for local and foreign investors. The trigger is the positive economic growth in 2009 together with China and India during the world economic crisis. Since then, new companies have been entering the market. Existing players enhance their performance. Competition is becoming tighter not only in term of sales but also talent pool.
Infratrusture and public facilities (e.g source of information, statistical data etc) also contribute other type of difficulties as only limited available. This cause higher operational cost for the companies.
Bureaucracy is still also another type of difficulties encountered by companies in certain business fields. Indonesia has issued regulations related to regional autonomy, companies need to get the licensing from both local and regional governments. Complicated bureaucracy has sometime led private companies to find easier way to get the license. This type of difficulty should be less in the coming years as central government put serious effort to dismisnish these issues such as through curroption eradication commission (KPK).
7. What taxes are entitled for a private companies operating in Indonesia? As Indonesia plans to boost its FDI realisation, does Indonesia prepare tax incentives for new established companies?
Answer: in general, types of tax in Indonesia entitled for a company are corporate income tax, withholding taxes (article 21,22, 4(2), 23 and 26 income taxes), value added tax, land & building, stamp duty and individual income tax.
Indonesia has prepared seven tax incentives which are incentive for the exploration of oil & gas, incentives for ointermediate industries, incentives for education, incentives for special economic zones on manugacturing or tourism-based industries, incentives for development of research & development (R&D) facilities, tax holiday and tax allowance.
8. As land right permit for foreign investment companies can only be under the scheme of building right, cultivation right and right of use. How long is the time given per type of land right?
Building right - 30 years, extendible for 20 years
Cultivation right - 25 years, extendible for 35 years
Right of use- 25 years, extendible for 20 years
9. As IDR is sometimes sensitive to regional issues, can we use foreign currency to secure local transaction?
Answer: Indonesia has issued Act no 7/2011 concerning on currency states that IDR is compulsory to be used for all transactions in Indonesia. Penalty will be applied for companies using foreign currency for local transactions.
10. How would be the best way to enter Indonesia market?
Answer: Know the market to apply the most suitable market entry strategy. Engage to experience 3rd parties for incorporation and initial operational e.g market research, legal consultant, accounting & tax consultant and marketing consultant.