Viewpoints | Indonesian Investment Procedures Guidelines and Compliance Advice Handbook
Published:
2023-12-09
As an emerging market with huge potential, Indonesia is extremely attractive to Chinese companies, and Chinese companies have broad prospects for investment in Indonesia. Before making cross-border investment, Chinese enterprises need to have a deep understanding of Indonesia's investment environment, market demand and local laws and regulations, and consider possible risks and formulate appropriate market entry strategies. The author makes the following tips on investment procedures and compliance.
As an emerging market with huge potential, Indonesia is extremely attractive to Chinese companies, and Chinese companies have broad prospects for investment in Indonesia. As a developing country with a large population, Indonesia is one of the largest economies in Southeast Asia. It has a huge consumer market and abundant natural resources, especially in the fields of consumer goods, infrastructure, and energy, which provides huge business opportunities for Chinese companies. Indonesia is a key hub linking the Asia-Pacific region, and Chinese companies can use Indonesia as their gateway to expand into the Southeast Asian market. At present, trade relations between China and Indonesia are constantly developing, and trade cooperation between the two countries is constantly strengthening. The Indonesian government is committed to attracting foreign investment and has provided a number of incentives and preferential policies, including tax cuts and streamlining administrative procedures.
However, investing in any country comes with certain risks and challenges, such as laws and regulations, cultural differences, and political stability. Before making cross-border investment, Chinese enterprises need to have a deep understanding of Indonesia's investment environment, market demand and local laws and regulations, and consider possible risks and formulate appropriate market entry strategies. The author makes the following tips on investment procedures and compliance:
Company Name
The company name must comply with Indonesian law and should consist of three words. It cannot contain words that are considered vulgar and obscene in Indonesia, and cannot be the same or similar to existing companies. The availability of company names can be checked and applications submitted to the Indonesian Ministry of Commerce and Industry (Kementerian Hukum dan HAM RI) website.
Registration of Investment Coordination Body (BKPM)
BKPM refers to the Indonesian Investment Coordination Board (Badan Koordinasi Penanaman Modal), which is an Indonesian government agency responsible for promoting and regulating foreign and domestic investment. The agency manages investment approval and registration of investors, and the registration process is designed to enable foreign and domestic investors to legally conduct investment activities in Indonesia and obtain the necessary permits and support. The specific process and requirements for registration may vary depending on the nature, scale and location of the investment project. The regular process is shown in the figure:
Company establishment
The establishment of a legal entity in Indonesia is mandatory. The investor may take the form of a foreign company (PT PMA), a representative office or a joint venture with an Indonesian partner.
PT(Perseroan Terbatas) means Limited Company and PMA(Penanaman Modal Asing) means Foreign Investment. PT PMA is a form of limited liability company for foreign investment, which is a type of company set up for foreign investors, allowing foreign investors to set up companies in Indonesia and hold certain shares. PT PMA provides a relatively high degree of investment freedom and flexibility for foreign investors to set up companies in Indonesia, enabling investors to participate more freely in corporate operations and management decisions. A PMA company can be established in the following three ways:(1) a foreign investor can independently register a new company or jointly establish a company with other foreign investors;(2) a foreign investor can establish a PT PMA through the acquisition or merger of an existing Indonesian company and then transform it into a foreign direct investment company;(3) a foreign investor can obtain a company equity by investing in an existing Indonesian company.
Business License
Depending on the industry, investors need to obtain a specific business license (SIUP-Surat Izin Usaha Perusahaan) to be eligible to legally do business in Indonesia. The process is as follows:
After the successful registration of the company, the company will obtain the company registration certificate (TDP-Tanda Daftar Perusahaan) and business license, and obtain the legal operation qualification.
Capital requirements
Under normal circumstances, Indonesia's minimum registered capital for setting up PT PMA for foreign investors is 10 billion rupiah (about 4.62 million RMB, including equity and loans, but excluding land and buildings). Specific industries have certain investment amounts specified by the Minister, for example, the minimum registered capital for investment in manufacturing is 15 billion rupiah.
According to the Indonesian Company Law, the minimum paid-in capital is 25% of the registered capital, which must be injected and deposited at the time of the establishment of the company.
Tax Obligations
China and Indonesia signed the Agreement between China and Indonesia on the Avoidance of Double Taxation and the Prevention of Tax Evasion in 1989 to avoid double taxation of individuals or enterprises on the same income in both countries and to cooperate in the prevention of tax evasion.
Upon incorporation, the Company may apply for a Taxpayer Identification Number (NPWP-Nomor Pokok Wajib Pajak) to the Tax Department through the online system to obtain tax resident status and fulfill local tax obligations, including but not limited to the following:
Investors first need to register with the Indonesian Tax Authority and obtain an Indonesian Tax Authority Identification Number (NPWP). This step is a prerequisite for Indonesia to pay taxes and fees. After receiving the income, investors need to calculate their income and pay income tax according to the tax rate stipulated in the Indonesian tax law. Income tax may vary depending on the type, and investors can check the detailed tax rate table with the Indonesian Tax Office. Investors are also required to pay VAT in accordance with the provisions of the Indonesian VAT Law, including the applicable tax rate, tax liability, reporting time, etc. Business tax in Indonesia applies to specific businesses and industries, and not all businesses are subject to business tax.
Investors are required to report tax information to the Indonesian tax authorities in accordance with the prescribed time and procedures to ensure timely and accurate reporting and payment of income tax. In addition, investors are advised to keep their records, reports and other materials on tax payment to Indonesia for review and verification by tax authorities. Understanding and complying with Indonesian tax laws and regulations is essential.
Labor Relations and Labor Law
Investing in Indonesia involves a number of labor legal requirements for hiring employees, which can be summarized as follows:
Foreign employees employed by PT PMA need to apply to the Indonesian labor department and immigration department for a work permit (IMTA-Izin Mempekerjakan Tenaga Kerja Assing) and a residence permit (KITAS-Kartu Izin Tinggal Terbatas) before they can legally work and be detained in Indonesia.
land acquisition
If the investment involves land acquisition, specific regulations and procedures need to be followed. The author summarizes as follows:
If a foreign investor intends to build a house or ancillary facility on the land, the right to build the land must be transferred from the landowner by transfer (when the land right is transferred, the two parties must sign the contract in the witness of the land contract officer). The initial validity of the land construction right is 30 years, which can be renewed twice, and the maximum renewal period is 20 and 30 years respectively. Foreign investors may mortgage or transfer sovereignty over land construction and shall register with the Land Bureau.
Foreign investors who intend to carry out mining, oil and gas development, etc. on the land need to transfer the land use right from the landowner (when the land right is transferred, the two parties need to sign the contract under the witness of the land contract officer). The initial validity of the land use right is 30 years, which can be renewed twice, and the maximum renewal period is 20 and 30 years respectively. Foreign investors may mortgage or transfer the right to use the land with the consent of the land owner, which shall be registered with the Land Bureau.
The foreign investor may also agree with the land owner to enjoy the relevant land rights by way of lease. Indonesia does not limit the duration of land lease agreements, but in practice the duration is usually limited to the remaining validity of the landowner's original rights.
Environmental and industry-specific regulations
When investing in Indonesia's environment and specific industries, you need to understand and comply with specific laws and regulations. The author summarizes the possible regulations as follows:
Foreign companies can carry out any business activities under the management mode of the encouraged investment list in Indonesia. Each industry has clear regulations on the allowed business activities and the maximum shareholding ratio of foreigners. There are many potential opportunities to invest in Indonesia, but Indonesian laws and regulations may be more complicated for foreign investors. It is recommended to seek professional legal counsel to fully understand and comply with local laws and regulations, so that the company's investment projects are fully legal and compliant. Get more opportunities and greater development prospects.
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