Company Establishment: Quick Guide

Foreign companies can set up joint venture companies with local Indonesian companies or set up with 100% (one hundred per cent) equity under foreign shareholders depending on the business classification. For a foreign company establishing a venture in Indonesia, the form of company should be Penanaman Modal Asing (“PMA”) which is a limited liability company with foreign direct investment. In order to set up the PMA we should know the regulation governed by Indonesia Company Law and Indonesian Investment Coordinating Board (“BKPM”) regulations.

A. Minimum of Two Shareholders
In order to set up PMA, minimum two shareholders is required. In the event that there is only one share holder in the company, the shareholder shall then be held personally liable for all the responsibility and the District Court may wind up the company.

B. Requirements for Board of Directors (“BoD”) and Board of Commissioners (“BoC”) Composition and Members
Whenever two shareholders start up a company, one of the shareholders can be a director while the other shareholder can be appointed as commissioner. However, there are no limitations on the number of the directors and commissioners in the company and they can be re-appointed

C. Restrictions on Foreign Investment
For foreign shareholders, purchasing an existing company or setting up a company as a PMA, it is necessary to find out whether the foreign shareholder may be subject to investment restrictions. In Indonesia, in relation to the foreign investment, there are three business types of company, where 1) 100 % foreign share ownership is allowed (i.e., priority list of investment) or, 2) only limited foreign ownership is permitted, or where 3) certain type of business cannot hold any foreign investors at all. Thus it is of great importance to know before starting the business activities in Indonesia. Whether a business sector is open or restricted to foreign investment would depend on the sectors’s Business Classification Code ("KBLI”). Basically, the guidance for investors to scrutinize such possibilities is regulated under Presidential Regulation No. 49 of 2021 on changes to Presidential Regulation No. 10 of 2021 on Investment Business Activities (“PR 49/2021").

Under the PR 49/2021, investment in the following sectors is restricted:
• Cultivation and industry of narcotics class I.
• Industry of chemical weapons manufacturing.
• All forms of gambling and/or casino activities.
• Industry of industrial chemicals and industry of ozone depleting substances.
• Capture any fish species as set forth in Appendix I Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).
• Utilization and collection of coral and utilization and collection of corals from nature which are used for building materials/limestone/calcium, aquarium, and souvenirs/jewellery, as well as live and dead coral (recent death coral) from nature.

D. Minimum Investment Value and Paid-Up Capital Requirement
Current applied regulations have affected the minimum required paid-up capital which was previously set by Indonesia Investment Coordinating Board Regulation No. 1 of 2020 ( “BKPM Reg 1/2020”) at IDR 2.5 billion (approximately USD 180,000) but has been amended by the new BKPM Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (“BKPM Reg 4/2021”) which introduces the drastic shift related with the requirement for issued/paid-up capital at IDR. 10 billion (approximately USD 715,000) at least, which is the same amount as the investment value mentioned in the same law.

• Paid-Up Capital
Minimum Issued/Paid-Up Capital: BKPM Reg 4/2021 – Article 12 paragraph (7)
“The minimum capital requirement for PMA as referred to in paragraph (6) is an issued/paid-up capital of at least Rp. 10,000,000,000.00 (ten billion rupiah), unless otherwise stipulated by laws and regulations.”

One needs to note that under the Company Law, each company shall have at least 25% of the authorized capital to be issued to and paid-up by the shareholders as the requirement to establish a company and this regulation remains unchanged.

• Investment Value
Investment Value is basically the commitment of a foreign limited liability company for each of their selected business activities. In Indonesia, they recognized the KBLI to determine which is the most suitable license for investors. Each KBLI will consist of 5 digits of numbers and every type of business might have different classification code. So, the investment value will only be incurred upon the business classification code(s) and does not bind the Shareholders of the company to directly inject shares in the same amount of Investment Value. This investment value shall be fulfilled during the time the company is running its business. According to BKPM Reg 4/2021, the investment value is set at a minimum of IDR 10 billion as stipulated below:

Minimum Investment Value: BKPM Reg 4/2021 – Article 12 paragraph (2)
“The minimum investment value requirement for PMA as referred to in paragraph (1) is that the total investment is greater than Rp. 10,000,000.00 (ten billion rupiah), excluding land and buildings per KBLI business field, 5 (five) digits per location project.”

Based on the article we know if, in general, the regulation sets the standard commit Investment Value in the amount of IDR 10 billion per 5 digits KBLI. However several sectors might apply different rules such as:

• Trading, where the minimum investment value is set at IDR 10 billion per the first 4 digits of KBLI;
• Food & beverages, where the minimum investment value is set at IDR 10 billion per the first 2 digits of KBLI;
• Construction, where the minimum investment value is set at IDR 10 billion per the first 4 digits of KBLI;
• Industry, where the minimum investment value is set IDR 10 billion per 5 digits of KBLI;
• Property, where the minimum investment value is set at IDR 10 billion for:
- Property including land & building for one building/residential cluster
- Property excluding land & building for several buildings/integrated residential cluster.