Have you ever heard of the term Foreign Direct Investment (FDI)? Or maybe you're considering setting up a company that deals with foreign investment? If so, you're not alone!

Many people are interested in this topic because foreign investment plays an important role in Indonesia's economic growth. Based on the latest data, foreign capital flows continue to increase year after year, showing how important the role of FDI is in strengthening the country's economy.

However, how does the foreign investment process actually work? What do you need to know before deciding to set up a company with foreign capital? Let's start by understanding the basics!

What is Foreign Direct Investment?
Foreign Direct Investment or commonly abbreviated as FDI is an investment activity carried out by foreign investors in a country, in this case Indonesia. These foreign investors can be individuals, companies, or entities from abroad that want to invest in Indonesia.

The purpose of FDI is usually to open new businesses, develop existing businesses, or participate in strategic projects in certain economic sectors.

The existence of FDI in Indonesia is specifically regulated by a number of laws and regulations. Some of the legal bases related to FDI are as follows:

1. Law Number 25 Year 2007 on Capital Investment
This law is the main basis in regulating investment in Indonesia, both from domestic and foreign sources. In Article 1 point 3 of this Law, FDI is defined as an investment activity to conduct business in the territory of Indonesia conducted by foreign investors, either by fully utilising foreign capital or by entering into a joint venture with domestic investors.

2. Presidential Regulation Number 10 of 2021 on Investment Business Sectors
This regulation regulates business sectors that are open and closed to foreign investment, including restrictions on share ownership for foreign investors in certain business fields. In this regulation, there are details of priority business fields that receive special incentives to attract more foreign investment.

3. Head of BKPM Regulation No. 5/2019 on Guidelines and Procedures for Licensing and Investment Facilities
This regulation provides guidelines on the procedures for obtaining business licences, capital deposits, and various facilities for foreign investors.

With these regulations, the Indonesian government is trying to create a conducive and attractive investment climate for foreign investors, while maintaining national interests.

FDI is considered one of the drivers of economic growth through technology transfer, job creation, and contribution to state revenue through taxes and other contributions.

If you are planning to make a foreign investment in Indonesia, it is important to understand this legal basis so that every step taken is in accordance with the applicable regulations.

What is the Difference between PMA and PMDN?
You may have also heard the term Domestic Investment (PMDN). So, what is the difference between PMA and PMDN? Simply put, the main difference lies in the origin of the capital.

PMA (Foreign Investment): Capital comes from overseas or foreign entities.
PMDN (Domestic Investment): Capital comes entirely from within the country or by Indonesian citizens.
Both play an important role in the national economy, but the policies and regulations can be slightly different. FDI often gets more attention because it has the potential to bring new innovations and technologies that are not available domestically.

However, both FDI and PMDN must still follow government regulations to ensure the viability and safety of the investment.

How about the Minimum Capital Investment?
One question that often arises from potential foreign investors is: ‘How the minimum capital to establish a PMA in Indonesia?’

Based on the latest regulations set by the Investment Coordinating Board (BKPM), the minimum capital for a PMA in Indonesia is IDR 10 billion.

This is quite a significant figure, as the government wants to ensure that only investors with sufficiently strong capital can invest in the country.

Furthermore, of the total capital, a minimum of IDR2.5 billion must be paid into the company as issued and paid-up capital.

This aims to maintain economic stability and prevent unserious or speculative investments.

Requirements for Establishing a Foreign Investment Company
To establish a PMA, there are several requirements that you must fulfil. Here are some of the main requirements that you need to know:

1. As mentioned earlier, the minimum capital is IDR10 billion with a minimum paid-up capital of IDR2.5 billion.
2. Not all business sectors in Indonesia are open to foreign investment. Some strategic sectors may have certain restrictions.
3. There are some business sectors that require partnerships with local investors with certain shareholding limits.
4. All PMA companies must obtain approval from BKPM and fulfil the regulations.

PMA Establishment Process
The PMA establishment process is actually not too complicated if you already understand the steps. Here are the main stages in the PMA establishment process:

1. Proposal Submission to BKPM
The first step in the process of establishing a Foreign Investment (PMA) is to submit a proposal to the Investment Coordinating Board (BKPM).

BKPM is an Indonesian government agency that acts as the main gateway to coordinate and serve the needs of investors, both domestic and foreign.

BKPM is responsible for investment promotion, business licensing, and providing guidance and assistance to potential investors on investment procedures in Indonesia.

Through an electronically integrated licensing system, the Online Single Submission (OSS), BKPM has simplified the licence application process for FDI companies.

Investors can access the OSS system to submit their investment proposal, including their business plan, type of business, and the amount of capital they intend to invest.

The purpose of this process is to ensure that investment activities are in accordance with applicable laws and national economic policies.

2. Company Name Registration
Once the proposal has been approved by BKPM, the next step is to register the company name. This process is overseen by the Ministry of Law and Human Rights (Kemenkumham) through the Directorate General of General Legal Administration (AHU) system. In terms of naming the company, PMA must comply with several rules, such as:

Unique and Unequal Names
The name of the PMA company must be unique and must not be the same as other companies that have been registered in Indonesia. The aim is to avoid confusion in the market and protect trademark rights.

Use Indonesian Language
Based on the Minister of Law and Human Rights Regulation No. 13 of 2021, company names must use the Indonesian language. Names that use foreign or mixed languages must obtain prior permission.

Comply with Norms and Values
The company name must not contain words that are contrary to the norms of decency, morality, or contrary to applicable laws.

The company name registration process goes through the AHU system and usually takes a few days. Once the company name has passed the review, the next step is to draft the company deed of establishment.

3. Drafting the Deed of Establishment
The deed of establishment must be drawn up with the help of a notary deed and written in Indonesian.

4. Capital Deposit
The minimum capital deposit must be in accordance with applicable regulations.

5. Business Licence Processing
Once the company is officially established and the capital is deposited according to the regulations, the final step is to apply for the various business licences required to operate legally in Indonesia.

This process includes licences specific to the PMA company's business sector. Some examples of business licences that are generally important to obtain are:

Industrial Business Licence
If the company is engaged in the manufacturing or industrial sector, an industrial business licence is mandatory to ensure that the company operates in accordance with the prevailing industrial standards in Indonesia.

Trade Business Licence (SIUP)
For companies engaged in the trading sector, such as distribution of goods or export-import, you need a SIUP to carry out trading activities legally.

Environmental Permit (AMDAL/UKL-UPL)
If a company operates in a sector that may have an impact on the environment, such as mining, energy or manufacturing, it is required to obtain an Environmental Impact Assessment (AMDAL) or Environmental Management and Environmental Monitoring Efforts (UKL-UPL).

Examples of companies that require this permit are companies engaged in mining or infrastructure development.

Once all the above processes are fulfilled, the certification and PMA licence will be issued.

Source: kontrakhukum.com