13 Foreign Investment Rules in Indonesia
You might be interested in having foreign investment in Indonesia due to its current economic growth. It may also because of other business opportunities. However, to start investing in Indonesia is not an easy task especially if you are inexperienced. There are many rules and laws to obey while you are investing in the country.
Starting a foreign investment may be familiar with How to Start a Business in Bali. But there are specific things that will make the whole investment smooth. Here are the 13 Foreign Investment Rules in Indonesia that can help you out.
1. Establish PMA Company
When you want to invest in Indonesia, you will need to establish a PMA company. A PMA company is specifically for foreign investment. A PMA company will give you a legal status that would give your business activities the green light. However, the company still has to follow the business regulations in Indonesia. It takes around 10 weeks to set up a PMA company.
2. Set Up Representative Office
Other than establishing a PMA company, you may choose to set up a Representative Office instead. A Representative Office will give you the legal status to carry out your business within a limited range. You can use this office for market research. Moreover, this office can send information to foreign office outside Indonesia. The process of setting up a Representative Office could take up to 6 weeks. The office only has legal status for around 5 years.
3. Locals Must Not Hold Shares
A local party cannot hold a share for the foreign investment. It is prohibited for a local party to replace the foreign party in the case of holding the share. This law will help in avoiding company practising illegal ownership of an investment. Since this is a foreign investment, the foreign party is the only people allowed to have the right over holding the share.
4. Have Minimum Amount of Investment
In order to have a foreign investment in Indonesia, you will need to have the minimum amount of investment in the country. You will need around Rp. 10.000.000.000 in total for the investment. The amount changes according to the value of foreign currency.
5. Attain Business Permit
Other than setting up a PMA company and a Representative Office, you will also need to have a business permit. This business permit will allow you to start your business activity. This business license must be approved by the Ministry of Law and Human Rights in Indonesia.
6. Sign Up for Tax Identification Number
In Indonesia, tax identification number is shortened to NPWP. You need NPWP to pay your taxes. The PMA company that you have can send out a form to apply for NPWP. Provide all the necessary documents to ensure a smooth process such as your identification copy and the company license.
7. Pay Taxes
To carry out foreign investment in Indonesia, you will also have to pay taxes. There are many Types of Tax in Indonesia. You have to dutifully pay your taxes while investing in Indonesia. There is tax resident, land and building tax, regional taxes and retribution too. You can directly pay these taxes to the authorities or you may also use a third party to help you out.
8. Employ Locals and Expatriates
In the case of foreign investment in Indonesia, you are allowed to employ both expatriates and locals. But, there are positions that are not allowed for expatriates to fill in according to the rules in Indonesia. For example, the position of human resources must be filled by Indonesians only. This rule has been set up by the Ministry of Manpower in Indonesia.
9. Working Permit for Expatriates
For a PMA company in the foreign investment in Indonesia, expatriates are allowed to work within the company. However, they must have a work permit that has been officially issued by the Indonesian authorities. The work permit will give the expatriates the legal status for working in the Indonesian territory. Read Deportation Rules in Indonesia to avoid having your workers deported from Indonesia.
10. Higher Numbers of Local Workers than Expatriates
The Ministry of Manpower in Indonesia requires a particular rule when it comes to hiring both locals and expatriates. A PMA company may employ both but for every one expatriate, there must be three Indonesians employed in the company as counterparts. While hiring locals, you should also increase your knowledge on Indonesian Work Culture and the Business Ethics in Indonesia as well.
11. Report Fund Transfer
There are no rules on exchanging foreign currency. Foreign investors can send out from Indonesia and receive fund in Indonesia. However, the only thing that foreign investors need to remember is to report this process of fund transfer. Reporting a fund transfer can be done only through Bank Indonesia.
12. Provide Progress Report
Foreign investors in Indonesia have to provide progress report routinely. In the beginning year of the company, there must be at least 4 reports given within a year. Once the company has entered its second year, the company is then allowed to only give at least twice each year. The company may submit the progress report through e-mail. It may also send out a physical copy to the authorities.
13. Established in the Indonesian Industrial Areas
Your foreign investment company must be established within the specific regions in Indonesia. These regions are specialised for foreign investors to carry out their business. These regions are the special 32 industrial areas inside Indonesia. They include Semarang, Integrated Port of Java, Krakatau Cilegon and Modern Cikande. The Indonesian government used to only allow 14 regions but in the year 2016, the number is increased to 32. Thus, there are more areas that you can choose.
Indonesia could become a great choice for your foreign investment. Carry out a lot of research before jumping into the investment procedure in Indonesia. The rules of investment business in Indonesia can be quite strict due to all the regulations that you have to follow through.