Formation of Foreign owned Limited Liability Company (PMA)
A foreign owned limited liability company (PMA) has at least 1 foreign shareholder that owns 1 or more shares in the company. Depending on the business activities, a PMA can be fully owned by foreign shareholder can only be partially owned by foreign shareholders due to a foreign investment restriction set by the Indonesian government.
Minimum Establishment Requirements
The Indonesian government has set strict investment restrictions to foreign owned limited liability companies (PMA’s). These restrictions include:
- Minimum paid-up share capital. The minimum paid-up share capital for a PMA is 10 billion rupiah. This amount does not actually need to be deposited on the bank account of the PMA by the foreign investors. It is sufficient to prepare a capital statement letter at the notary, which explains that the investors will pay-up the share capital at later moment in time.
- Minimum investment requirement. In addition to the paid-up share capital requirement, PMA companies are required to proof that they have invested 10 billion rupiah within one year as of the date of establishment. These investments include payments to suppliers, employees and rental fees. Investments into lands and buildings are however not included.
- Restricted business fields. The Indonesian government has issued a list of business fields, called the Negative Investment List, which are either partially or fully restricted to foreign investors. Fully restricted business fields are only open for local investors (such at PT companies) and fully closed for foreign investors. Partially restricted business fields are open to foreign investment, however with restrictions. I most cases there will be a restriction on the percentage of foreign shareholding in the PMA company.
Alternative options for PMA
Due to the restrictions of a PMA set out above, a PMA is not always the perfect fit for foreign investors. There are the following alternatives available:
- Representative Office. A representative office is easy and straight-forward to setup, without any investment requirements. It can however not generate any income in Indonesia and is not allowed to sign any commercial contracts on its own behalf. The representative office’s function is to act as representative / liaison of the mother company abroad.
- Local limited liability company (PT) with nominee shareholders. For a local PT there is no minimum investment requirement and the PT is not subject to the investment restrictions as regulated in the Negative Investment List. With nominee shareholders, the foreign investors is able to maintain full control in the company.
- Employer of Record Services. With employer of record services a foreign company can hire employees in Indonesia, without the need to establish a company in Indonesia. The employees will be hired by PNB Law Firm’s fully controlled legal entity, where the daily management of the employees remain with the foreign clients
The corporate structure of a foreign owned limited liability company (PMA) is as follows:
- Shareholders: there must be at minimum 2 shareholders, where at least one of the shareholder will be a foreign shareholder. Both the foreign and Indonesian shareholders can be either individuals or legal entities;
- Board of Directors: the members of the board of director are managing the daily operations of the PMA. There must be at least 1 director in the company, which can be either foreigner of Indonesian. If the board of directors consists out of more than 1 director, a president director must be appointed. The president director can also be either foreigner or Indonesian.
- Board of Commissioners: the task of the board of commissioners is to supervise the board of directors of the PMA. The shareholder must at least appoint 1 commissioner and if the board of commissioners consists out of more than 1 member, a president commissioner must be appointed. The commissioners and president commissioner can also be either foreigner or Indonesian.
The members of the board of directors and board of commissioners are appointed in the general meeting of shareholders. Their decision is then concluded in a notarial deed of appointment.
Processing Timeline PMA
The below processing overview indicates the average processing times for the establishment of a PMA company in Jakarta. For establishments outside Jakarta different processing times may apply.