Procedures For Russian Companies To Establish A Company In Indonesia

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Процедуры для российских компаний по созданию представительства в Индонезия

Russian businesses looking at investing in Asia are becoming increasingly attracted to Indonesia – it has a large and increasingly prosperous consumer base of 260 million, spending US$600 billion in 2018. Consumer confidence is also high. Recent reports here by DBS Singapore and here by Deloittes point to a booming, if disparate domestic economy, while our recent article What Products & Services Is Indonesia Buying From Russia? provides an introduction to the opportunities Russian exporters have in the Indonesian market. Russian exporters may shortly have a massive impetus too – Indonesia is currently negotiating a Free Trade Agreement with the Eurasian Economic Union. hat is expected later this year and will provide a boom for exporters to this market.

Serious Russian businessmen will sooner or later need to establish operations in Indonesia to facilitate trade. In this article we explain the procedures.

Key Points:

  • Establishing a foreign investment company is the preferred strategy for international investors looking to have a legal presence in Indonesia.
  • Foreign investors are advised to study the Negative Investment List to see which sectors are open to foreign ownership.
  • Foreign investment companies are eligible to receive various financial and non-financial incentives, particularly for those engaging in pioneer industries.

Establishing a foreign investment company or PT PMA, is the preferred structure for companies looking to have a legal presence in Indonesia. Foreign investors will need to have an investment plan of a minimum of 10 billion Rupiah (US$750,000) and a minimum paid-up capital equivalent of 2.5 billion Rupiah (US$178,000).

Prior to setting up, applicants should study the Negative Investment List (NIL) to see which business sectors are unavailable or restricted for foreign ownership. For business sectors that are restricted, foreign investors will need to engage in a joint venture with a local company.

Set up requirements for a foreign investment company

According to the Indonesian Investment Coordinating Board’s (BKPM) Regulation No 5 of 2013, investors looking to incorporate a PT PMA need to adhere to the following requirements:

  • A total investment plan of a minimum of 10 billion Rupiah (US$750,000) (excluding land and properties);
  • A minimum paid up capital of 2.5 billion Rupiah (US$178,000 or 25 percent of the total investment);
  • Appointment of two shareholders (these can be foreign individuals or corporations);
  • There must be minimum equity of 10 million IDR (US$715) per share;
  • The appointment of at least one commissioner and a director (these can be held by foreign individuals); and
  • The director will be responsible for running the day to day activities of the company.

Set up process for a PT PMA

  1. Reserve a company name with the Ministry of Labor (which should not be similar to the name of other companies or use vulgar language);
  2. Establish a legal entity with the company’s activities stated in the Deed of Establishment (this must be done with a local notary and the Deed of Establishment will have to be ratified by the Ministry of Law and Human Rights);
  3. Obtain a taxpayer identification number from the local tax office and domicile letter from the district government;
  4. Obtain a Single Business Number (NIB) by applying through the Online Single Submission system (the NIB applies as the company’s import identification number, customs ID, and registration certificate; the NIB will also automatically register your company under the government’s health and social security scheme); and
  5. Some companies may need to apply for additional licenses (such as for mining and fintech) based on the type of industry.

Advantages of PT PMAs

There are several advantages to PT PMAs, including:

  • Special financial and non-financial incentives, particularly in pioneer industries;
  • Incentives for setting up in special economic zones (SEZs);
  • Foreign investors can own as little as one percent and as much as 100 percent of the company (depending on the industry);
  • Able to participate in government-sponsored business tenders in the country;
  • Ease of processing for business licenses;
  • Ease of processing for work permits;
  • Lower tax and import duties;
  • Simple organization structure (requiring only one director, one commissioner, and two shareholders); and
  • Ability to sponsor foreign executives and employees.

There are no restrictions on where the PT PMA can set up in the country, but the business can only focus on one specific sector or area.

Moreover, all applicants will need approval from the BKPM and should submit an investment plan (this must show their intended investment realizations).

A note on the local limited liability company

Russian investors who want to operate a local limited liability company (PT PDMN) should understand that this can carry legal uncertainties as a PT PDMN can only be owned by Indonesian citizens.

According to Article 33 of the Investment Law of 2007, foreign investors are prohibited from making an agreement that states the share/ joint ownership in a company is on behalf of another party. Also known as a ‘nominee agreement’, foreign investors have used such arrangements to avoid regulations and requirements that apply to them.

This carries inherent risks as the local shareholders will have full control of the business and the foreign investors’ rights will not be recognized by the law.

Foreign investors who cannot afford to establish a PT PMA can engage in joint ventures or partnerships with domestic firms. This will also enable investors to enter industries that are restrictive for foreign ownership without having to face the legal ramifications.

Another option would be to buy an established PT PDMN, but this entity would need to be converted to a PT PMA. This would also mean having an investment plan of a minimum 10 billion Rupiah (US$750,000) and paid-up capital of 2.5 billion Rupiah (US$178,000).

Numerous Russian businesses have already invested in Indonesia, taking advantage of the huge potential consumer market. Kamaz are one example. With a GDP growth rate of 5%, Indonesia also offers plenty of scope for Russian exporters and manufacturers looking to diversify into Asia. Our firm, Dezan Shira & Associates, has offices in Jakarta and can assist. Please email Maria Kotova at indonesia@dezshira.com for advise.

 

Related Reading

  • Setting up in Indonesia
    After overcoming the Asian financial crisis in 1998, Indonesia developed into a vibrant democracy with the largest and most dynamic economy in Southeast Asia. The country’s GDP has grown at a consistent pace at just above five percent in the past year. In this issue of the ASEAN Briefing magazine, we begin by introducing Indonesia’s business environment by highlighting its major industries as well as its tax and visa regulations.

 

About Us

Russia Briefing is produced by Dezan Shira & Associates. The firm has 15 years of experience in assisting foreign companies into India and has 3 offices throughout the country. We have assisted numerous Russian companies into India. For assistance please contact Maria Kotova at russia@dezshira.com or visit us at www.dezshira.com. Readers may also refer to our India Briefing website at www.india-briefing.com for further technical advise on establishing and operating a business in India.

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