Law & Society

Indonesia has abundant natural resources and strategic location in the international water, a large number of populations, approximately 230 million people do have the potential and capability to support the investment climate. Indonesia has also made substantial progress in the field of democracy economic reforms and security over the last decade. Indonesia is welcoming foreign capital investors. Establishment of FDI Company
This writing will focused on the procedure of Establishment of FDI Company as one of the means available to conduct direct investment in Indonesia.

In Indonesia, the core of law that regulates FDI Company are Law No. 25 of 2007 regarding Capital Investment (hereinafter referred to as “Investment Law”), and Law No. 40 of 2007 regarding Limited Liability Company (hereinafter referred to as “Company Law”).
The first thing that shall be acknowledge by foreign prospective investors is whether the business field that they wished to conduct in Indonesia is 100% open for foreign capital ownership or closed, or open with requirements. Such determination can be found in Presidential Regulation of the Republic of Indonesia No. 36 Year 2010 regarding List of Business Fields Closed ad Open with Conditions to Investment (“negative investment list”).

In event the business field that wished to conduct is apparently open with requirement, for example there exist limitation of foreign capital ownership, and foreign investor shall have Indonesian citizen and/or legal entity as another capital ownership.

It bears to note what meant by establishment of FDI Company is establishment of Limited Liability Company (Perseroan Terbatas “PT”) (hereinafter referred to as “Company”). In line with Article 7 paragraph (1) of Company Law, a Company shall be established at minimum by 2 (two) shareholders.

The process that needs to be conducted for the establishment of FDI Company may be divided into 4 (four) stages. The following are the stages, along with its general information:

Stage of prior obtaining Legal Entity Status;

At the first stage, there are several documents to be obtained:
a. Approval of the intended name of the Company;
b. Approval of Investment Plan (named Registration of Investment);

This approval is considered to be temporary license.

c. Obtain Domicile Letter From the Local Government where the company’s office will be located;
d. Deed of Establishment of the Company (Notarial Deed);
e. Minister of Law and Human Rights Approval (“MOLHR Approval”).

As regulated under Article 7 paragraph (4) Company Law, the legal entity status is obtained by approval from the Minister of Law and Human Rights to the establishment of Company through Minister Decision. is related to the responsibility of legal acts conducted by the founder and the Company. Basically, prior the obtainment of Status of Legal Entity, prospective founder of Company who conducted legal acts shall be personally liable for the cause that may arise. It bears to note that pursuant to Article 14 paragraph (4) and (5) of Company Law, such act will bind the Company if at the latest 60 (sixty) days after Company becomes a legal entity, first general Meeting of Shareholders of Company expressly states acceptance of or assumption of all rights and obligations which arise from legal acts which were undertaken by prospective founders of their proxies.

Stage of after obtaining Legal Entity Status;

At the second stage, there are several documents to be obtained:

a. Opening Bank Account;
b. Obtain Taxpayer Registration Number (“NPWP”) from the Tax Office;

Stage of obtaining Principal License;

Investment Coordinating Board requires principal license for companies with business field that obtained fiscal facility and/or in the implementation of capital investment does require fiscal facility.

The fiscal facilities that provided are:

Import duty facility of import of machines;
Import duty facility of import of goods and materials;
Proposal to obtain facility on Income Tax of Corporate.

Stage of the Company is permitted to commercially produce/operate.

At the fourth stage a Company is required to obtain:

a. Specific License (depends on the business field of the Company);
b. Permanent Business License;

It is a license that shall be possessed by a Company to commercially conduct its production/operation both production of goods and services, as an implementation of the Registration/Principle License/Capital Investment Approval, unless otherwise governed by sectored Laws and Regulations. Thus in order words, when the Company is ready to prior commercially produce or operate its Business Activity, the Company shall possess Business License

c. Company Registration Certificate. Obligation of FDI Company

As one of the means in conducting direct investment, the FDI Company has obligations arise from the Investment Law, and also obligations under the Company Law for its form of Limited Liability Company.

Herewith are some of the obligations bear by the FDI Company:
Capital Investment Activity Report (Laporan Kegiatan Penanaman Modal “LKPM”):
Reports that shall be conveyed for Company that holds Principal License;
Reports that shall be conveyed for Company that holds Company Registration Certificate.

In order to obtain legal certainty that the establishment of FDI Company and the licenses obtained is in line with the prevailing laws and regulations of the Republic of Indonesia, it is highly recommended to have consultation with Indonesian lawyers.