To PMA or not to PMA? That is the question!
Dreaming about setting up and starting your own business in a tropical country, has been the dream of many. Leaving the daily rut behind to strive for something you truly believe in.
Many of us have regularly daydreamed about it. To only succumb after learning how, at first sight, difficult it is, to acquire all the necessary paperwork and documents. Even before a single deal or sale, has been made.
While most of the information can be found online(https://www.bkpm.go.id/), few questions remain. Especially for those who decided to overcome that first step and start their own business in Indonesia.
- Do I need a local company (PMDN)?
- Maybe a foreign owned entity (PMA)?
- Or could I do with a representative office (KPPA)?
- And what do they mean with investors ITAS?
Below we will explain these various structures in short and explain the differences between them.
In Indonesia as a foreigner, you can generally set up the following entities:
- a local company (PT. PMDN).
- a foreign direct investment company (PT.PMA).
- A representative office (RO or KPPA).
(Note: If you are an Indonesian citizen options such as a C.V or private firm are possible, unfortunately these formations do not apply to foreigners wishing to set up a company in Indonesia. However, if you are married to an Indonesian spouse, you can work for or with that company as the spouse is the business owner and you have the right to assist.)
You can find a short description of used abbreviation when applying for licenses here and here
PT PMDN/Local company (Penanaman Modal Dalam Negeri):
When setting up a local company, PT PMDN, there is no foreign capital involved, but you need two trustful local (Indonesian) shareholders. They are only responsible for the investment. Not personally liable in case of a bankruptcy. The shareholders who could act as a nominee will sign an ‘trustee’ agreement to prevent the interests of the main financier of the company.
The interesting thing is, that a foreigner can become a director of that company. That makes sure he can obtain a work- and stay permit.
Be advised however, if the company wants to hire a foreigner, a minimum paid-up capital of IDR. 1 billion or about USD 78.000 is needed in hard cash or other assets. Mentioning this capital in the SIUP/TDP is (un)officially required by MOM.
To overcome liquidity issues in the incorporation phase, usually a capital statement letter is signed with the shareholders. This letter states that the shareholders have enough funds to inject the capital into the company after the incorporation. So, there is no immediate need to come up with the capital.
Downside for foreign investors is that they need two Indonesian shareholders, so trust is of the utmost importance here
PT PMA/Foreign direct investment (Penanaman Modal Asing):
New: two-year valid stay- and work permit (ITAS) for major shareholder / director
For the ordinary investor in general money is or can be the issue. But when it is not, the limited liability company with foreign shareholders (PT PMA) is the right choice. Foreign direct investment is allowed for most business activities.
Certain businesses though, mostly in the Agricultural sector and for small and medium businesses that can be easily done by Indonesians and can be (partly) restricted for foreign ownership. The Negative List (DNI) that is updated almost every two years sheds a light on this. Studying the DNI learns that Indonesia is opening its markets, so more and more foreigner investors will come.
The PMA can have two foreign shareholders. The shareholder/investor can also be the director. The main good thing though is, that If you are a main shareholder, you can obtain a two-year valid investors ITAS. Of course, you can also become a director of that company and obtain a work- and stay permit.
The company capital must be at least IDR 10 billion, where a minimum paid up capital of IDR 2.5 billion or about USD 170.000 is mandatory. Again, to overcome liquidity issues in the incorporation phase, usually a capital statement letter is signed with the shareholders. This letter states that the shareholders have enough funds to inject the capital into the company after the incorporation. So, there is no immediate need to come up with the capital.
The Representative office (RO or Kantor Perwakilan Perusahaan Asing):
The Representative Office can be established by any foreign company. The purpose is to manage the interests of the company in Indonesia. So, the KPPA can be useful, if you already have a company abroad or are related to it and you want to explore the chances in Indonesia.
Though the KPPA activities are limited to its role as supervisor, liaison, coordinator and to manage the interest of the company inside or outside Indonesia. It is a useful legal entity. It can be a major intermediate and arrange sales for the mother company. By law all sales must go directly between the foreign company and the Indonesian clients.
Interesting is that a foreigner can become the CRO (Chef Representative Officer) and obtain a work permit (RPTKA), stay permit (KITAS), travel permit (MERP) and all civil registrations (STM-SKTT) needed for a safe and pleasant stay in Indonesia.
To set up a KPPA no investment is needed. Just the costs of your agent.
We are here to help you set up your own PMA or PMDN!
Above we have outlined a brief basic description of each legal structure. As you will experience when you follow your dream, the legalities or formalities are not at all such an insurmountable barrier as is thought of Indonesian bureaucracy. When approaching us for further information we hope to take away most uncertainties in the startup phase of setting up one’s company. No matter if you are a person hoping to fulfill his/her dream by or a foreign company looking to expand into Indonesia, The Permit House is ready to guide you through Indonesian bureaucracy.
(Disclaimer: This completes the general information, based on today’s knowledge and always subject to sudden changes implemented by the respective government agencies. This is only an overview aiming to give a better understanding. It is not meant to be complete and a guaranteed description of the whole process. Each case has its specific sidelines, which are only fully known, once we start the (preparation of the) application)