Comprehensive Guide to Establishing a PMA in Indonesia: Navigating Legal Requirements for Foreign Investment

Businesses Allowed to Use PMA and How to Establish a PMA from a Professional Lawyer's Perspective

Indonesia offers vast investment opportunities, particularly through Foreign Direct Investment (Penanaman Modal Asing or PMA). Establishing a business under the PMA structure gives foreign investors access to Indonesia's growing market while benefiting from favorable investment regulations. However, understanding the types of businesses allowed to operate as PMAs and the legal requirements to establish one is crucial for ensuring compliance with Indonesian law.

In this blog post, we will explore the types of businesses permitted for PMAs and provide a detailed guide on how to establish a PMA in Indonesia from a professional legal perspective. This information is designed to help investors navigate the legal landscape and successfully set up their operations in Indonesia with the support of our law firm.

Types of Businesses Allowed Under PMA

Not all business sectors in Indonesia are open to foreign ownership. The Indonesian government regulates which industries are open to foreign investors through Presidential Regulation No. 10 of 2021 (commonly referred to as the Positive Investment List). Under this regulation, the government categorizes industries into fully open, conditionally open (with restrictions), and closed sectors for foreign investment.

Here are some key sectors where foreign direct investment through PMA is permitted:

1. Tourism and Hospitality Sector

Foreign investors can fully own hotels, restaurants, travel agencies, and tourism-related businesses. Given Indonesia’s booming tourism industry, particularly in places like Bali, this sector is highly attractive for PMA.

2. Manufacturing and Processing Industries

Manufacturing offers extensive opportunities for PMA, especially in sectors such as textiles, food processing, automotive, and electronics, which are essential to Indonesia's industrial development.

3. Financial Services and Fintech

While heavily regulated, certain areas within financial services and fintech are open to PMAs. This includes insurance, securities companies, and financial technology providers.

4. Infrastructure Development

Sectors like toll roads, ports, and airports are open to PMAs, and foreign investors can participate in large-scale infrastructure projects that are crucial for Indonesia’s national development.

5. Renewable Energy

Foreign investors are encouraged to participate in renewable energy projects such as geothermal, solar, and wind power, in line with Indonesia's commitment to cleaner and sustainable energy.

Legal Foundations for PMA

To provide a solid legal foundation for establishing a PMA, it's essential to understand the key laws governing foreign investments in Indonesia. These include:

1. Law No. 25 of 2007 on Investment

This is the main law regulating investments in Indonesia, both domestic and foreign. It sets the rights and obligations of investors, including dispute resolution mechanisms and guarantees for non-discrimination and equal treatment.

2. Presidential Regulation No. 10 of 2021 on Investment

This regulation outlines which sectors are open for foreign investments and the conditions for participation in those sectors. It replaces the previous **Negative Investment List**, significantly opening up more industries for foreign ownership.

3. Regulation of the Minister of Investment No. 5 of 2021

This regulation provides specific guidelines for investors on obtaining business permits and compliance with the Online Single Submission (OSS) system for company registration and licensing.

Steps to Establish a PMA in Indonesia

From a legal perspective, setting up a PMA involves several critical steps, each of which must be handled carefully to ensure compliance with Indonesian regulations. As professional lawyers, we offer tailored legal services to streamline this process for you.

1. Determine the Business Classification

The first step is identifying your intended business sector and ensuring it is on the Positive Investment List, allowing foreign investment. Some sectors may require local partners, and others may have restrictions on the percentage of foreign ownership.

2. Drafting the Deed of Establishment and Articles of Association

The company deed and articles of association must be drafted in Indonesian and include information about the shareholders, business scope, and capital structure. These documents must be notarized and registered with the Ministry of Law and Human Rights. This is where our law firm can assist you by drafting the required documents to meet legal standards.

3. Obtaining a Business Identification Number (NIB)

The NIB is the core permit required to legally operate a PMA in Indonesia. It is issued through the OSS (Online Single Submission) system managed by the Indonesian Investment Coordinating Board (BKPM). The NIB functions as a business license, import license, and customs permit, among other things.

4. Acquiring Business License and Operational/Commercial License

After obtaining the NIB, the company must secure specific business licenses depending on its field of operation. These licenses also need to be processed through the OSS. The business license authorizes the company to begin its operations, while the operational/commercial license allows it to conduct commercial activities.

5. Meeting Minimum Capital Requirements

A PMA in Indonesia is subject to a minimum capital requirement, which is essential to legitimize foreign investment. As of current regulations, the minimum paid-up capital is IDR 10 billion (approximately USD 700,000), with at least IDR 2.5 billion (approximately USD 175,000) as placed capital. These funds must be clearly documented and reported.

6. Fulfilling Additional Regulatory Requirements

Depending on the business sector, certain additional permits or licenses may be required, such as environmental permits or specific approvals from ministries. Our legal team will ensure that all these additional requirements are addressed to prevent delays.

Why Choose Professional Legal Services for PMA Establishment?

Establishing a PMA is not merely about completing paperwork. It involves navigating a complex regulatory landscape and ensuring that all legal obligations are met. By choosing our law firm, you gain access to expert legal advice, meticulous document preparation, and ongoing support throughout the process. Here’s how we can help:

• Legal Compliance: We ensure that your PMA complies with all applicable Indonesian laws and regulations, reducing the risk of future legal challenges.
• Efficient Processing: With extensive experience in working with Indonesian authorities, we can expedite the registration process and manage all bureaucratic hurdles.
• Tailored Advice: Every business is unique, and we offer customized legal strategies to align with your business goals and minimize risks.
• Post-Establishment Support: Beyond registration, we provide ongoing legal counsel to support your company’s growth and compliance with Indonesian law.

Conclusion

Establishing a PMA in Indonesia opens the door to tremendous business opportunities. However, navigating the legal process requires professional guidance to ensure that every step is taken correctly. Our law firm is here to provide you with comprehensive legal services to establish your PMA and help you thrive in the Indonesian market.

If you're considering investing in Indonesia through a PMA, don't hesitate to contact us for a consultation. We are ready to support you at every stage of your business journey.

At Dewata Law Firm, we are committed to delivering high-quality legal services tailored to your investment needs. Let us be your trusted legal partner in Indonesia.