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ESTABLISHING FOREIGN INVESTMENT COMPANY (“PT PMA”) IN INDONESIA

31 May

RELEVANT REGULATION

This procedures or memo is elaborated pursuant to following regulations:

  1. Law Number 25 Years 2007 on Investment (“Law No.25/2007“);
  2. BKPM Regulation Number 11 Of 2009 (“BKPM Regulation No.11/2009“);
  3. BKPM Regulation No. 12 Of 2009 (“BKPM Regulation No. 12/2009“);
  4. President Regulation No.90 of 2007 (“PR No.90/2007“);
  5. Government Regulation No.38 of 2007 (“GR No.38/2007“);
  6. President Regulation No.27 year 2009 (“PR No.27/2009“);
  7. Head of BKPM Decision No. 57/SK/2004 of 2004 concerning Guidelines And Procedural For Application For Capital Investment Established in The Frame Work of Domestic And Foreign Investment (“BKPM Decree 57/2004”) as amended by Decree of Head of Investment Coordinating Board No.70/SK/2004 year 2004 (“BKPM Decree 70/2004”) and Decree of BKPM No.1/P/2008 year 2008 (“Decree 1/2008“);
  8. President Regulation Number 76 of 2007 as amended by President Regulation No. 111 year 2007 Concerning Negative List Investment (“Negative List Investment“);
  9. Government Regulation No. 20 of 1994 Concerning Foreign Shareholders Composition in the Framework of Foreign Investment in Indonesia (“GR 20/1994“);

INTRODUCTION

In regard to enhance the national economic growth, it is deemed necessary to increase capital investment by way of utilizing domestic and overseas funds. To put this plan into reality, one of the attempts carried out by the Government of Republic of Indonesia (“GOI”) is by encouraging more foreign investors to invest their funds in Indonesia. As a result, the GOI feels the necessity to amend the existing Foreign Investment Law (Law No. 1 of 1967 as amended by Law No. 11 year 1970) as the legal basis of foreign investment law in Indonesia, since it is considered no longer keeping pace with the economical movement in Indonesia. Indonesia promulgated the new investment law under Law No. 25 of 2007, this new investment law is purposed to give legal certainty to the potential investors.

The requirements set forth under the New Investment Law give certainly in conducting the investment in Indonesia. It is safe to say that such provisions equally take side both on domestic and foreign investors. In terms of foreign investment, the law provides more specific stipulations for the foreign investor; thus the investors are more likely to be benefited by this New Investment Law.

Its a view to setting out the guidelines and procedures for investment applications within the framework of integrated one door services, the Head of the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) has issued Regulation No. 12 of 2009. The legal basis for the regulation is to facilitate the implementation of Articles 2 and 44 of Presidential Regulation No, 90 of 2007, Article 9(1) of Government Regulation No. 38 of 2007, and Article 15(1) of Presidential Regulation No. 27 of 2009. This regulation includes an extensive list of definitions that are used throughout.

Each of the governmental levels is addressed in Chapter III. Part One addresses the central government and BKPM role, Part Two deals with the provincial government roles, and part three deals with the role of the district and city governments, and part four deals with investment in free trade and port zones. Article 13 states that there are two basic types of investment services:

Licensing services include, among others, investment registration, in-principle investment agreement, location licenses, building permits, rights to land, and other licenses needed to implement capital investment. On the non-licensing side, the services include, among others, duty facilities for the import of machines, income tax facilities, import identification numbers, expatriate labor plans, regional incentives, and information and complaint services.

Each of these is then further enumerated in the succeeding Articles. Applications can be submitted by the applicant or by any party with the requisite power of attorney to do so. The power of attorney must include sufficient stamp duty and clearly identify the attorney. The regulation includes at Attachment XXXVIII and XL a standard form power of attorney In Indonesian and XXXIX and XLI for English. For a power of attorney signed overseas, the power of attorney must be notarized or legalized at the Indonesian representative mission in the country of origin.

All licenses and non-license issued prior to this regulation remain in force until the date of their expiry. The regulation repeals and replaces Head of BKPM Regulations No. 1/P/2008 and 2/P/2008. The regulation was issued on 23 December 2009 and came into force on 2 January 2010.

INVESTMENT APPROVAL FROM INDONESIAN INVESTMENT COORDINATING BOARD (BKPM)

Under BKPM regulation, the investor shall secure an investment approval before they could set up a PT PMA in Indonesia, by submitting application and attached with following requirements (“Model I/PMA Application”).

  1. In the event the application is not submitted directly by director, the applicant shall has powers of attorney from the director of the company;
  2. copy of foreign party’s annual report and brochures (if requested by BKPM);
  3. copy of articles of incorporation and the amendments (if any) of the foreign companies (articles of association if an Indonesian company participates) If a joint venture;
  4. copy of the Indonesian company’s Tax Registration Code Number (NPWP);
  5. joint venture agreement, in initialed form (if applicable);
  6. a description and a flow chart of the production stages of the process, with an explanation, and the kinds of basic/auxiliary materials (for a manufacturing company);
  7. a description of the business if in the services sector;
  8. a bank reference for foreign and the Indonesian applicants if they are individuals (if requested by BKPM);
  9. if the foreign investor is an individual, a copy of the pages of his     passport;
  10. if an Indonesian investor is an individual, a copy of ID Card (KTP) and Tax Payer Identification Number (NPWP);
  11. the business sector required for partnership cooperation:
  12. Agreement between small scale enterprise and medium/large scale enterprise outlining among others name and address of each party, pattern of partnership, right and obligation of each party as well as guidance provided for Small Scale Enterprises.
  13. Statement letter from the small scale enterprise if required under Law No. 9 of 1995 on small scale enterprises.

In order to ensure the efficient processing of the application, it is desirable that applicants furnish all requested information and documents with their applications. Failure to submit this information leads to delays in granting approval. The official time frame set by BKPM to process a Model I/PMA Application is 10 working days, calculated from the date the complete set of application documents is accepted by BKPM, however in practice the process can easily delayed until two to four weeks depending on the availability of the officials and complete submission of the documents.

APPLICANTS

Law No. 40 year 2007 concerning Limited Liability Company (“Company Law”) requires at least two parties to establish a limited liability company, which parties will become the shareholders of the limited liability company. The limited liability company must then at any time have at least two shareholders. If in any event the shareholders become less, within six months, the remaining shareholder shall find another partner become the second shareholder or otherwise the company will lose its limited liability company status.

LINE OF BUSINESS

Under GR No. 20/1994, a foreign company may establish a wholly-owned foreign company under Indonesia laws and regulations, provided that the proposed business is open for foreign investment (according to Negative List of Investment), which always been amended from time to time), currently Negative List is regulated under President Regulations No.36 of 2010.

BKPM will issue a foreign investment approval letter as the Investment License for the investors, the content of which include details of the approved project and usually reflect the terms of the application.

Investment License allows the investors to start the actual investment in Indonesia. Please note however that the Investment License will automatically expire if the investors do not perform any actual investment realization within 3 of after the date of the Investment License was issued.

EXECUTING THE DEED OF ESTABLISHMENT;

Having obtained the license from BKPM, the parties may execute the deed of establishment of the new PT PMA that contains the proposed company’s articles of association before a civil notary in Indonesia. This deed of establishment should be drafted in consistency with the joint venture agreement (if any) and the Company Law. Certain commercial matters in the joint venture agreement are not normally stated in the deed of establishment.

TAXPAYER REGISTRATION NUMBER

After the investors have executed the Deed of Establishment and domicile letter they may apply to the Directorate General of Taxation of Foreign Companies (“Foreign Tax Office”) for their Taxpayer Registration Number (Nomor Pokok Wajib Pajak –”NPWP”). To obtain NPWP, the following documents must be submitted.

  1. application letter (a form is available at the Foreign Tax Office);
  2. copy of the executed deed of establishment;
  3. Statement of domicile letter (Surat Keterangan Domisili) of the proposed office or factory;
  4. copy of the BKPM notice of presidential Approval (SP3);
  5. copy of the KTP/ID card of the PT PMA’s President Director;
  6. power of attorney from the president director, if the application is processed by someone else.
  7. normally, the NPWP can be obtained within one week.

OPENING A PMA BANK ACCOUNT

The applicable regulations of Bank Indonesia require that all banking transactions of the newly established PT PMA with respect to (i) paying in capital (cash) by both the foreign and the Indonesian party, (ii) administering loans which are part of the approved intended investment, and (iii) paying for imported capital equipment and raw materials be transacted through a special foreign investment account (“PMA Account”) opened with an approved foreign exchange bank in Indonesia. Separate operating accounts will normally be opened at the sometime. These accounts can be opened after the deed of establishment has been executed and a copy of the deed is submitted to the bank.

APPROVAL OF THE DEED OF ESTABLISHMENT FROM THE MINISTER OF JUSTICE AND HUMAN RIGHTS

The civil notary responsible for drawing up the deed of establishment will submit it to the Department of Justice and Human Rights for approval. The submission will attach the tax ID number (NPWP) of the newly established company and a bank statement regarding the PMA Bank Account, showing evidence of payment of the capital from the founders. Normally, within two to three months after the Deed of Establishment has been filed with the Department of Justice and Human Rights and examined by its employees, the Minister of Justice and Human Rights will grant approval. Upon this approval, the PT PMA company concerned exists as a limited liability company.

REGISTERING THE APPROVED DEED OF ESTABLISHMENT AT THE DEPARTMENT OF INDUSTRY AND TRADE AND ANNOUNCING THE REGISTERED DEED OF ESTABLISHMENT IN THE STATE GAZETTE

After having obtained approval from the Minister of Justice and Human Rights, the approved PT PMA’s Deed of Establishment should be registered at the Department of Industry and Trade in the domicile of the PT PMA. The registration must be made within a period of not more than 30 (thirty) days after the Minister of Justice and Human Rights’s approval has been granted. After registration at the Department of Industry and Trade, the Deed of Establishment should be published in the State Gazette. Normally, these processes are also handled by the civil notary.

FIRST EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

The first Extraordinary General Meeting of Shareholders (EGMS) normally is convened no later than 60 days after the Minister of Justice and Human Rights’s approval. In the first EGMS, at least the following resolutions should be adopted    

  1. Ratification of the appointment of the members of the Board of Directors and the Board of Commissioners named in the Deed of Establishment;
  2. Assumption by the Company of obligations under contracts and agreements (if any) executed by the founders on behalf of or for the benefit     of the company prior to the date of the Minister of Justice’s approval;
  3. Approval on the opening of and administration of the company’s PMA     Bank Account and other operating bank accounts;
  4. Approval on the issuance of share certificates and the form of Share Register Book.

OBTAINING APPROVAL OF MANPOWER PLAN

The Investment License will specify that if the PT PMA intends to employ expatriates, it should file an application for approval of its Manpower Plan (“RPTKA”). Approval of this plan will permit the PT PMA (after it is established by execution of its deed of establishment) to employ expatriates. Employment of expatriate directors in the numbers specified in the Investment License is relatively easy. The numbers of expatriate technical advisors, however, must be justified by reference to the Indonesian counterparts who will be trained to replace them in due course.

RPTKA will only be complete when it includes data relating to the identity of the expatriate to be employed, the position to be filled and its location in the business structure of the organization, salary level, number of expatriate employed, work location, period of time the expatriate will be used in Indonesia, and education and training program that is to be conducted by the expatriate (skill and knowledge transfer);

Expatriate employee shall be at least having education or five years experience in the field in which they are to be employed.

Compensation fee that is payable by every employer that employs an expatriate to remain at USD 100 per month and this payment is to be made up front any part month of employment is to be charged at the rate for a full month.

Expatriate employees cannot be employed in more than one location and hold more than one position. The only exception to this provision is for expatriates who are appointed to multiple Director of Commissioner positions through a General Meeting of Shareholders.

Procedures to obtain RPTKA pursuant to article 5 – 9 Manpower Regulation 02/2008:

Submit application to obtain RPTKA with following supporting documents;

  1. reasons to utilize expatriate employee;
  2. business license from authority institution;
  3. deed of establishment and the approval from Minister of Justice and Human Right;
  4. letter of Domicile;
  5. organization chart;
  6. appointment letter concerning the appointing of Indonesia employee as the assistant of expatriate employee;
  7. copy of valid mandatory manpower report (“Wajib Lapor Ketenagakerjaan“) pursuant to Law No 7 year 1981 concerning mandatory labor report in the company;
  8. position recommendation letter which is hold by the expatriate employee from relevant institution if required;

Issuer of RPTKA is determining by the number of expatriate that used by the company (i) Directorate General (Directorate General ) is authorize to ratify RPTKA that using 50 expatriate or more and (ii) Director (Director General of Manpower Development and Placement) is authorize to ratify RPTKA that using less than 50 expatriates;

For employees that located in the special economic zone (Kawasan Ekonomi Khusus) RPTKA application is submitted to the appointed officer in such area. RPTKA is valid for period 5 years and can be extended for period 5 years with considering the manpower market in Indonesia.

PROCEDURES TO OBTAIN VISA RECOMMENDATION;

Visa recommendation is required before the applicant apply for IMTA. The application of visa recommendation shall be submitted to Director Expatriate Utilization Control, completed with following documents:

  1. copy of RPTKA approval;
  2. copy of expatriate passport;
  3. curriculum vitae of the expatriate;
  4. copy of bachelor certificate/ or copy of working experiences;
  5. copy of assistance appointment letter;
  6. photograph 4 x 6 (1 exemplar).
  7. recommendation visa is valid for period 2 months since the issuing date
  8. IMTA

After the company granted visa recommendation, the company may submit IMTA application (written permit to using expatriate regulated under Manpower Regulation 2/2008), to the Director General of Man Power Development and Placement attached following documents:

  1. copy of employment agreement;
  2. evidence of utilization of compensation payment through appointed bank (the compensation payment is paid in advance for each month in the amount of USD100 for each month);
  3. copy of insurance polis;
  4. copy of letter of notification concerning the visa recommendation;
  5. color photograph 4 x 6 (2 exemplar);

In the even the requirements as mention above has been fulfilled by the applicant, the Director General of Manpower Development and Placement shall issue the IMTA license in maximum 3 (three) working days. IMTA is valid for period 5 (five) years in accordance to RPTKA period and each every year shall be extended.

The company is prohibited to hire expatriate worker in more than one position and prohibited to hire an expatriate worker which has been hired by other employee except for expatriate worker who hired as a director or commissioner in other company;

MANDATORY MANPOWER REPORT:

Mandatory manpower report shall be reported by the company to Director or Governor or Regent/mayor with copy to the Directorate General, every six months to.

 

Deliver by,

AK

 
 

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