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Legal Aspects
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The key legal aspects to be considered by investors setting up in Indonesia are:
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1. Foreign Capital Investment Law No. 1 of 1967
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Foreign Direct Investment (FDI), further referred to as Penanaman Modal Asing (PMA), is a status of doing business and governed primarily by the Foreign Capital Investment Law No. 1 of 1967, as amended by Law No. 11 of 1970. Based on this law, the government has been introducing various positive policies and measures to attract FDI to Indonesia.
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PMA companies are automatically granted a period of 30 years to operate after their legal formation. If within this initial period of time, the investor commits an additional investment (expansion of its project), another 30 years of time is granted for the expansion project. This period can be further extended for another 30 years.
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2. Domestic Capital Investment Law No. 6 of 1968
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Domestic Direct Investment, further referred to as Penanaman Modal Dalam Negeri (PMDN), is the classification for doing business for entirely domestically owned businesses between domestic company(ies) or Indonesian individual(s) governed primarily by the Domestic Capital Investment Law No. 6 of 1968, as amended by Law No. 12 of 1970.
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3. Corporate Law No. 1 of 1995
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The most common legal entity to business community is an Incorporated Company called Perseroan Terbatas (PT) for either foreign direct investments or domestic direct investments.
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4. Tax Law No 16, 17, 18, 19 and 20 of 2000
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The latest tax laws of the year 2000 have recently replaced the earlier tax bills of 1983 and 1994, and provide both domestic and foreign investors with certain tax allowances and procedures for doing business in Indonesia.
Non Resident Aliens (NRA) may also derive income from Indonesia by using several schemes; e.g. direct investment, portfolio investment, and by establishing a branch or Permanent Establishment (PE) in Indonesia. The income derived from Indonesia is taxed based on the nature of income.
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5. The Government Regulation No. 20 of 1994 on Share Ownership.
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In general, a PMA company is established as a joint venture between foreign and Indonesian partners. The partnership may involve legal entities (corporations) or individual persons. There is no requirement on the minimum amount of investment (equity plus loan). The amount is for the parties concerned to determine, based on their economies of scale and business considerations
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A PMA company may also be established as a 100 % foreign owned entity. In this case, it is presently required that not later than 15 years after start of commercial operation, the company starts to divest some of its shares to Indonesian individual(s) and/or business entities, either through direct placement without having to through a rescue program at purchasing of Indonesian company or indirectly through the domestic stock exchange. It is expected that at least 5% divestment would take place after 15 years of commercial operation.
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PMA companies in infrastructure projects such as ports, generation and transmission as well as distribution of electricity for public use, telecommunications, shipping, airlines, potable water, public railways and nuclear electric power generation should be established by way of joint ventures between foreign and Indonesian domestic or state-owned enterprises
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6. Law No 37 of Year 2000 concerning Area Free Trade and Free Port in Sabang
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The Law applied to be Law No 37 / 2000 concerning stipulating of regulation of Substitution of Law (Perpu) No. 2 / 2000 concerning Area Free Trade and Free Port of Sabang become a Law and applied as a rule, hence the rule is arranging that the imposition of import duty, value added tax, sales tax on luxurious goods and duty, expressed not applicable in area of Sabang.
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