Capital is an important component that must exist in running a business, especially in establishing a business entity. Capital is needed to start and finance the company’s operations. In Indonesia, this capital investment in a company is divided into 2 types, namely Local Investment (PMDN) and Foreign Investment (PMA).
Definition & Subject of Capital Investment
Local Investment (PMDN) is an investment activity to conduct business in the territory of the Republic of Indonesia, where the capital invested comes from domestic (local) capital and the capital owners are Indonesian Citizens (WNI).
Meanwhile, Foreign Investment (PMA) is an investment activity to conduct business in the territory of the Republic of Indonesia carried out by Foreigner, both those who invest foreign capital entirely or in partnership with PMDN.
Form of Business Entity
PMDN does not have to fulfill certain requirements regarding the form of its business entity so that it can be either a legal or non-legal business entity.
Conversely, PMA must be a Limited Liability Company (Perseroan Terbatas) and have a legal basis per Article 5 paragraph (2) of Law Number 25 of 2007 on Capital Investment.
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Minimum Capital Requirement
PMDN does not have to fulfill the provisions on how much-authorized capital must be invested. Referring to Government Regulation No. 8 of 2021 on the Company’s Authorised Capital and Registration of Establishment, Change, and Dissolution of Companies that Meet the Criteria for Micro and Small Enterprises, the amount of authorized capital is determined by the decision of the founders of the company.
The authorized capital must be issued and fully paid up by at least 25% (twenty-five percent) as evidenced by a valid proof of deposit. PMDN can start in the micro business category with a minimum issued capital of less than IDR 1 billion.
Furthermore, based on the provisions of BPKM Head Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities, the minimum capital for PMA is IDR 10 billion, excluding land and buildings per KBLI business field per project location. Therefore, business conducted by PMA will be classified as large businesses.
Business Period
PMDN does not have to meet a certain time limit for running its business so that it can continue to run until there is a dissolution or other corporate action that results in the loss of corporate status.
In contrast, PMA, which is based on Government Regulation (PP) No. 20 of 1994 concerning Share Ownership in Companies Established in the Framework of Foreign Investment, has a business period of 30 years only. However, it can be extended for another 30 years.
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Investment Restrictions
PMA establishment is only allowed for large-scale businesses where the investment value is more than 10 billion (excluding buildings and land value). Moreover, not all business fields are open to both PT PMDN and especially PT PMA, as stipulated in Article 2 paragraph (1) of Presidential Regulation No. 10 of 2021:
- Business fields that are declared as closed investments (investment negative list);
- Activities that can only be carried out by the Central Government.
Employment And Technology Transfer Obligations
It is in principle possible for every company to provide a learning environment for its employees to improve their abilities. This improvement will be useful for both the employees and the company itself. However, there are special obligations for PMA.
PMA is required to prioritize hiring Indonesian workers and is obligated to improve the competence of Indonesian workers through job training. Although employing foreign workers, the company is still responsible for training and transferring knowledge to Indonesian workers.
Change Of Status From PMA To PMDN
A change in status can occur due to a change in shareholders in which there previously were foreign shareholders, then it was fully owned by domestic shareholders, both individuals and legal entities. This change requires the company to make various adjustments, including:
- Amendment to the Company’s Articles of Association through the General Meeting of Shareholders (GMS), after which a notarial deed is made and legalized by the Ministry of Law and Human Rights.
- Making adjustments to company data in the OSS system.
How To Set Up PT PMDN Or PT PMA?
For those intending to establish a company, please contact ET-Consultant to take advantage of our experience in the field of company establishment for the right course of action!
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ET Consultant is a Business Consultant and Legal Consultant Expert that provides support for local and multinational clients to start and manage their business operations in Indonesia. ET Consultant specializes in Business Incorporation, Licensing & Legal, Accounting & Taxes, Immigration, and Advisory Services.
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