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Investment and Foreign Investment

Foreign Investment (PMA) is carried out by foreign business actors to do business in Indonesia.

The domestic industrial world is not only filled with local companies and MSMEs, but also multinational companies. Some of them have also built factories and production facilities in Indonesia.

Opening investment opportunities and foreign investment can indeed boost the national economy.

Not only that, foreign investment in Indonesia can also support the transfer of knowledge and technology.

For example, the Indonesian electric car industry is growing rapidly thanks to the presence of foreign automotive companies in Indonesia.

Just like other business activities, investment procedures or foreign investment must also go through various procedures.

The following has summarized a number of things about FDI that you need to know, as well as the differences from domestic investment (PMDN).

Foreign Investment or known as PMA is an activity of channeling a number of funds with the aim of investing by foreign investors (from outside Indonesia).

The investment is made as an initial step to do business or business in the territory of Indonesia.

Based on Law No. 25 of 2007 concerning Investment, foreign investment is an investment activity to carry out business in the territory of the Republic of Indonesia which is carried out by foreign investors, either using fully foreign capital or jointly with domestic investors.

These investors can be in the form of individuals or business entities that must meet certain requirements.

One of the conditions that must be owned before investing is obtaining a Principle License granted by the Investment Coordinating Board .

Investments are organized based on several principles regulated in Article 3 paragraph (1) of Law No. 25 of 2007.

These principles are legal certainty, openness, accountability, equal treatment, togetherness, fair efficiency, sustainability, environmental awareness, independence, and balance and national economic unity.

The difference between FDI and PMDN

Foreign investment activities and domestic investment have the same goal, namely to provide stimulus and support the Indonesian economy.

However, both have several differences when examined from various aspects, namely:

1. Investment subject

PMA in Indonesia is carried out in the form of direct investment or with other schemes (joint ventures, etc.) which are limited to foreigners, foreign business entities, or foreign governments.

Meanwhile, PMDN involves capital sourced from Indonesian citizens, Indonesian business entities, and the Indonesian government.

2. Employment Subject

PMA is obliged to give priority to local workers in the recruitment process. In addition, PMA is also required to improve the competence of the local workforce, which is indicated by the opening of employment opportunities in Indonesia. Meanwhile PMDN is not bound by this obligation.

3. Subject Field of Business

There are several business fields that are closed to PMA, namely business sectors related to the environment, health, and national defense. Meanwhile, PMDN is more flexible in determining its line of business.

4. Subject of Immigration Facility

PMA has further regulations regarding immigration which are regulated and made by the Immigration Directorate General and also the Investment Coordinating Board (BKPM).

Procedures for Foreign Investment in Indonesia

Based on the 2015-2019 Investment Strategic Plan, the Government of Indonesia determines investment priority sectors, namely infrastructure, agriculture, industry, maritime, tourism, Special Economic Zones (KEK) and Industrial Estates, as well as the digital economy.

According to the BKPM’s official website, these sectors are very open to foreign investment.

Of course, by following the investment guidelines set out in Presidential Regulation No. 44 of 2016 concerning List of Closed Business Fields and Open Business Fields with Requirements in the Investment Sector.

For foreign investors who wish to invest in Indonesia, they are required to establish a company based on the line of business listed in the KBLI (Indonesian Business Field Standard Classification).

The foreign company is in the form of a PT (Limited Liability Company) which is owned by at least two shareholders, either individuals or companies.

If the line of business is not listed in the KBLI list, foreign share ownership can reach 100%.

The minimum value of foreign investment in Indonesia is IDR 10 billion (excluding land and building prices). The minimum amount of paid-up capital to a bank in Indonesia is IDR 2.5 billion.

Classification of Business Fields in Indonesia

Standard Business Field Classification refers to data from the Central Statistics Agency which is updated in 2020.

According to  the Ministry of Investment , KBLI is a classification of Indonesian economic activities or activities that produce products, both goods and services.

This classification is carried out to provide uniformity in the concept, definition, and classification of business fields in economic development in Indonesia.

There are 21 business field classification categories that can be used as a reference for foreign investors, namely:

  • Code A for Agriculture, Forestry and Fishery Categories.
  • Code B for Mining and Quarrying Category.
  • Code C for Processing Industry Category.
  • Code D for the Category of Procurement of Electricity, Gas, Steam or Hot Water and Cold Air.
  • Code E for the Categories of Water Treatment, Wastewater Treatment, Waste Material Treatment and Recovery, and Remediation Activities.
  • Code F for Construction Category.
  • G Code for Wholesale and Retail Trade Category; Car and Motorcycle Repair and Maintenance.
  • Code H for the Category of Transportation and Warehousing.
  • Code I for the Category of Provision of Accommodation and Provision of Food and Drink.
  • Code J for Information and Communication Category.
  • Code K for Categories of Financial and Insurance Activities.
  • L Code for Real Estate Category.
  • Code M for the Category of Professional, Scientific and Technical Services.
  • Code N for the Category of Leasing and Leasing without Option Rights, Employment, Travel Agents and Other Business Support.
  • Code O for the Category of Government Administration, Defense and Compulsory Social Security.
  • P Code for Educational Services Category.
  • Q Code for Categories of Human Health Activities and Social Activities.
  • R Code for the Arts, Entertainment and Recreation Category.
  • Code S for Other Service Activities Category.
  • Code T for the Category of Household Services as Employers, Activities that Produce Goods and Services by Households that are Used to Fulfill Their Own Needs.
  • Code U for the category of Activities of International Agencies and Other Extra-International Agencies.

For information, code writing in alphabetical form is regulated in Business Field Classification to classify taxpayer business entities.