What is Foreign Direct Investment (FDI)?
1. Definition of Foreign Direct Investment (FDI)
Foreign Direct Investment or (PMA) is an investment activity to conduct business in the territory of the Republic of Indonesia which is carried out by foreign investors, either using fully foreign capital or in joint ventures with domestic investors. PMA is a form of investment by building, buying a total or acquiring a company. Based on the 2015-2019 Investment Strategic Plan, the Government of Indonesia sets investment priority sectors, namely infrastructure, agriculture, industry, maritime, tourism, Special Economic Zones (SEZ) and Industrial Estates, as well as the digital economy. These sectors are very open to Foreign Direct Investment (FDI) of course with due observance of the investment guidelines contained in Presidential Regulation no. 44 of 2016 concerning List of Business Fields Closed and Business Fields Open with Requirements in the Investment Sector.
2. Terms of Establishment of FDI
For foreign investors who want to invest in Indonesia, they must establish a company based on the line of business listed in the KBLI (Indonesian Standard Classification of Business Fields) which is on the official website of BKPM, OSS (Online Single Submission). This foreign company is in the form of a PT (Limited Company) which is owned by at least two shareholders, either individuals or companies. Furthermore, as mentioned above, investors must pay attention to the guidelines for closed and open business fields with requirements for foreigners as stated in Presidential Regulation no. 44 of 2016 or commonly known as the Negative Investment List (DNI) or the Negative Investment List (NIL). If the line of business is not listed in the DNI, it means that foreign share ownership can be up to 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.
The administrative requirements that need to be met in order to establish a PT PMA in Indonesia are:
• Company's articles of association,
• Company identity,
• FC Passport from shareholders,
• Flowchart of raw materials,
• Description of business continuity,
• Letters of recommendation from relevant agencies,
• Cooperation agreements, can be in the form of MOUs, Joint Ventures, or others.
These administrative requirements are needed to meet the basic qualifications of investors who want to create a PT PMA in Indonesia. There are several basic qualifications that must be met by all investors who want to create a PT PMA in Indonesia, namely the Deed of Establishment of a PT, a Decree of the Minister of Law and Human Rights for legalization of a limited liability company, a company NPWP and a Business Identification Number (NIB) in accordance with the company's business sector.
3. Benefits of FDI
Benefits of PMA Apart from the pros and cons of the presence of foreign investment, theoretically it can be argued that the presence of foreign investors in a country has a wide range of benefits (multiplier effect).
As stated by Dhaniswara K. Harjono, the capital needed by the state to achieve economic development is in the form of investment by utilizing capital accumulation and maximum utilization of domestic and foreign capital (investment). Seen from this point of view, it can be seen that the presence of investors plays a significant role in economic development in a country, especially economic development in areas where FDI (Foreign Direct Investment) carries out its activities. Gunarto Suhardi stated the importance of the presence of foreign investors: “Direct investment is better than portfolio investment, because direct investment is more permanent. In addition to direct investment:
a. Provide job opportunities for residents.
b. Have multiplier power in the local economy.
c. Provide residues in the form of equipment and technology transfer.
d. When production is exported, it provides a way or marketing route that can be followed by local entrepreneurs in addition to immediately providing additional foreign exchange and taxes for the state.
e. More resistant to interest and foreign exchange fluctuations.
f. Provide political protection and regional security because if investors come from strong countries, security assistance will also be provided.”
We, IPHub can assist you in establishing a PT PMA and the permits that must be met by the PMA business sector. IPHub has been established since 2014 with more than 1000+ clients throughout Indonesia that we have helped. Contact IPHub if you want to establish a PMA and make other permits at WA +62 811 8181 466.