Understanding Foreign Investment in Indonesia

Before delving into the specifics of whether a Foreign Investment Company (Penanaman Modal Asing or PT PMA) can engage in export activities, it’s crucial to understand what foreign investment entails. This question frequently arises among my clients, especially those whose primary business objective is to operate within Indonesia.

Legal Framework for PT PMA

The operations of PT PMA are governed by the Indonesian Law No. 25 of 2007 on Investment (UU 25/2007). PT PMA refers to business activities in Indonesia funded wholly or partially by foreign investors, sometimes in partnership with domestic investors. These entities are mandated to operate as limited liability companies (Perseroan Terbatas or PT) under Indonesian law, except where stipulated otherwise. Please read Navigating Business Opportunities for Foreign Investors in Indonesia.

Investment Procedures

Foreign and domestic investors can invest in a PT through:

• Participation in shares during the company’s establishment.
• Share purchase.
• Other methods compliant with legal regulations.

Business Sectors for Investment

All business sectors are open for investment unless explicitly closed or reserved for the central government. Closed sectors include:

• Cultivation and industry of narcotics.
• Gambling and casinos.
• Fishing of species listed in CITES Appendix I.
• Exploitation of coral for building materials, aquariums, souvenirs, or jewelry.
• Manufacture of chemical weapons.
• Production of ozone layer depleting substances.

Export Activities by PT PMA

Regulatory Overview

The conduct of export activities by PT PMA is regulated under Government Regulation No. 2 of 1996 and its amendment (PP No.46 of 1998) concerning Activities of Companies Established for Foreign Investment in Export and Import sectors.

Provisions for Export

According to Article 1, paragraph (1) of PP No.46/1998, production-based companies established under foreign investment schemes are permitted to export their products and those produced by other domestic companies. Additionally, these companies can engage in general import activities (Article 1, paragraph (2) of PP 46/1998).

Conclusion

In summary, PT PMAs in the production sector, as regulated under UU 25/2007, are allowed to export their own products and those of other domestic companies. This also applies to PT PMAs specifically established for export and import purposes. Thus, engaging in export activities is a viable option for PT PMAs, broadening their operational scope beyond just serving the Indonesian market.

Seeking Guidance in Indonesian Business Environment?

Understanding the complexities of Indonesia’s business environment is crucial for foreign investors, especially when dealing with large-scale enterprises. Familiarity with the legal landscape and identifying sectors open to foreign investment are key to making strategic decisions and fostering a positive impact on Indonesia’s economic growth.

If you require expert advice in setting up a Foreign Investment Company (PT PMA) in Indonesia, feel free to reach out for professional consultation. You can contact us via WhatsApp at +62-811-888-7270, or email us at info@gultomlawconsultants.com. For more detailed inquiries and services, drop us an email at info@gultomlawconsultants.com.