I want to write something that address queries about the requirements for a Director in a Foreign Investment Company (PT PMA) in Indonesia. So Should There Be an Indonesian Citizen Director in a PT PMA? Limits on Shareholding Percentage for Directors?
1. Nationality of Directors in PT PMA
According to the Law No. 25 of 2007 on Capital Investment and Law No. 40 of 2007 on Limited Liability Companies, every foreign investment in Indonesia must be executed in the form of a limited liability company (PT) established under Indonesian law.
This means that foreign investments and their implementations are also subject to the Limited Liability Company Law. However, the Law does not specifically require a foreign investment company to appoint a director of Indonesian nationality.
M. Yahya Harahap, in his book “Hukum Perseroan Terbatas” (2011), notes that Article 93 (1) of the Limited Liability Company Law does not stipulate any requirements regarding the nationality or residence of the members of the Board of Directors. Therefore, it is not legally mandatory for a director of a foreign investment company to be an Indonesian citizen or resident.
In addition to the general regulations, there are specific instances where Indonesian law mandates the appointment of Indonesian citizens in certain directorial roles within a foreign investment company. For example, the Decree of the Minister of Manpower and Transmigration of the Republic of Indonesia No. 40 of 2012 concerning Certain Positions Prohibited for Foreign Workers explicitly forbids the appointment of foreigners as Personnel Directors. This means that if a foreign investment limited liability company (PT PMA) wishes to appoint a Personnel Director, this individual must be an Indonesian citizen.
Furthermore, in various media reports, the Capital Market and Financial Institution Supervisory Agency (Bapepam LK), now under the authority of the Financial Services Authority (OJK), has previously requested foreign insurance companies to appoint Indonesian citizens to their board of directors. This directive aimed to facilitate the transfer of knowledge and management skills. Such instances highlight the emphasis on certain roles within the corporate structure of PT PMAs being specifically reserved for Indonesian nationals, underlining the importance of local expertise and knowledge transfer in foreign investment enterprises operating in Indonesia.
Updated List of Restricted Positions for Expatriates
On December 31, 2019, the Indonesian Minister of Manpower issued Decree No. 349 of 2019, which updates and supersedes the earlier Decree No. 40 of 2012. This new decree, Decree 349, lists 18 positions that are restricted for expatriates, removing the Chief Executive Officer position from the earlier list of 19 restricted positions.
Decree 349, while detailing positions not available for expatriates, does not implement Article 42(5) of Law No. 13 of 2003, which outlines positions available to expatriates. The latter is covered under Decree No. 228 of 2019. Decree 349 references both the International Standard Classification of Occupations (ISCO) and the Indonesian Standard Classification of Occupations (KBJI).
The restricted positions include various roles such as Personnel Director, Industrial Relations Manager, Human Resources Manager, Personnel Development Supervisor, and more, encompassing various specialist and administrative positions in the human resources and occupational safety sectors. This is below the complete list:
Here is the updated list of restricted positions for expatriates as outlined in Decree 349, including the corresponding ISCO/KBJI codes and position titles:
| No. | ISCO/KBJI Code | Position |
|---|---|---|
| 1 | 1210 | Personnel Director |
| 2 | 1232 | Industrial Relations Manager |
| 3 | 1232 | Human Resources Manager |
| 4 | 1232 | Personnel Development Supervisor |
| 5 | 1232 | Personnel Recruitment Supervisor |
| 6 | 1232 | Personnel Placement Supervisor |
| 7 | 1232 | Employee Career Development Administrator |
| 8 | 4190 | Personnel Declare Administrator |
| 9 | 2412 | Personnel and Careers Specialist |
| 10 | 2412 | Personnel Specialist |
| 11 | 2412 | Career Advisor |
| 12 | 2412 | Job Advisor |
| 13 | 2412 | Job Advisor and Counseling |
| 14 | 2412 | Employee Mediator |
| 15 | 4190 | Job Training Administrator |
| 16 | 2412 | Job Interviewer |
| 17 | 2412 | Job Analyst |
| 18 | 2412 | Occupational Safety Specialist |
This table reflects the specific positions restricted for expatriates under Indonesian regulations as per Decree No. 349 of 2019.
2. Shareholding Requirements for Directors
The Law of Limited Liability Companies details the nature of a company’s Board of Directors as the body responsible for managing the company (see: Article 1 number 5 and Article 92 (1)). While there is no legal prohibition against directors or their family members owning shares in the company (see: Article 101 (1)), the extent of such ownership is not explicitly defined in the law.
In the context of Good Corporate Governance, it is often seen that directors also act as shareholders, especially in closely-held companies formed by family members or close associates. However, from a legal standpoint, the directors are accountable for their management roles to both the company and its shareholders. Therefore, it is important for the company to maintain clear accountability for each of its organs (General Meeting of Shareholders, Board of Directors, and Board of Commissioners) to ensure adherence to the company’s founding objectives (see: Article 2 of the Limited Liability Company Law).
In conclusion, while Indonesian law does not mandate the nationality of directors in a PT PMA or specify the exact percentage of shares to be held by directors, it does emphasize the importance of good corporate governance and accountability in managing the company.