PMA (Penanaman Modal Asing) and PMDN (Penanaman Modal Dalam Negeri) are two types of investment in Indonesia, categorized based on the origin of the capital. Here are the key differences between them:

PMA (Penanaman Modal Asing)

1. Definition:

   • PMA refers to foreign investment where the capital comes from individuals, entities, or governments outside of Indonesia.

2. Ownership:

   • Foreign investors can own up to 100% of the company in some sectors, depending on the regulations and the Negative Investment List (Daftar Negatif Investasi).

3. Regulatory Body:

   • PMA companies must obtain approval from the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal – BKPM).

4. Capital Requirements:

   • There are often higher minimum capital requirements for PMA companies compared to domestic investments to ensure substantial economic impact.

5. Purpose:

   • Encourages foreign capital influx, technology transfer, and international business practices.

6. Examples:

   • International corporations setting up manufacturing plants, foreign-owned retail chains, or service providers in Indonesia.

PMDN (Penanaman Modal Dalam Negeri)

1. Definition:

   • PMDN refers to domestic investment where the capital is sourced from within Indonesia, involving Indonesian individuals or entities.

2. Ownership:

   • Companies are owned by Indonesian nationals or Indonesian legal entities.

3. Regulatory Body:

   • PMDN investments also fall under the jurisdiction of BKPM but have simpler regulatory processes compared to PMA.

4. Capital Requirements:

   • Generally, the capital requirements for PMDN companies are more lenient compared to PMA, aimed at encouraging local entrepreneurship and business development.

5. Purpose:

   • To stimulate the domestic economy, promote local entrepreneurship, and reduce dependency on foreign capital.

6. Examples:

   • Indonesian-owned manufacturing firms, local retail businesses, and service providers.

Summary

• Origin of Capital: PMA is foreign-sourced, while PMDN is domestically sourced.
• Ownership Rules: PMA allows foreign ownership (subject to regulations), while PMDN is for Indonesian nationals/entities.
• Regulatory Complexity: PMA generally involves more stringent regulatory requirements.
• Capital Requirements: PMA often requires higher capital investment.
• Objective: PMA focuses on attracting foreign investment and technology, whereas PMDN aims to bolster domestic economic growth and entrepreneurship.

1. Shareholders and Ownership

• Foreign Ownership: The company must have at least one foreign shareholder. The percentage of foreign ownership allowed varies depending on the business sector and is governed by the Negative Investment List (Daftar Negatif Investasi).
• Local Partner (if required): In some sectors, a local Indonesian partner may be required to hold a certain percentage of the shares.

2. Capital Requirements

• Minimum Capital: The minimum investment required is typically USD 1 million (IDR 10 billion), although the paid-up capital can be 25% of this amount, i.e., USD 250,000 (IDR 2.5 billion).
• Paid-Up Capital: This must be deposited into a local bank account before incorporation.

3. Business Field Classification (KBLI)

• KBLI Code: The business activities must be classified according to the Indonesian Standard Industrial Classification (KBLI). The choice of KBLI code determines the permissible level of foreign ownership.

4. Company Structure

• Directors: At least one director is required, who can be a foreigner or an Indonesian.
• Commissioners: At least one commissioner is required, who can be a foreigner or an Indonesian.
• Office Address: A local office address in Indonesia is required for the company’s domicile.

5. Licenses and Permits

• Principal License (Izin Prinsip): Issued by the Indonesia Investment Coordinating Board (BKPM) as the preliminary approval for foreign investment.
• Business License (Izin Usaha): Required for the actual operation of the business.
• Sector-Specific Licenses: Additional licenses may be required depending on the business sector (e.g., manufacturing, trading, services).

6. Notarial Deed of Establishment

• Deed of Establishment: Drafted by a local notary and must include the Articles of Association, which detail the company’s structure, shareholders, directors, commissioners, and business activities.

7. Tax Registration

• Tax Identification Number (NPWP): The company must register for a tax identification number.
• VAT (if applicable): If the company’s activities are subject to VAT, registration for a VAT number is also required.

8. Social Security Registration

• BPJS Employment and BPJS Health: The company must register its employees with the Indonesian Social Security Administration (BPJS) for employment and health benefits.

9. Operational Licenses

• Location Permit: Approval from the local government where the business will operate.
• Environmental License: If applicable, based on the business activities and environmental impact assessments.

10. Bank Account

• Local Bank Account: The company must open a corporate bank account in Indonesia to facilitate financial transactions and the deposit of paid-up capital.

A PT PMA (Perseroan Terbatas Penanaman Modal Asing), or foreign investment limited liability company, can be established by various entities and individuals, subject to Indonesian laws and regulations. Here are the key categories of who can establish a PT PMA:

1. Foreign Individuals

• Requirements: Must comply with the Negative Investment List (Daftar Negatif Investasi, DNI) which specifies sectors that are open, closed, or conditionally open to foreign investment.
• Ownership: Can own shares in the PT PMA, with the allowable percentage of ownership varying depending on the business sector.

2. Foreign Companies

• Requirements: Must adhere to the DNI and any sector-specific regulations.
• Ownership: Can establish a PT PMA as a subsidiary or joint venture in Indonesia, with ownership levels depending on the specific business sector’s regulations.

3. Joint Ventures

• Requirements: A partnership between foreign investors and local Indonesian partners. This structure is often used to meet local ownership requirements in certain sectors.
• Ownership: The ownership split will depend on the sector and specific regulations as outlined in the DNI.

4. Indonesian Nationals

• Requirements: Indonesian citizens can partner with foreign investors to establish a PT PMA, which can be advantageous in sectors with restricted foreign ownership.
• Ownership: Indonesian nationals can hold shares in the PT PMA, often to meet local participation requirements.

Key Considerations for Establishing a PT PMA

1. Compliance with the Negative Investment List (DNI)

   • The DNI outlines sectors that are fully open, partially open, or closed to foreign investment. It is crucial to check the latest version of the DNI to determine the permissible level of foreign ownership in the intended business sector.

2. Minimum Capital Requirements

   • PT PMA companies generally have higher minimum capital requirements compared to domestic companies, often requiring an investment plan of USD 1 million, with at least 25% of this amount as paid-up capital.

3. Legal and Regulatory Framework

   • PT PMA must comply with various legal and regulatory requirements, including obtaining necessary licenses and permits from the Indonesia Investment Coordinating Board (BKPM) and other relevant authorities.

4. Business Activities

   • The specific business activities of the PT PMA must be aligned with the Indonesian Standard Industrial Classification (KBLI) codes and conform to the regulations for each sector.

5. Local Partner (if required)

   • In certain sectors, having a local Indonesian partner may be mandatory to comply with ownership restrictions.

Steps to Establish a PT PMA

1. Determine Business Activities and Ownership Structure

   • Review the DNI and KBLI codes to understand the regulations for your business sector.

2. Prepare Required Documentation

   • This includes the Deed of Establishment, shareholders’ identity documents, and proof of paid-up capital.

3. Obtain Preliminary Approvals from BKPM

   • This includes the Principal License (Izin Prinsip) and other sector-specific approvals if necessary.

4. Formalize the Company through a Notary

   • Draft and sign the Deed of Establishment in the presence of a local notary.

5. Register with Government Agencies

   • Obtain a Tax Identification Number (NPWP), register with the Social Security Administration (BPJS), and comply with other mandatory registrations.

6. Secure Business and Operational Licenses

   • Obtain the Business License (Izin Usaha) and any necessary operational permits from local authorities.

7. Open a Corporate Bank Account

   • Establish a bank account in a local Indonesian bank for the company’s financial transactions.

Yes, foreign companies (PMA – Penanaman Modal Asing) can engage in retail trade in Indonesia, but there are specific regulations and restrictions that they must comply with. The rules governing foreign investment in the retail sector are outlined in the Negative Investment List (Daftar Negatif Investasi – DNI) and other related regulations issued by the Indonesian government.

Key Points for Foreign Companies Engaging in Retail Trade

1. Negative Investment List (DNI)

   • The DNI specifies the business sectors that are open, closed, or conditionally open to foreign investment. For retail trade, the list outlines specific conditions under which foreign companies can operate.
   • As of the latest updates, the DNI allows foreign investment in large-scale retail operations but imposes restrictions on smaller retail businesses to protect local small and medium-sized enterprises (SMEs).

2. Large-Scale Retail Operations

   • Foreign companies can invest in large-scale retail operations, such as department stores, supermarkets, and hypermarkets. However, these operations must meet certain criteria, including minimum investment amounts and store sizes.
   • There are often requirements for the total floor space of retail outlets, ensuring they are of a certain size to qualify for foreign investment.

3. Franchising

   • One way foreign companies can engage in retail trade is through franchising. Foreign brands can establish franchises in Indonesia, allowing them to expand their retail presence while working with local franchisees.
   • Franchising agreements must comply with local regulations and franchisors must register their franchise with the Ministry of Trade.

4. E-Commerce

   • Foreign companies can also participate in Indonesia’s booming e-commerce sector. E-commerce platforms and online retail businesses are generally more open to foreign investment compared to traditional brick-and-mortar retail.
   • Regulations regarding e-commerce include requirements for data localization, consumer protection, and adherence to local business practices.

5. Capital Requirements

   • Foreign retail companies often face higher minimum capital requirements. For example, establishing a large-scale retail business might require significant initial investment to ensure economic impact and sustainability.
   • The specific capital requirements can vary based on the type and scale of the retail business.

6. Joint Ventures

   • In some cases, foreign companies may be required to enter into joint ventures with local partners. This is particularly relevant in sectors where the government aims to protect local interests or limit foreign dominance.
   • The percentage of required local ownership can vary depending on the retail segment and specific regulatory provisions.

7. Location Restrictions

   • There may be restrictions on the locations where foreign-owned retail businesses can operate. These restrictions aim to support local businesses and ensure balanced economic development across different regions.

Steps for Foreign Companies to Engage in Retail Trade

1. Review the Latest DNI and Regulations

   • Check the most recent version of the Negative Investment List and related regulations to understand the specific conditions and restrictions for foreign investment in retail trade.

2. Prepare Required Documentation

   • Gather necessary documents such as the company’s articles of association, proof of capital investment, and relevant business licenses.

3. Obtain Necessary Licenses and Permits

   • Secure licenses from the Indonesia Investment Coordinating Board (BKPM) and other relevant authorities. This may include business licenses, operational permits, and specific retail trade licenses.

4. Establish Local Partnerships (if required)

   • If joint ventures or local partnerships are necessary, identify suitable local partners and establish formal agreements that comply with Indonesian laws.

5. Comply with Operational Regulations

   • Ensure compliance with operational regulations, including consumer protection laws, data localization requirements (for e-commerce), and local business practices.

6. Register Franchises (if applicable)

   • For franchising, register the franchise with the Ministry of Trade and ensure all franchising agreements meet local legal standards.

Conclusion

Foreign companies can engage in retail trade in Indonesia, but they must navigate a complex regulatory environment that includes the Negative Investment List and other specific requirements. By understanding and adhering to these regulations, foreign investors can successfully establish and operate retail businesses in Indonesia, contributing to the country’s economic growth while respecting local market conditions and regulations. Seeking assistance from legal and business consultants familiar with Indonesian investment laws is advisable to ensure compliance and smooth business operations.