Foreign owned companies, called PT PMAs, are required to have a minimum capital of at least Rp. 10 billion (~$US750,000 with current exchange rates). This is Indonesia’s government way to protect local small businesses from foreign competition and limit the foreign investments only to large scale companies.
In the past the enforcement of the law used to be weak and therefore thousands of companies, especially in service sectors, were set up with capital only showed on paper. In 2015 Investment Coordinating Board (BKPM) has decided to tackle the issue and effectively ending the practice of setting up foreign companies with less capital.
The following article is about how the capital needs to be invested and reported.
Investment plan vs paid up capital
Investment plan and paid up capital are two different things. Investment plan, as its name refers, is a plan of how much and in which ways company will use the investment capital.
Minimum capital requirement to start a PT PMA is for ALL industries 10 billion Indonesian Rupiah. BKPM converts that based on exchange rate to USD (~ US$ 750,000).
In case you need to make changes to the capital later, here’s our article about company restructuring.
If your investment plan will be substantially smaller than this, then an alternative is to have a Nominee Company that allows you to operate in Indonesia without complying with foreign owned company regulations.
In some cases the capital should be higher than minimum
In private conversations BKPM officials always suggest that if your industry is manufacturing or other capital intensive business field, your investment plan should be higher. But, as long as your investment plan is at least for that amount, it is very unlikely for BKPM to refuse your investment application.
10 billion IDR investment plan should not be confused with the minimal capital requirement for running business in certain industries, such as banks where the liquidity of the company is necessary to protect the consumers.
Do you need to pay up your investment plan?
You do not need to transfer 10 billion to some bank account in order to receive investment approval. For different industries the process of paying capital is going to be different (we will update this article as the changes are going to be rolled out). For consulting companies and most other service sector companies, here’s the process of registering a consulting company in 2015.
In case your company applies for more than one business classification, you need to multiply the investment plan with as many industries as you apply for. Therefore we always advise our clients to be very clear about their actual business activities in Indonesia.
Paid up capital
Ministry of Human Rights & Justice requires at least 25% of the investment plan to be a paid up capital, therefore not less than Rp. 2.500.000.000 (~USD 250,000) There are two ways how to meet this requirement:
- Transfer the funds to an Indonesian company’s bank account
- By signing a Capital Statement Letter (sign by all shareholders) which clearly stated that the funds are available as paid up capital in the PT PMA [update September 2015: this method might disappear soon]
Capital statement letter, according to the Ministry Of Justice & Human Rights there is a following letter issued that states the requirements for proving the paid up capital (in Bahasa Indonesia):
In rough translation the key sentence is the following:
Funds[…] have been deposited in cash by the company and will be deposited to company’s account after the issuance of ratification from Ministry Of Law And Human Rights
Law enforcement of minimum capital
As we mentioned in the beginning of this article, the enforcement of the minimum capital wasn’t in place until 2015. Now it is changing quickly and foreign investors should expect to be paying up the capital as required by the law.
It is also crucial to keep your company’s compliance well in order to avoid problems with various governmental institutions. Foreign investors are under more strict surveillance and complying to local laws, regulations and customs is the only way to be in the business here in the long run.
If you have any additional questions or comments, feel free to leave them to the comments section or contact us directly.