Since COVID 19 we have seen many more requests for people who want to feel safe and secure staying in Indonesia. And this includes running their businesses properly (read legally.) The result of this has been a significant increase in the number of people wanting to setup a PT PMA as well as an increase in the number of consultants, expats and locals all offering to help take care of the paperwork.
There are still some people out there using nominees and trustees instead of following the legal process. We don’t recommend this. In fact, we predicted the downfall of nominee structures, and trustees a few years ago as these are not recognized nor do they have any legal standing under Indonesian law. A lot of these structures also got flushed out with the tax amnesty a few years back.
Since then we’ve come across a lot of investors who have been recommended to simply do a lease directly in the foreigner’s name. We don’t. We strongly recommend you use a PT PMA for this as well, but there are some expat developers and management companies who have even been selling this lease in a foreigners name as being a totally legitimate way to invest in property, claiming they can pay taxes for the expat holding these leases while they commercialize them.
The fact is the long-term lease regulation is the same as it is for a Hak Pakai or an HGB title, and that is you must be resident in Indonesia. So if you’re not you might want to look at how you can fix it because it will lead to tax and possible immigration issues.
Setting up the right way
With that in mind, I’d like to share some insights with you and throw some questions out there that you might want to consider asking if you’re looking to set up a PT PMA as the way to go to set up legitimate investments in Indonesia.
Let’s begin with what a PT PMA is.
A PT PMA is the Indonesian equivalent of a PTY Ltd; a proprietary company that operates privately, and has not offered shares to the general public.
So, how do you set up a PT PMA?
Don’t get me wrong, there are many good local and expat consultants out there offering great services. We even work together with a few of them. But unfortunately there are also more than a few who are in way over their heads as to what they are doing and what they’re actually offering, which can often result in higher costs than expected and some uncomfortable legal implications.
We’ve seen agents and notaries who used to charge epic fees now being more realistic, which is great for transparency but one can only wonder how they explain the ‘discounts’ and ‘special offers’ to their earlier clients who paid premium rates not so long ago.
BKPM – The Indonesian Investment Coordinating Board
We also see various forms of ‘fast track’ services ranging from 1 to 5 days. Some claiming they have a ‘special’ relationship with BKPM, the Indonesian Investment Coordinating Board, which is a non-ministerial government agency in charge of implementing policy and service coordination in investment. But, and it’s a big but, nobody has that ‘special’ relationship.
It’s worth noting here that BKPM is a huge organization overseeing both foreign and domestic investments. They are constantly improving their services on both national and provincial levels and if you have others dealing with them on your behalf make sure the agency or individual knows what they are doing. We’re already starting to see more than a few clients coming to us for help and clarification as to what they have set up and what they haven’t. More on this later on.
The bottom line is you do need to deal with BKPM at some stage under the ‘one door’ permit policy, further strengthened by the Omnibus Law, which has now been passed as a law and came into effect in February according to the government. In fact, if you know what you’re doing you could set up directly with no agent with two elected BKPM notaries in Jakarta in just 3 hours.
Important considerations and questions
There are two key aspects to look into before you set up a PT PMA.
First, the compulsory practical and legal aspects and a full understanding of what those mean. Second, once you are set up you should be asking if the agent or agency is going to be there for you offering long-term services and support.
Here are a few practical points to consider and seek answers to. Your agent or agency should be able to answer these clearly.
A PT PMA is determined by its business stream registration. In Indonesia this is called KBLI. Ask, what is the best KBLI to register under. Ask if you can have more than one KBLI. Ask how this impacts your planned paid up capital and investment commitment. Ask if any of KBLI requires specific permits beyond the initial set up. Ask if your KBLI needs any deed related permits to operate; this is very common within the tourism and real estate sectors, for example. Ask if your KBLI’s are classified as low, medium or high risk as this will impact whether or not you’re going to need specific permits, qualifications, an office or a production facility to move forward.
You need a minimum of two shareholders in your PT PMA. These can be either corporate and/ or individuals. You can have more than two if you want to. So ask if these shareholders need to live in Indonesia. Ask if they are liable for taxes in Indonesia. Ask what, if any, are their legal obligations and liabilities.
What about the IDR 10-billion paid up capital? Ask if you need that amount right away. Ask if you can you do it later. And, if you can, ask how much later. Ask if existing assets can be used as part of the paid up capital. Ask if this amount of money needs to sit in a bank account. Ask what a statement letter covering the paid up capital means and ask what it does. Ask what are the short and long term risks if this capital is not paid up.
Some KBLI’s do not allow for 100% foreign ownership, but there are many that do. Ask what your options are if you want a KBLI for a business that’s on something called the negative investment list.
You need a commercial address to set up a PT PMA. How do you find out if your chosen location is acceptable? Ask what are the impacts of using a domicile/ virtual office registration. Ask about costs and what’s included or not.
Your PT PMA must have a person who is either a resident in Indonesia or an Indonesian citizen. Ask what a Director can or cannot legally do. Ask what a Commissioner can or cannot legally do. Ask what the tax and legal liabilities of these positions are.
Finally, ask if your KBLI needs specific permits in addition to, and beyond the initial set up. If it does, ask who organizes this for you? Ask how they are going to do this and ask how much extra this will cost.
Finding the best agency for you
Once you’ve covered these basic questions you should also find out as much as you can about the agent and agency you’ve chosen.
Do they have any referrals? Do they have an office? If so where is it and how long have they been there? Do they have qualified staff to complete the PT PMA set up efficiently and effectively? Do they offer any other services? Do they engage with you in the set up process? Do they explain in English the various options on business streams? Do you get to read through an English version of the deed of establishment? Is their information transparent? Can you cross check or do they show you the various regulations?
Is the agency committed to supporting you moving forward? Ask if they can help with compulsory tax reports? If not, ask who will. Ask if they hand over access to OSS/ BPJS once the process is completed. Ask if they handle the LKPM (BKPM) reports for you. If not, ask who does. Can they explain the difference between paid up capital and investment commitment? Can they tell you what a statement letter is? Ask what happens if you don’t comply with these aspects. Ask who helps you with communication with BKPM, immigration, BPJS, the tax office and so on.
At Seven Stones Indonesia, we are happy to see more and more people setting up businesses and visas in the proper way. But, at the same time we’re also seeing a lot of strange things going on.
For example, would you trust such an important thing as setting up a company with only a Power of Attorney (POA) with someone you’ve just met in a café or coffee shop somewhere? Why not meet in their offices? Maybe they haven’t got an office, which should be a red flag to any serious investor. Do you believe their claims to be able to handle the ‘partnership’ with BKPM and their dedicated notaries bearing in mind BKPM is not likely to have such ‘special’ partnerships. Do you feel comfortable with how notaries and lawyers are handled and how they are dealing with you?
Check the small print
The Deed of Establishment for a PT PMA is an important document and many legal aspects are connected to it. Once you’ve received yours did you fully understand it? I’ve recently seen one deed, for example, that has the last two pages dedicated to disclaimers for the notary, releasing them from any responsibility of the company set up and any permit challenges that may come. In fact, they cannot even be called as a witness if there were any challenges and the POA grants the notary the right to cancel the deed at any time if there are any issues with the PT PMA at any stage. Is this a new normal? Or is it because the set-up is handled through a POA? In any case, this should be a concern and it’s certainly worth asking questions about.
Does the agent/ agency govern their relationship with you through a clear service agreement? If not, and something goes wrong, what do you do? If you’re in Bali, or Flores and your agency is in Jakarta how do you follow up?
Again, there are many great agents and agencies out there, so my advice is to do your homework and find the one that best listens to your needs and you feel most comfortable with.
On a final and related note, we’re seeing a similar situation with Visas and who to trust with your best long-term business interests at heart. Have a look at this post in Indonesia Expat, which helps to explain some of the key ups and downs as well as those important does and don’ts.
As usual we are here for a chat, or to answer emails and questions without any commitment. Just drop us a line at legal@sevenstonesindonesia.com. We believe that if we educate the market well, more will come, and if Bali needs anything right now it’s more investments and more people coming to do business here who are doing it the right way.
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