If you have ever considered investing in property or opening up a business here in Indonesia, chances are that a certain abbreviation came up during your research: PT.PMA, which is commonly referred to as a PMA.

Investing in a foreign country will necessarily involve new terms that are essential to your success, and the PT.PMA company is one of the most important aspects of investing as foreigner in Indonesia. So, let’s take a look at what this term is all about, how it works and how it relates to your responsibilities as a company owner/investor or shareholder.
PMA stands for Penanaman Modal Asing and is the western equivalent to a proprietary limited company pty.ltd. A PMA is a registered legal entity (business) and is comprised of shareholders, paid-up capital, assets, and business licensing, or KBLIs. Certain PMAs can have up to 100% foreign ownership. The Indonesian government recently passed a new Omnibus Law, replacing the “Negative Investment List” with the “Positive Investment List,” resulting in 245 business lines (types of businesses) that are now open to full foreign investment, 46 conditional business lines and 51 business lines that require local partnership.

The new Omnibus Law also means more simplified business licensing determined by a risk-based system. The level of business license required is based on how risky it is: low-risk businesses only need a registration number; medium-risk businesses need a standard certification; and high-risk businesses require a full business license. For example, Real Estate, KBLI 68111, is categorized as a High Risk and in terms of licensing requires Nomor Induk Berusaha – the Business Identification Number (NIB), plus additional approved SS and business licenses by respective Ministry/Institution/PEMDA (local regency government). E-commerce for clothing retail, KBLI 47912 is categorized as Low Risk and only requires NIB from online single submission (OSS) RBA.

The PMA company must comprise a minimum of two shareholders, of which at least one must be a resident director and the other a commissioner. The resident director must obtain an Investor KITAS, which is valid for 12-24 months, with option to renew, and allows the individual to run the business, oversee its activities, generate income through a salary or dividends and control the assets of the PMA company. It is crucial that when you look into setting up your PMA company, you fully understand every single aspect of it and, even more importantly, understand your responsibilities as a director and commissioner.

Now, we will run through the three most common questions we receive about PT. PMAs at Palm View Properties.
When it comes to setting up a PMA company, the number one question we hear is undoubtedly around the minimum paid-up capital required set out by BKPM (the Investment Coordinating Board of Indonesia). The government has set a minimum capital investment of IDR 10 billion (approximately USD 780,000) in paid-up capital. The Rp10 Billion IDR paid-up capital is addressed through drawing up a statement letter between the shareholders and this statement letter is sufficiently accepted by the ministry for approval in order to gain ministry approval, an NIB and KBLI’s. The PMA company is fully able to operate and perform its tasks unhindered without the initial and one-time investment of Rp10 Billion. The obvious next question to follow is of course, “but will I not have any issues moving forward?”. The government of Indonesia has the aim to ensure foreign owned businesses does not gain a monopoly, therefor the benchmark of Rp10 Billion in theory, however as the government of Indonesia has a foreign investment-pro attitude, the key is to pay your taxes and ensure quarterly business activity reports (LKPM) are done. The Indonesian government welcomes foreign investment, but they want to see activity and the intention of fulfilling the Rp10 Billion IDR paid-up capital. This is essential for small and medium enterprises (SMEs). For example, it would not make much sense to initially invest paid-up capital of $780K USD to open up an ice cream shop, souvenir shop, or hair salon. So, how do these SMEs get to be operational without having initially chucked Rp10 Billion IDR in the company account? It is clear that they must, because we see hundreds, if not thousands, of foreign-owned SMEs across Bali, Lombok, the Gili Islands and most tourist hotspots in Indonesia. A statement letter is drawn up acknowledging the Rp10 billion IDR paid-up capital, ministry approval and KBLI’s are obtained, NIB is issued, and the PMA company shows clear intent to fulfill its statement and paid up capital by showing business activity and paying taxes. The shareholders must sign the statement letter acknowledging that they are liable for the paid-up capital, and this letter is included in the company’s financial statement. Using such a letter is perfectly legal and accepted by the Ministry of Law and Human Rights, the ministry that approves a PMA’s initial deed of establishment.

In most cases, if not all, when PMAs do encounter challenges, those challenges stem from incorrect KBLIs and taxes (which we will discuss further, below). Therefore, we advise you to always do your research through credible sites or companies, for example, Seven Stones Indonesia, a partnered company to Palm View Properties, wrote this great article about the various types of questions to ask when planning to invest and set up a PMA company in Indonesia. After doing some reading online, book a free virtual consultation with Palm View Properties or Seven Stones Indonesia. We know that this information can be confusing, so during your consultation, make sure to ask questions and have absolute clarity on all of these issues before moving forward. In fact, we advise to at all times ask the questions set out here above by Seven Stones Indonesia, these are the right questions to ask.

After the paid-up capital requirements, our next most common question is, “How long does it take to set up the PMA company and how long before it can start operations?”
The process and timeline are as follows, but please note that these are estimates and there can, at any stage, be delays, which is perfectly normal in a market so popular for foreign investment.

Stage 1:
Incorporation of AKTA (Company Deed of Establishment), SK (Decree), Company tax and OSS licenses. This process can take anywhere from three to five weeks, depending on the level of risk for the particular business line. Riskier business lines typically take more time.

Stage 2:
Application for and processing of any additional operating licenses (KBLIs), if required. This process can take anywhere from two to six months.
Application for residency work and stay permit (ITAS), which, in the case of the resident director, is the Investor KITAS. For this process, it would be safe to set aside one to two months.

Stage 3:
Once the above stages are complete, your business is officially permitted to operate, at which point you will have obtained an NIB (Nomor Induk Berusaha – the Business Identification Number), clear KBLI classification and NPWP (Indonesian Tax Number) for the business and company name. At this point, you can also register the PMA’s bank account with a local bank of your choice.

The PMA is a business, and, like anywhere in the world, a business must report its financial information and pay taxes. The quickest way you will run into problems is by engaging in incorrect tax reporting/payment or by not reporting at all. Even when you aren’t making a profit, you must report taxes!
A PMA is subject to various set-out taxes, and the biggest portion comes from the Corporate Income Tax. The corporate income tax (CIT) rate in Indonesia is 25%. For fiscal year 2020/2021, the CIT rate was 22%, and for this year (2022) onwards, the CIT rate will be 20%. However, this rate depends on both the type of business line and the company’s gross turnover rate. When a company first starts operating, if its gross turnover rate is below IDR 4.8 billion, it is taxed at just 0.5% of net profits for a maximum of three years. After those three years have passed, the tax on net profit goes up to a minimum threshold of 11%, with a progressive rate applied at 11-22% of net profits for any company with a gross turnover below IDR 50 billion. Additional taxes include the tourism tax (NPWPD), which is 10% and dividend taxes, which are fixed at 20% (lower for treaty countries) for non-residents (those without an NPWP – Indonesian tax number) and 10% for residents (those who do have an Indonesian tax number. It is also well worth noting that profits/dividends reinvested in your PMA are taxed at 0%.
Every quarter, your PMA company is liable to submit a Business Activity and Investment Report (LKPM) to BKPM (the Investment Coordinating Board), and the PMA must also pay for National Health Insurance (BPJS) on a monthly basis for its resident shareholders and staff.

Finally, the last question we often receive is, “When should I establish a PMA company in Indonesia?”
Basically, the short and least complicated answer would be “as soon as you want to make any form of profit and safely and securely hold assets such as real estate.” For, even if you do not want to use your property to generate income, as a foreigner, you cannot legally own property in Indonesia, but your PMA can. Therefore, you should register a your foreign-owned PT.PMA company and its representative offices (its physical address) as soon as you will provide services in Indonesia, earn revenue in Indonesia, hire staff in Indonesia, hold assets in Indonesia, or look to undertake costs such as office rental. Ultimately, establishing your PMA as soon as possible will limit your liability and mitigate risk.

The process of setting up your PT.PMA company can often be an overwhelming one, as it can be complex and confusing without the right resources. As shown above, there are several simultaneous or sequential steps required, and information on what to do, when, can differ vastly across social media platforms and articles you might find online, and the reason is not always because their information is wrong per say, but purely because regulations and laws change all the time and information can be outdated, for example, an article written in 2018 on foreign investment will differ in many aspects today in 2022 purely because of so many positive changes made. So, it is important to speak to the right people and companies who specializes in these various processes to ensure you maximize your gain and minimize your loss. The most important element to keep in mind is that the investment climate in Indonesia has gotten progressively better, especially for foreign investors. The government is focused on the president’s mission to improve Indonesia’s ranking on the Ease of Doing Business Index, with specific goals to revolutionize bureaucracy, develop infrastructure, and improve medical center access. Positive changes can already be seen and felt through the local government’s initiative to create centralized licensing via an Online single submission (OSS) form, which integrates/streamlines the ministries’ administrative systems and minimizes interdepartmental conflicts.

We realize that this is a lot of information to take in, but if you have one main takeaway from this article, it should be this: the PT.PMA company, as it stands today, is the only legal way foreigners can acquire real estate and generate revenue from it, as well as engage in any other business activities in Indonesia. So, if you are thinking about acquiring real estate or starting a business and would like to set up your PT.PMA company, get in touch with Palm View Properties today and we will advise you based on your vision and goals to be able to maximize your gain and minimize any losses.

Send us an email at info@palmviewproperties.biz, and don’t forget to save this article for future reference and book your free virtual consultation to find out more about setting up your new PMA company in Indonesia!