What is the amount of minimum capital to register a company in Indonesia and does it all have to be paid up upon incorporating a foreign-owned company (PT PMA)?
These are some of the most frequent questions foreign investors ask when considering opening a foreign-owned company (PT PMA) in Indonesia.
How to define a foreign company in Indonesia?
Limited liability companies registered in Indonesia, regardless of capital structure, are called PT-s. If the PT company has any foreign ownership, it’s called a PT PMA.
Note that having local shareholders does not affect your company’s capital requirements unless you don’t own any shares in the company.
What are the capital differences between local and foreign companies?
Indonesian laws classify companies into different categories based on the size of equity:
– Micro: Less than Rp50 million
– Small: Rp50–500 million
– Medium: Rp500–10 billion
– Large: above Rp10 billion
Only 25 percent of the total equity has to be paid up to incorporate a PT PMA company. To protect local small businesses, only large companies are allowed to have foreign shareholders.
Therefore, to set up a foreign company, a PT PMA, you will need to pay up Rp2.5 billion (less than US$200,000) as capital.
If that seems like a high capital requirement, then remember that you are allowed to use those funds for operating your company.
Capital requirements are also relevant for local companies because the size of capital also determines if the company can hire foreign workers.
Which capital requirements apply for different business classifications (KBLI) in Indonesia?
There are industries where by law; the minimum required capital is higher than Rp2.5 billion, such as:
– Financial industries
– Logistics and freight forwarding
– 100 percent foreign-owned e-commerce companies
Changing the capital of the PT PMA company
There are two common situations for changing capital – it’s to either convert a locally owned company into a PT PMA or to increase the capital of an existing company.
Converting a local company into a PT PMA
Before you start changing the capital structure of the company, be sure to know what its current amount is of paid up capital and its business classification (KBLI).
You change the capital by issuing new shares. According to the law, you must offer the shares to the current shareholders first.
Then a General Meeting of Shareholders (GMS) needs to decide on the issuance of new paid up capital and the allocation of shares. You can also use the GMS to change the company’s business classification if needed.
You will also need to call a General Meeting of Shareholders if the capital amount stays the same but the company gets (partially) acquired by new shareholders.
Increasing capital of an existing PT PMA
The process is the same as for local companies – you add new shares, offer them first to existing shareholders, and then call a General Meeting of Shareholders.
Ways to reduce capital requirements of a PT PMA
While Indonesia may have higher capital requirements for foreign companies than many other countries, the size of the capital should not be seen as a cost. You will be able to invest that money into your local operations.
However, there are some situations where we recommend companies not to incorporate a PT PMA company, such as:
– You only need a company to hire employees.
– You don’t want to put up that much capital because you want to test the market first.
– You are planning to engage local partners only because your business activities are in the Negative List.
Hiring employees using Employer of Record service
Emerhub’s Employer of Record (EoR) service allows anyone to hire employees in Indonesia without setting up a local company. This means that instead of having to set up a company and manage payroll, you’ll simply appoint Emerhub as a service provider while having full-time staff working for you.
Employer of Record is a great alternative in situations such as:
– Providing full-time contracts and social benefits to your remote employees that want to be stationed in Indonesia (e.g. your graphic designer that wants to work from Bali).
– Testing the market by hiring a couple of sales representatives in Indonesia (e.g. an enterprise software company that hires technical sales staff to go from company to company).Employer of Record is a great alternative in situations such as:
– Providing local customer support.
Lowering minimum capital requirements by using a nominee company
The primary reason to set up a nominee company is to get around the local ownership restrictions which are out of scope for this article.
However, sometimes small companies are taken aback by the capital requirements and decide to set up the company by using a local shareholder instead.
This is understandable, especially if you plan to have a lifestyle business that won’t be generating much more revenue than needed to support your lifestyle in Indonesia. But understand the risks of doing so – the local shareholder has full control over your company and can leave you with nothing.
It happens often, especially if the local nominee is a family member or friend (or they deceive and the business is inherited by their relatives). It’s also not uncommon that the business takes off and the local partner decides to reap the benefits without you.
Therefore we only recommend using professional service providers for nominee companies – companies like Emerhub have a reputation to protect and have much more to lose from acting in bad faith.
Frequently Asked Questions about Minimum Capital in Indonesia
How much is the minimum capital of a PT PMA?
A PT PMA is required to have a capital of Rp2.5 billion. Some business classifications have higher capital requirements due to the nature of the activities.
What can I do with the paid up capital?
You can use the funds to cover business expenses. Paid-up capital should be seen as an investment.
Do local companies have lower capital requirements?
If the local company does not have any foreign shareholders and operates as a small or medium business, then the minimum required capital is lower. However, this might also restrict their ability to hire foreign workers and join tenders.
Is there an Investment Plan that I need to submit?
This was a requirement before the company registrations switched to the new system in 2018.
Get in touch with Emerhub via email email@example.com to discuss your opportunities in Indonesia further.