Understanding 5 Steps Foreign Direct Investment In Indonesia

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By:

Team Hukumindo

Prologue

Indonesia is a very appropriate investment destination for foreign investors, because Indonesia has enormous potential to earn profits. Don't hesitate to invest in a country famous for its tourist destinations such as Bali, Jogjakarta, and Lombok.

The main factor that becomes one of the important factors for foreign investors to look at Indonesia is the natural resource factor. Indonesia has abundant natural resources, ranging from petroleum resources, mining resources, and natural gas sources. Indonesia is also the largest archipelago country which is one of the highlights in the world because it has a very strategic location.

Indonesia's population and workforce are dominated by productive age who are more skilled and ready to work. In addition, Indonesia's Economic and Investment Climate is also quite good, Indonesia has survived the global economic crisis or the world economy. Indonesia continues to create security and a healthy economic and investment climate. For now, Indonesia has even been appointed as one of the drivers of the economy in the Asian region. Indonesia's political stability is also relatively good, Indonesia is a country that continues to rise to become a stable country since the reform in the field of politics since 1998. Indonesia also continues to improve its democratic system to have a government that is always healthy and also conducive or safe.

Indonesia is also one of the countries that has an active role in building bilateral and international relations. The most important thing is that Indonesia is the only country in Southeast Asia that is active in the group of G-20 countries. This is because Indonesia always strives and plays a role for and in conveying the interests of developing countries in the world.

These things are very profitable for you foreign investors to invest in Indonesia. Many factors can be obtained, of course, for investors who invest in Indonesia, because Indonesia is a country that is rich, safe, and stable. So there are many interesting and profitable factors when foreign investors invest in Indonesia. 

Understanding 5 Steps Foreign Direct Investment In Indonesia

If you are interested to invest in Indonesia, as a first major step, it is better to first understand the 5 Steps of Foreign Direct Investment in Indonesia, here are the five steps as below.[1]

Step 1: Establishing a Business and Registering

To invest in Indonesia, investors at the initial stage must register and form a business entity that will carry out the investment activities. Although it does not distinguish facilities for Domestic Investment (PMDN) and Foreign Investment (PMA), there are different procedures between PMDN and PMA in registering. In this article, we will only focus on Foreign Investment (PMA).

Step 2: Obtaining Preparation and Construction Permit

After registering, investors must obtain permits for preparation and construction (if the investment requires land and buildings). Permits for preparation and implementation are issued by the region (province, district/city) where the investment will be made.

Since the implementation of regional autonomy in Indonesia in 2001, each region has its own policy for permits issued by local governments. The types of permits issued and the procedures for their management vary by region. 

Step 3: Obtaining Permits for Implementation and Operations

The type of license for the implementation and operation of a business in the context of investment is determined by the line of business to be carried out. Each business field has a license for business operations/investments carried out. Business operating licenses consist of permits that are required for all types of businesses and specific permits for certain types of business fields. Some operational permits are issued by the central government and some are issued by local governments.

Step 4: Use of Foreign Workers

There are several permits/documents that must be fulfilled by business activities in the context of investment in using foreign workers in Indonesia. If the investment uses foreign workers, then there are several permits that must be completed. 

The use of foreign workers is usually given for the purposes of companies that use high technology, where the domestic labor market is still unable to meet or its existence is still rare. In the future, investors are encouraged to transfer technology, including by transferring the skills of foreign workers to local workers.

Step 5: Obtaining Investment Facilities

The Indonesian government has a policy of providing fiscal facilities for investment activities carried out in Indonesia whose business fields can obtain fiscal facilities. Facilities Fiscal facilities owned include:

1) Import duty facility on machine import;

2) Import duty facilities on imported goods and materials;

3) Proposals for facilitation of corporate income tax (PPh) facilities.

Fiscal facilities are usually given only to certain sectors, this is given by the Government of Indonesia generally to support growth or given for certain other reasons.

Epilogue

In closing, it is very easy to understand how to do Foreign Direct Investment (FDI) in Indonesia, First of all do the establishment of a business entity and register it, then carry out preparation and construction permits, after that carry out implementation and operational permits and comply with permits related to foreign workers (optional) and lastly in addition to obtaining investment facilities.

*) For further information please contact:

Mahmud Kusuma Advocate

Law Office

Jakarta - Indonesia.

E-mail: mahmudkusuma22@gmail.com

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Reference:

1. BKPM