Foreign companies considering entering the Indonesian market often ask whether they can conduct business activities in Indonesia without establishing a foreign investment company (PT PMA). The answer depends on the nature of the activities conducted in Indonesia.
As a general principle, foreign investment to conduct business in Indonesia must be carried out through a limited liability company established under Indonesian law, as provided under Law No. 25 of 2007 on Investment (the “Investment Law”).
However, not every activity undertaken by a foreign company in Indonesia constitutes foreign investment. Certain pre-investment activities, cross-border transactions, and contractual arrangements may generally be conducted without establishing a PT PMA, provided that the foreign company does not establish or operate a business presence in Indonesia that, in substance, constitutes foreign investment.
When Is a PT PMA Required?
Under the Investment Law, Foreign Investment (Penanaman Modal Asing or “PMA”) refers to investment activity conducted to carry out business in the territory of Indonesia by a foreign investor, whether using wholly foreign capital or in cooperation with a domestic investor.
Where foreign investment is made to conduct business in Indonesia, the Investment Law requires such investment to be carried out through a limited liability company established under Indonesian law.
Investment may be made through subscribing for shares, acquiring shares, or other forms permitted under applicable laws and regulations.
Accordingly, the key consideration is not merely whether a foreign company has customers, contracts, or revenue connected to Indonesia. The more important question is whether the company is conducting business in Indonesia through an investment or an established business presence in Indonesia.
Activities That May Be Conducted Without a PT PMA
Certain activities may generally be undertaken without establishing a PT PMA, provided that those activities do not develop into business operations in Indonesia.
Pre-Investment Activities
A foreign company may conduct market studies, feasibility studies, business discussions, and other preparatory activities before making an investment in Indonesia.
Such activities may generally be distinguished from PMA where the company has not established business operations in Indonesia, invested capital in an Indonesian business entity, or commenced regular commercial activities from Indonesia.
The distinction is therefore between exploring the Indonesian market and conducting business in Indonesia.
Cross-Border Transactions
A foreign company may also conduct certain transactions directly with customers or business partners in Indonesia on a cross-border basis.
For example, a foreign company may sell goods from overseas to buyers in Indonesia or provide services from outside Indonesia, such as online consulting or software-as-a-service hosted outside Indonesia.
In such circumstances, the foreign company conducts its business from outside Indonesia rather than through a local business operation.
However, the absence of a PT PMA does not automatically mean that the company is free from Indonesian tax or regulatory obligations. The activities should still be separately assessed for potential Permanent Establishment (Bentuk Usaha Tetap or “BUT”) exposure, as well as any applicable tax, trade, and sectoral requirements.
Promotion and Market Development
A foreign company may send representatives to Indonesia to conduct activities such as meeting prospective business partners, attending trade exhibitions, or making presentations.
Such activities may be conducted without a PT PMA provided that they remain within the scope permitted under the applicable immigration status and do not develop into employment or operational activities of the company in Indonesia.
Accordingly, the immigration status of foreign personnel should be assessed separately from the question of whether the foreign company has established a business presence in Indonesia.
Contractual Arrangements with Indonesian Companies
A foreign company may enter into contractual arrangements with Indonesian companies, including distribution agreements, agency agreements, franchise arrangements, licensing agreements, and other commercial cooperation agreements.
Under such arrangements, the foreign company may act as an overseas principal while the Indonesian company conducts the relevant activities in Indonesia.
Where the foreign company does not acquire shares, inject capital, or establish its own business operations in Indonesia, the relationship may generally remain contractual and does not automatically constitute foreign investment.
However, the substance of the arrangement remains important. A contractual structure should not be used merely to disguise a business operation that is, in substance, controlled and conducted by the foreign company in Indonesia.
Business Scale Is Also a Consideration
Indonesia’s investment regime also distinguishes foreign investment from small-scale business activities.
Under the foreign investment framework forming the basis of this analysis, foreign investors are generally permitted to conduct business activities within the Large Business category, subject to applicable investment thresholds and sectoral requirements.
Accordingly, a foreign investor cannot simply use a micro, small, or medium-sized business structure in Indonesia to avoid foreign investment requirements.
The business activity, investment structure, and applicable sectoral regulations must be assessed together.
Key Considerations
Before entering the Indonesian market, a foreign company should consider:
- whether its activities constitute conducting business in Indonesia;
- whether the company is making an investment in an Indonesian business;
- whether its activities remain genuinely cross-border or have developed into local operations;
- whether the relevant business sector is open to foreign investment and subject to foreign ownership restrictions;
- whether the applicable investment threshold and licensing requirements have been satisfied;
- whether the activities may create a BUT for Indonesian tax purposes; and
- whether foreign personnel require appropriate immigration and work authorization.
Not every activity involving Indonesia requires a PT PMA. However, once a foreign company begins conducting business in Indonesia through a continuing local presence or making an investment, the PT PMA framework becomes a key part of the analysis.
How TAMA Global Mobility Can Assist
TAMA Global Mobility assists foreign companies in assessing their market-entry structure in Indonesia, including:
- foreign investment and PT PMA structuring;
- Representative Office considerations;
- cross-border business models;
- business licensing and NIB requirements;
- potential Permanent Establishment exposure; and
- immigration and foreign worker requirements.
By considering corporate structure, licensing, immigration, potential tax exposure, and the actual manner in which business activities are conducted, TAMA Global Mobility helps foreign companies establish an appropriate and compliant business presence in Indonesia.
Disclaimer: Here
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TAMA Global Mobility
WhatsApp: +62 821-1015-402
Email: info@tamaglobalmobility.com
For additional insights on Indonesian immigration compliance and global mobility matters, explore our related publications:
Entering the Indonesian Market: PT PMA, Representative Office or Permanent Establishment?
Immigration Compliance for Foreign National Heads of KPPA in Indonesia
Permanent Establishment (BUT) in Indonesia: A Guide for Foreign Companies
Can a Foreign National Hold More Than One Stay Permit in Indonesia?
Can Foreign Nationals Convert KITAS to KITAP in Indonesia?
Can Foreign Nationals Extend Their Stay Permit in Indonesia Online?
