INFO FOR EXPATS

An Investor's Guide: How to Acquire a Local Company

Indonesia is a country with great economic potential, one that has been under the probing eyes of the global community. As Southeast Asia’s largest economy, it has been in a promising position for economic development – an attractive selling point for foreigners looking at business opportunities in the archipelago.

Since gaining independence in 1945, more than seven decades ago, Indonesia has transformed from an agricultural-based economy to a mixed one with increasing activities across the service and manufacturing industries. The government also has its eyes on infrastructure development.

Indonesia has plans to be a part of the top ten global economies by 2025. During former President Susilo Bambang Yudhoyono’s administration in 2011, the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development 2011-2025 ( MP3EI) was created as the government’s ambitious strategy to speed up the country’s process of being recognized as a developed country.

The global economic slowdown in 2011 however shifted the country’s economic growth away from its MP3EI target. While President Jokowi’s administration aroused confusion about the MP3EI status, it remains supportive of the vision set in the master plan.

This is no surprise, however, with the MP3EI’s vision being in sync with the objectives of the national longterm development plan ( RPJPN 2005-2025). The RPJPN 2005-2025 is the government’s 20-year plan that involves institutional restructuring in the country while aiming to ensure that it keeps up with other countries’ development paces.

Similarly, the Jokowi administration declared its very own development programme known as nawacita, which, as its name suggests, prioritizes nine points, including increasing competitiveness and productivity, developing a trusted and democratic governance, developing domestic strategic sectors to encourage economic independence and more.

With that and the country’s rising consumption by its large and young population, cheap labour and abundance in natural resources, more foreigners are becoming attracted to the opportunities they can get while the getting is good in the archipelago.

But what exactly does it take for a foreigner to acquire a company in Indonesia?

It should be noted that there are two aspects to owning a local company in the country:

First, a foreigner may opt to acquire a 100 percent locally owned company, where the shares are wholly owned by Indonesian citizens or companies. Second, an expatriate may choose to acquire a PerseroanTerbatas-Penanaman Modal Asing ( PT PMA), where some or all shares of the company are owned by a foreign entity.

Let’s first look at the scenario where a foreign investor would want to acquire a company whose shares are entirely owned by Indonesian shareholders. Here, the expatriate will have to consider the restrictions that come with foreign shareholding within that industry according to the Negative Investment List and the minimum capital requirements for the foreign-owned company. The Negative Investment List was enacted by the Indonesia Investment Coordinating Board ( BKPM) to specify particular business activities that are either conditionally open or entirely closed to foreign investment and the percentage of foreign ownership permitted for specific industries.

A foreign person or company wanting to acquire a local business in an industry that is in the Negative Investment List cannot acquire more shares in the business than allowed by the regulation.

To illustrate, a foreign investor cannot acquire a local company categorized as a ‘distributor of construction machineries and equipment’ as the Negative Investment List sets foreign ownership in this business classification to 67 percent maximum.

A limited liability company requires at least two shareholders, which means a foreign investor acquiring 100 percent of the company should be able to provide more than one shareholder.

Now, for the acquired company to become a PT PMA, it will need to comply with several regulations, regardless of the percentage of shares owned by the foreign investor. The minimal capital requirements for the acquired company is Rp.2.5 billion ( US$187,645) in paid-up capital and Rp.10 billion ( US$750,582) in its investment plan.

In the event that the local company has less than the required capital for the PT PMA, the foreign individual or company will have to provide the lacking capital for the acquisition to be completed. Acquiring a PT PMA, on the other hand, will be a different story for the foreign investor.

Because the company is already a foreign-owned company, the capital requisites have already been met. The major concern here will now be the restrictions on foreign ownership.

It’s important to note that as long as the acquired PT PMA continues to operate under the same business categorization, the same requirements apply in accordance with the laws and regulations of Article 6 of the Negative Investment List. The said scenario is particularly beneficial when the company that an expat will acquire has a classification that used to be excluded from the Negative Investments List and was later added, such as the rubber industry, which used to be closed to foreign investment but has now been made 100 percent open to foreign investment.

Retail and cosmetic commodities on the other hand used to be open to foreign investment but have now been classified as closed for foreign investment.

In this case, when a foreign investor acquires a company that has been moved from two different classifications, the same grandfathering principle will require the ownership percentage that was originally applied during the company’s setup.

1. To start the acquisition process, the director of the company to be acquired has to make a public announcement (normally in local newspapers) about the acquisition plans 30 days prior to the shareholders’ General Meeting.

2. Creditors of the company have a maximum of 14 days after the announcement to file their objections.

3. If no objections are received, the company director will call the shareholders’ General Meeting at least

15 days ahead.

4. Seventy-five percent of the shareholders’ voting members need to be present and vote for the acquisition and sign the minutes of the meeting.

5. Both the sellers and buyers sign the Transfer of Shares agreement.

6. A public notary formalizes the Articles of Association (AoA) that should include the minutes of the General Meeting of the shareholders.

7. To record the change of shareholders, the AoA is submitted to the BKPM to initiate the process of getting the Principal License for foreigners acquiring 100 percent local companies or to amend the Principal License for expats acquiring PT PMA.

8. Changes to the legal status of the company is then finalized after the Ministry of Law and Human Rights issues the approval on the acquisition.