What Foreigners Should Consider if Buying Shares of Domestic Investment LLC

PERTANYAAN

A foreigner buys shares in a company that has the status of a domestic investment company without changing the company's status to foreign investment. Is this legally allowed? If not, what should be done with the change of ownership of the company to foreign-owned? And, is a work permit/investor license required?

INTISARI JAWABAN

If a foreigner wants to buy shares in a domestic investment company (penanaman modal dalam negeri/ “PMDN”), here are some things that must be considered because of its status change to a foreign investment company (penanaman modal asing/ “PMA”).

Please read the review below for a further explanation.

 

ULASAN LENGKAP

This article is an English translation of Yang Harus Diperhatikan WNA Jika Membeli Saham PT PMDN written by Laura Reggyna, S.H., M.H. from Kandara Law and published on Tuesday, 11 April 2023.

The article below is an update of the article entitled Status Change of Domestic Investment to Foreign Investment Due to Purchase of Shares by Foreigners (Alih Status PMDN Menjadi PMA karena Pembelian Saham oleh WNA) created by Vania Natalie, S.H. and first published on Thursday, 21 February 2019.

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What to Do if Domestic Investment becomes Foreign Investment

According to Article 5 section (3) Law 25/2007, forms of domestic and foreign investment can be done through:

1. subscribe for shares at the time of the incorporation of the Limited Liability Company (“LLC”);
2. purchase shares; and
3. take another method in accordance with the provisions of the laws and regulations.

A foreign investor is a foreign individual, foreign corporation, and /or foreign government conducting investment within the territory of the Republic of Indonesia.[1] In other words, foreign investment (penanaman modal asing/ “PMA”) is an investing activity to do business within the territory of the Republic of Indonesia which is undertaken by foreign investors, either by fully using foreign capital or in the form of joint venture with domestic investors.[2]

Therefore, if there is a mixture of domestic capital and foreign capital, the company is immediately categorized as a foreign investment company or PMA company.

Article 15 Law 25/2007 furthermore explains the obligation of investors, especially foreign investors, namely:[3]

1. apply the principles of good corporate governance;
2. implement corporate social responsibility, namely the responsibility inherent in each investment company to keep creating a harmonious, balanced, and suitable relationship with the environment, values, norms, and culture of the local community;
3. generate a report on the investment activities and submit it to the Investment Coordinating Board (Badan Koordinasi Penanaman Modal/ “BKPM”), where the report contains the development of investment and obstacles faced by investors that are submitted periodically to BKPM and the local government responsible for investment;[4]
4. respect the cultural traditions of the communities around the location of the investment business activities; and
5. comply with all the provisions of the laws and regulations.

In the event that the company's status changes from domestic investment (penanaman modal dalam negeri/ "PMDN") to foreign investment or PMA, then the company should need to make data adjustments through amendments to the articles of association stipulated by the General Meeting of Shareholders (“GMS”).[5] Article 21 Law 40/2007 also regulates that changes to the articles of association must be approved by the Minister of Law and Human Rights.

You can read more about the procedure for amending the articles of association in the article entitled Can a Private Car be an LLC Asset?

In addition, the company also needs to make changes to company data through OSS, as stipulated in Article 7 Regulation of the Minister of Trade 76/2018. So, after the company reports the changes in the company's articles of association and is approved by the Ministry of Law and Human Rights, the company can then adjust the Business Identification Number and other licenses related to business activities.

Furthermore, the change in the status of domestic investment companies to foreign investment companies also allows for changes in the management of the company, so it is necessary to adjust the data of the management and the person in charge after the change in company status.

Provision of Stay Permit for Foreigners as Shareholders

The provisions for residence permits for foreigners or Foreign Citizens (Warga Negara Asing/ “WNA”) who make investments are regulated in the Regulation of the Investment Coordinating Board 4/2021. Limited Stay Permit (Izin Tinggal Terbatas/ "ITAS") for foreign investors is granted to a Foreign Citizen who conducts foreign investments with a value that meets the following requirements:[6]

1. as shareholders who serve as directors or commissioners of a company, provided that the share ownership is at least IDR1,000,000,000.00 (one billion Rupiah) or its equivalent in United States dollar currency as stated in the deed; or
2. as shareholders who do not serve as directors or commissioners of a company, provided that the ownership of shares is at least IDR1,125,000,00 (one billion one hundred and twenty-five million Rupiah) or its equivalent in United States dollar currency as set out in the deed.

Meanwhile, a Permanent Residence Permit (Izin Tinggal Tetap/ "ITAP") is given to foreigners who conduct foreign investments with a value that meets the following conditions:[7]

1. as shareholders who serve as directors or commissioners of a company, provided that the share ownership is at least IDR1,000,000,000.00 (one billion Rupiah) or its equivalent in United States dollar currency as stated in the deed; or
2. as shareholders who do not serve as directors or commissioners of a company, provided that the minimum share ownership is IDR10,000,000.00 (ten billion Rupiah) or its equivalent in the United States dollar currency as set out in the deed.

In the event that the capital invested by foreigners amounts to less than Rp1 billion, the foreigners are required to use Limited Stay Permit or Permanent Stay Permit. In the process, an application for a foreign worker recruitment permit must be submitted to the Ministry of Manpower first.[8]

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These are the answers we can provide, we hope you will find them useful.

Legal Basis:

1. Law Number 25 of 2007 on Investment;
2. Law Number 40 of 2007 on Limited-Liability Companies;
3. Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation which has been passed into law under Law Number 6 of 2023 on 21 March 2023;
4. Regulation of the President Number 64 of 2021 on the Investment Coordinating Board;
5. Regulation of the Minister of Trade Number 76 of 2018 on the Organization of Company Registrations;
6. Regulation of the Investment Coordinating Board Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities.

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[1] Article 1 number 6 Law Number 25 of 2007 on Investment (“Law 25/2007”).

[2] Article 1 number 3 Law 25/2007.

[3] Article 15 Law 25/2007 and its elucidation.

[4] All organizational units and resources within Investment Coordinating Board also carry out the duties and functions of the Ministry of Investment (Article 57 Regulation of the President Number 64 of 2021 on the Investment Coordinating Board).

[5] Article 19 Law Number 40 of 2007 on Limited-Liability Companies.

[6] Article 83 section (2) and (3) Regulation of the Investment Coordinating Board Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (“Regulation of the Investment Coordinating Board 4/2021”).

[7] Article 84 section (2) and (3) Regulation of the Investment Coordinating Board 4/2021.

[8] Article 85 section (1) Regulation of the Investment Coordinating Board 4/2021.