International Correspondence Lawyers & Financial Experts

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1. Limited Liability Company (PT)

PT is a legal entity based on Law No. 40 / 2007. PT is formed based on a capital union and also an agreement of its shareholders. PT shall conduct business line(s) as set forth in its Articles of Association (“AoA”).

1.1. Minimum Capital

Article 32 (1) of UU No. 40 Year 2007 states that the authorized capital shall be at least Rp 50,000,000 (fifty million rupiah). At least 25% (twenty five percent) of the the authorized capital shall be subscribed and paid up in full. However there are exemptions for the minimum amount of the authorized capital. Article 32 (2) of the UU No. 40 Year 2007 states that there are certain business activities that demand higher authorized capital. Those business activities are among others banking, insurance or freight forwarding business. Also foreign investment companies, which are companies having one or more foreign shareholder, are normally given a minimum paid up capital requirement of USD 100,000 or more by the Foreign Investment Coordinating Board (“BKPM”) depending on the business field.

1.2 Establishment of PT

The Shareholders shall execute the Deed of Establishment containing the AoA which shall be in the form of a notary deed. The said Deed of Establishment shall then be registered at the Ministry of Law and Human Rights (“MOLHR”) to obtain its approval. The MOLHR will normally approve the Deed of Establishment if the following conditions are met:

• At least 25% of the authorized capital has been issued
• 100% of the issued capital has been paid up

2. Representative Office

2.1. Foreign companies are allowed to register Representative Offices only in limited circumstances. Representative Office may only perform limited activities including acting on behalf of and gathering information for head office abroad. Generally it is not permitted to perform operational business or trading activities including entering into contracts. A Representative Office may conduct activities as a supervisor, communicator and coordinator of the Head Company or its affiliations in Indonesia and to arrange the interest of the Head Company, to do market research and liaise with customers and government authorities related to its products / services. They are not allowed to conduct direct sales and cannot issue Bills of Lading as stated in Article 1 and Article 2 of the Decision of the Head of the Capital Investment Coordinating Board Number 22/SK/2001 concerning the Implementation of the Presidential Decree Number 90 Year 2000.

2.2. A Representative Office can be established by obtaining the Approval from the Head of the Capital Investment Coordinating Board. In accordance with its establishment, a Representative Office can also register itself to the related government ministries. The related government ministries are:

• Representative Office from Ministry of Industry and Trade - for bilateral trade
• Representative Office from Ministry of Public Work - for consultant or contractor
• Representative Office from Ministry of Mining - for mining activities
• Representative Office from Ministry of Finance - for banking

To establish a Representative Office, the Head Company needs to issue three letters:

• Letter of Intent - stating the intention of the company to establish a representative office;
• Letter of Appointment - stating the appointment of the chief representative;
• Letter of Statement - stating that the Chief Representative will follow Indonesian regulations and shall not commence any direct market activities.

3. Tax Rates

3.1. The Tax Rates for Individuals:

3.2. Rates of Tax For resident companies:

3.3 Withholding Taxes Payments of dividends, interests, royalties and technical and management fees for services performed in Indonesia to Indonesian and non-Indonesian residents are subject to withholding tax. The withholding tax rates may vary, depending on whether it is paid to a resident or nonresident as follows in general:

• Payments to Indonesian residents 15% (except for technical and management services 6%)
• Payments to non-Indonesian residents 20%

3.4 In normal cases 10% value added tax (VAT) is applied to imports, manufactured goods and most services. In addition, there is also a sales tax on luxury goods ranging from 10% to 75%.

Investment Environment

Indonesia offers some comparative advantages to investors, with an attractive range and combination such as:

1. A vast, fertile country endowed with rich and diversified natural resources, among others agriculture, plantations, fisheries, mining, oil and gas.
2. A large population of about 212 million and dynamically adaptive to progress, constituting a huge potential market as well as a competitive work force.
3. A strategic location, controlling vital international sea communicate on fields.
4. A more democratic country.
5. An open market-oriented economy, with free foreign currency exchange regime.
6. A favorable business and investment climate.

Legal Aspect

The legal aspects to be considered while investors set up direct investments are:

1. Law Number 25 Year 2007 concerning Capital Investment (Law No. 25 / 2007).

This law is a new gate for capital investment in Indonesia. Its formulator wishes that with this new capital investment regulation, the business market in Indonesia will improve and being more established. Law No. 25 / 2007 also states that as long as it does not contradict Law No. 25 / 2007, the implementing regulations of the old investment laws, Law No.6 / 1968 concerning Domestic Capital Investment and Law No. 1 / 1967 concerning Foreign Capital Investment that was amended by Law No. 1 / 1970, are still enforceable. Based on this law the government has been introducing various policies and measures on FDI where now great efforts are given to promoting FDI in Indonesia. Furthermore, Domestic Direct Investment, further referred to as Penanaman Modal Dalam Negeri (PMDN), which is a status of doing business for businesses that are entirely owned by Indonesian capital either jointly between company(ies) or individual(s)governed primarily by the Law No.6 / 1968, as amended by Law No.12 Year 1970 concerning Amendment of the Law Number 6 Year 1968 concerning Domestic Capital Investment, is now also being governed by Law No. 25 / 2007.

2. Law Number 40 Year 2007 concerning Limited Liability Company (Law No. 40 / 2007).

   The most common legal entity in the business community is a Corporate Company – Perseroan Terbatas (PT), which can be either foreign direct investments or domestic direct investments.

3. The Government Regulation Number 20 Year 1994 on Share Ownership as lastly amended with Government Regulation Number 83 Year 2001

   - FDI, further referred to as Penanaman Modal Asing (“PMA”), is a status of doing business and governed firstly by the Law No.1 / 1967, as amended by Law Number 11 Year 1970 concerning Amendment of Law Number 1 Year 1967 concerning Foreign Capital Investment.
   
   - In general a PMA company is established as a joint venture between foreign and Indonesian partners. The partnership may involve legal entities (corporations) or individual persons. In this Government Regulation there is no requirement on the minimum capital, it is for the parties concerned to determine, based on their economies of scale and business considerations. For certain sectors this value may be higher, depending on the request from the related technical Ministry.
   
   - A PMA company may be established as a straight investment, or 100% foreign ownership. It is required, however that within 15 years of commercial operation, the company starts to be divested by selling some of its shares to Indonesian individual(s) and / or business entities, through direct placement and / or indirectly through domestic stock exchange provided that the Indonesian share is maintained at least 5%.

Foreign Direct Investment Company

A foreign direct investment company in Indonesia (known locally as PMA), can take the form of a 100% foreign owned limited liability company or can be established as a limited liability company through a joint venture with Indonesian partners. In the case of a joint venture, the Indonesian partner is required to own at least 5% of the shares. However, the Capital Investment Coordinating Board also has a policy concerning minority shareholder which provides that the minimum share participation by the minority shareholder shall not be less than USD 1,000.

Law No. 40 / 2007 requires that there are at least two shareholders in a PMA company, or any limited liability company. The shareholders can be two individuals, two companies, or a mixture of both. Therefore, in the case of a PMA company with full foreign ownership, the foreign investor initially planning the investment in Indonesia must invite another foreign party to participate in shareholding of the proposed company. Once the PMA company is ready to start its commercial operations, it is required to apply for a permanent business license, which is valid for 30 years and can be extended for another 30 years. To obtain the permanent business license, the company has to secure the approvals, permits, and licenses required by the different government agencies.

Allowable Share Ownership

Based on Presidential Regulation Number 77 Year 2007 concerning the List of Business Fields that are Closed and Open with Restrictions for Capital Investment as lastly amended with Presidential Regulation Number 111 Year 2007, foreign investors may own shares in a maximum of 95% in power plant construction, electricity transmission, electricity consultation, electricity production, transmission and distribution, generation of atomic power. Aside of the abovementioned business fields, foreign investors is also permitted to own shares in a maximum of 65 % in medical services (covering among others, establishing and operating hospitals, medical check-up clinics, clinical laboratories and mental rehabilitation service), 49% on construction and operations of ports and harbors, while for companies involved in the business line of processing and provision of clean water for the public, public railway service, shipping, foreign investors may invest their capital with several terms and conditions. In the case of telecommunications foreign investor who wishes to participate is permitted to have shares in the maximal amount of 49% up to 65% of the telecommunication company depends on the characteristic of the telecommunications services it self. For regular/non-regular/chartered commercial airfields, foreign investors who wish to participate in these industries must form a joint venture with an Indonesian company with a maximum shares mounting to 49%. A 100% foreign-owned PMA company is required to divest part of its shares to Indonesians within a maximum period of 15 years from the start of its commercial operation.