The Prohibition to Conclude a Nominee Arrangement

       

A nominee agreement is defined as an arrangement wherein an individual holds shares in a company for the benefit of another person. Such arrangements are strictly prohibited by Law No. 25/2007.  Consequently, these arrangements are deemed null and void by law. 

 

The Obligation to Perform Divestment

       

Share divestment refers to the foreign shares that must be offered for sale to Indonesian participants. Under the previous foreign investment laws, specifically Law No. 1/1967, further implemented by GR No. 20/1994, a PT PMA wholly owned by foreign citizens and/or legal entities, was required to sell a portion of its shares to Indonesian citizens and/or Indonesian legal entities after 15 (fifteen) years from the commencement of commercial operations.  However, the enactment of Law No. 25/2007 removed the general divestment obligation for  PT PMA. Presently, the divestment obligation applies only to: 

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• PT PMA explicitly stated with divestment obligation in existing approvals or business licenses before the enactment of BKPM Reg. No. 4/2021; or

• PT PMA engaging in business activities in specific sectors as per prevailing laws and regulations.

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The fulfilment of the divestment obligation for PT PMA meeting the above criteria is formalized through a deed stating the agreement of the involved parties regarding the implementation of divestment obligation.  Additionally, divestment of shares can be carried out in 2 (two) ways: (i) through direct ownership by Indonesian citizens or Indonesian business entities whose share capital is wholly owned by Indonesian citizens, as per the agreement of the parties; and (ii) the domestic capital market.  Direct ownership by Indonesian citizens or Indonesian business entities requires a minimum of Rp10.000.000,- (ten million Rupiah) for each shareholder. 

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Upon the fulfillment of the divestment obligation, the respective PT PMA is obligated to update its data through the OSS system.  Additionally, the shares owned by Indonesian parties resulting from the implementation of share divestment, once approved by the MoLHR, can be subsequently resold to individual Indonesia individuals, foreign individuals or Indonesia business entities. 

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Moreover, BKPM Reg. No. 4/2021 provides exemptions from the divestment obligation does not need to be satisfied if the shareholders agree to the following conditions in the corporate deed of the company: 

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• for PT PMA in which the shares are not 100% (one hundred percent) owned by foreign parties, the Indonesian party states that they do not wish or demand the share ownership per the provisions of the divestment of shares stated in the approval letter and/or business permit; or

• for PT PMA in which the shares are 100% (one hundred percent) owned by foreign parties, the shareholder(s) state that they do not have any commitment/agreement with any Indonesian parties for sales of shares.

       

It is important to note lastly, there are consequences of not implementing the divestment obligation, particularly for the PT PMA in which the shares are 100% (one hundred percent) owned by foreign parties. In such cases, shareholders/companies are responsible if there are Indonesian parties who demand the implementation of the divestment obligation in the future. 

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Opening a Bank Account

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Having a bank account is an important aspect when engaging in business activities, specifically for foreign companies or foreigners who wish to conduct transactions in Indonesia. The absence of a suitable bank account that caters to their business needs can lead to obstacles and additional charges, potentially hindering future collaborations between foreign companies or foreigners and their partners in Indonesia. Fortunately, Indonesia boasts numerous banks, each having several different requirements for opening a bank account. Therefore, understanding the necessary documents is essential to streamline the process of conducting business in Indonesia. 

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Bank Account for Indonesian and Non-Indonesian Citizens 

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Based on the regulations of several internal banks, the following documents need to be prepared and provided to facilitate the formation of a bank account for citizens: 

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• Identity Card

1. For Indonesian citizens: Identity Card (KTP); and

2. For Non-Indonesian citizens: passport and ITAS (Izin Tinggal Terbatas or Limited Stay Permit).

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• NPWP (Nomor Pokok Wajib Pajak or taxpayer Identification Number)

In the process of opening a bank account, several considerations should be taken into account: 

1. the bank will request the above required documents and require the completion of a bank application form; 

2. an initial deposit of at least Rp500.000,- (five hundred thousand Rupiah) or Rp250.000,- (two hundred and fifty thousand Rupiah); and 

3. after the bank account is active, the bank will charge an administration fee every month. The activation time for a bank account is typically only 15 - 30 minutes, depending on the bank branch’s workload.  

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Bank Account for Companies and Foreign Entities

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If a company intends to open a bank account, some banks in Indonesia offer special accounts for companies with their own benefits. The required documents for Indonesian or foreign companies are the same and include:

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• AoA & deed of incorporation that have received ratification or a cover note from a notary for deeds that have not received ratification; 

• Deed of amendment (if any, especially concerning the company structure);

• Company’s NPWP;

• Business license;

• Business registration number;

• Identity card (KTP for Indonesian citizens and passport for non-Indonesian citizens) and NPWP of all BoD; and

• Identity card (KTP for Indonesian citizens and passport for non-Indonesian citizens) and NPWP of all shareholders.

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In the process of opening a bank account for a company, the following considerations apply: (i) the bank will request for the above required documents and fill out the bank application form; and (ii) an initial deposit of at least Rp1.000.000,- (one million Rupiah) is required. There is no standard practice of how long it takes for the company’s account to be active. In relation to the company’s bank account, the verification process will depend on the compliance of submitted documents. However, most banks state that it only takes one day to verify if all required documents are complete. 

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​Representative Offices

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To expand their enterprises, foreign companies usually open representative offices in various countries. In Indonesia, there are 4 (four) types of representative offices of foreign business entities, regulated by the following prevailing laws: 

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• KPPA;

• KP3A;

• the representative office of BUJKA; and

• the representative office of foreign electric power support services.

 

In addition to having its own characteristics, each of the abovementioned representative offices also has its own activities that can only be conducted after obtaining permits and complying with several limitations. Consequently, the establishment of KPPA, KP3A, and the representative office of BUJKA in Indonesia, along with the necessary permits which should be obtained by such representative offices before undertaking their activities, will be explained in turn below.

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KPPA

       

The Establishment of KPPA

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KPPA constitutes an office led by an Indonesian citizen or foreigner appointed by a foreign company, or an alliance of foreign companies overseas to act as their representative in Indonesia. The individual leading the KPPA is referred to as the head of KPPA and must satisfy certain obligations, namely: 

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• he/she shall reside in Indonesia;

• he/she shall fully be responsible for the continuity of the KPPA;

• he/she shall not be justified to carry out activities beyond the activities of KPPA; and

• he/she shall not hold concurrent positions as the head of a company and/or more than 1 (one) KPPA.

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In the event that the head of KPPA appointed is a foreigner and/or employs foreign workers, the KPPA must employ Indonesian workers in accordance with the prevailing regulations.  Additionally, it should be noted that the activities that KPPA can conduct are limited to the following matters: