Principal license is one of the most important licenses a foreign owned company needs to obtain in Indonesia. It’s the initial permission from the Investment Coordinating Board (BKPM) that allows you to invest (but not yet operate) in Indonesia.
BKPM issued new regulation regarding principal license on 29th of September 2015 which changes various aspects of investing in Indonesia. In this article we go over the most important aspects of principal license and add our comments.
Size of investment
BKPM wants foreign owned companies (PT. PMA) to invest at least Rp. 10 billion (~US$750,000 based on current exchange rate), excluding the value of land and buildings.
Total amount of investment is presented to BKPM as investment plan and it consists of two parts – fixed and working capital.
Fixed capital (invested within a year):
Others, such as tools and equipment, operational vehicles, furniture, office rent, etc.
Working capital (invested within 3 months):
Utilities, such as phone bills, electricity etc.
The new regulation also makes it clear that the investment plan should be at least Rp. 10 billion per business classification (KBLI) the company is applying for. While this has been required in practice already for a while the new regulation finally includes it also formally.
Based on the previous regulation from 2008, companies were required to have net equity or turnover exceeding Rp. 10 billion. The new regulation requires the entire Rp. 10 billion to be the investment.
While the ratio between fixed and working capital is not stated in the regulation, in reality BKPM has been rejecting applications where the working capital is smaller than fixed capital. This means that in order to get investment approval, the company needs to have working capital of over Rp. 5 billion that is going to be used within 3 months.
The intention of this regulation seems to be to make it harder for small and less capital intensive companies to enter Indonesia. Large companies, especially in manufacturing, are less affected by the new regulation.
Authorised and paid up capital
The new regulation states that both authorised and paid up capital should be at least Rp. 2.5 billion. This is in conflict with the Company Law that states that authorised capital should be at least four times bigger than the paid up capital so we expect there to be some changes.
Companies that previously had paid up capital of less than Rp. 2.5 billion and would like to continue to invest must apply for an expansion of investment plan.
Validity of principal license
Principal license is valid for 1-5 years, depending on the business classification. By the end of this period the company must acquire permanent business license.
Extending principal license
The extension of principal license must be submitted latest by 30 days prior to the expiry date. In case you miss that time you cannot extend the license and need to re-apply for it. This is especially time consuming for the sectors required to have a presentation in BKPM (see below).
Once you apply for the extension, there will be a field visit from BKPM to check the progress of the investment. Based on the visit, BKPM will decide whether the extension will be granted, license will be changed or even revoked.
In case the company fails to receive permanent business license during the extended principal license, the license will be revoked.
In recent years, BKPM has become very serious about revoking the principal licenses of the companies that don’t realise the investment plan. Therefore make sure you only apply for the principal license (essentially that you even register a foreign owned company) if you are confident that you are able to invest the required capital.
If Rp. 10 billion is more than you are able or ready to invest, a representative office or nominee company are a better choice.
Sectors required to have a presentation in BKPM
The new regulation lists down 31 business classifications, all in service sector, that are required to present their investment plan in front of BKPM in order to receive principal license. Some of the common classifications listed are software development, ISP, multimedia, IT, consulting etc.
It is crucial that the investor is well prepared for the presentation and knows what to present and how to answer the BKPM’s questions. Straits Partners will prepare and accompany you during the presentation.
Feel free to reach out to us at [email protected]