Can foreing investors conduct business without an entity in Indonesia?

Foreign investors in Indonesia need to set up an entity in order to conduct business. They can do this by establishing a foreign investment company (PT PMA) or a representative office (RO), although an RO cannot generate income.

[tips title="Important Tip"]Foreign investors who want to operate a PT PMA should understand that this can carry legal uncertainties as a PT PMA can only be owned by Indonesian citizens.[/tips]

According to Article 33 of the Investment Law of 2007, foreign investors are prohibited from concluding an agreement that states the share/joint ownership in a company is on behalf of another party. Also known as a ‘nominee agreement’, foreign investors have used such arrangements to avoid regulations and requirements that apply to them. 

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This carries inherent risks as the local shareholders will have full control of the business and the foreign investors’ rights will not be recognized by the law. There is no legal avenue to force the nominee shareholders to resell their shares or the business back to the foreign investor in spite of any internal agreements between both parties.

Foreign investors who cannot afford to establish a PT PMA can engage in joint ventures or partnerships with domestic firms.

This will also enable investors to enter industries that are restrictive for foreign ownership without having to face the legal ramifications. \



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