PT PMA Explained: Foreign-Owned Companies in Indonesia – The Complete Practical Guide for U.S. Investors

Table of Contents

The Main Legal Question

Can a foreigner legally own and operate a company in Indonesia through a PT PMA?
Yes. Under Indonesian law, foreign individuals and foreign companies may legally own and operate a business in Indonesia through a specific corporate vehicle known as a PT PMA (Perseroan Terbatas Penanaman Modal Asing), provided that ownership limits, capital requirements, licensing rules, and sectoral restrictions are fully complied with.

In practical terms, a PT PMA is the only fully compliant structure for long-term, revenue-generating foreign business activities in Indonesia. Any alternative arrangement that bypasses PT PMA requirements exposes foreign investors to serious legal and financial risks.

Legal Explanation

What Is a PT PMA?

A PT PMA is a limited liability company established under Indonesian law that contains foreign share ownership, either partially or wholly. Unlike a local company (PT Lokal), a PT PMA is regulated not only by general company law but also by Indonesia’s foreign investment regime.

A PT PMA:

• Is an Indonesian legal entity
• May be owned by foreign individuals, foreign companies, or a mix of foreign and Indonesian shareholders
• Must operate only in business sectors open to foreign investment
• Is subject to minimum capital and reporting obligations

For U.S. investors, this means Indonesia does not require a local nominee if the sector is open to foreign ownership. Proper structuring through a PT PMA provides legal certainty, asset protection, and enforceable shareholder rights.

Why Indonesia Requires a PT PMA Structure

Indonesia treats foreign investment as a regulated activity. The government’s policy objective is to:

• Protect strategic industries
• Ensure capital inflows are genuine
• Maintain regulatory oversight of foreign-controlled businesses

As a result, foreigners may not simply “register a company” like a local Indonesian entrepreneur. Instead, foreign ownership triggers additional compliance obligations.

Difference Between PT PMA and PT Lokal

The differences between a PT PMA and a PT Lokal are fundamental and have serious legal consequences if misunderstood.

Foreign ownership is the most critical distinction. A PT PMA legally allows partial or full foreign share ownership, depending on the applicable business sector. A PT Lokal, by contrast, does not permit any foreign ownership. If foreign ownership exists in substance, the company must be structured as a PT PMA.

Capital requirements also differ significantly. A PT PMA is subject to high minimum investment and paid-up capital thresholds set by Indonesia’s foreign investment regime. A PT Lokal has substantially lower capital requirements and is designed for domestic Indonesian entrepreneurs.

Investment reporting obligations apply only to PT PMA companies. A PT PMA must submit periodic Investment Activity Reports (LKPM) to the investment authority. A PT Lokal is not subject to these foreign investment reporting obligations.

Business sector access is more restricted for PT PMA entities. Foreign-owned companies may operate only in sectors that are open or conditionally open to foreign investment under Indonesian law. A PT Lokal, on the other hand, may operate in most business sectors with fewer statutory restrictions.

Using a PT Lokal with nominee shareholders to conceal foreign ownership is illegal and unenforceable under Indonesian law.

Legal Basis

1. Law No. 25 of 2007 on Investment (Investment Law)

Official name: Law of the Republic of Indonesia Number 25 of 2007 concerning Investment

• Article 1(3) defines foreign investment as investment conducted by foreign individuals or entities in Indonesian territory.
• Article 5(2) confirms that foreign investment must be conducted through a limited liability company established under Indonesian law.

Practical meaning:
Any foreigner who wants to conduct business activities in Indonesia must use a PT PMA structure. There is no lawful alternative for active commercial operations.

2. Law No. 40 of 2007 on Limited Liability Companies

Official name: Law of the Republic of Indonesia Number 40 of 2007 concerning Limited Liability Companies

• Article 7 sets the minimum requirement of two shareholders
• Article 3 limits shareholder liability to their paid-up capital

Practical meaning:
A PT PMA enjoys the same corporate protections as any Indonesian company, including limited liability and separate legal personality.

3. Law No. 11 of 2020 on Job Creation (Omnibus Law)

Official name: Law of the Republic of Indonesia Number 11 of 2020 concerning Job Creation

• Amends foreign investment procedures
• Simplifies licensing through the OSS system

Practical meaning:
Foreign investors now face fewer bureaucratic barriers, but compliance expectations are higher and more transparent.

4. Presidential Regulation No. 10 of 2021 as amended by Presidential Regulation No. 49 of 2021

Official name: Presidential Regulation of the Republic of Indonesia Number 10 of 2021 concerning Investment Business Sectors, as amended by Presidential Regulation Number 49 of 2021

• Specifies which sectors are open, restricted, or closed to foreign investment
• Sets foreign ownership caps by sector

Practical meaning:
Before forming a PT PMA, investors must confirm that their business classification (KBLI code) is open to foreign ownership.

Risks and Legal Consequences

1. Illegal Nominee Structures

Using Indonesian “nominee” shareholders to disguise foreign ownership violates:

• Law No. 25 of 2007 on Investment, Article 33

Consequences:

• Agreements are legally void
• Shares may be claimed by the nominee

No legal protection for foreign investors

2. Capital Non-Compliance

A PT PMA must meet investment thresholds set by the Indonesia Investment Coordinating Board (BKPM).

Failure to maintain required capital may result in:

• License suspension
• Forced restructuring

Revocation of business licenses

3. Operating Outside Licensed Activities

Operating outside the approved KBLI code violates licensing conditions under the OSS regime.

Consequences:

• Administrative fines
• Business closure
• Immigration issues for foreign directors

4. False Reporting

PT PMA companies must submit periodic investment activity reports (LKPM).

False or missing reports may trigger:

• Financial penalties
• Blacklisting
• Increased regulatory scrutiny

Case Examples

Case 1: U.S. Tech Founder Using Nominees

A U.S. SaaS founder used Indonesian friends as shareholders instead of forming a PT PMA. When revenue increased, the nominee claimed ownership.

Outcome: The foreign founder had no enforceable rights. Courts rejected side agreements.

Case 2: Manufacturing PT PMA with Incorrect KBLI

A foreign-owned factory registered under the wrong business classification.

Outcome: Operating license suspended until reclassification and compliance corrections were completed.

Case 3: Under-Capitalized Consulting Firm

A PT PMA declared capital but failed to inject funds.

Outcome: BKPM imposed sanctions and required capital rectification.

What Can Be Done

Step 1: Confirm Sector Eligibility

Check whether your intended business activity is open to foreign ownership under Presidential Regulation No. 10 of 2021.

Step 2: Structure Ownership Properly

Decide between:

• 100% foreign ownership (if permitted)
• Joint venture with Indonesian partners

Step 3: Meet Capital Requirements

Ensure paid-up capital and investment commitments are realistic and defensible.

Step 4: Obtain OSS Licenses

Register through Indonesia’s Online Single Submission (OSS) system and secure:

• Business Identification Number (NIB)
• Sectoral licenses

Step 5: Maintain Ongoing Compliance

• File LKPM reports
• Update licenses
• Maintain tax compliance

Professional advice is strongly recommended. Readers facing PT PMA structuring or compliance issues should consult an advocate through the contact details available in the website navigation.

Conclusion

A PT PMA is the legally recognized gateway for foreign investors to operate businesses in Indonesia. While Indonesia welcomes foreign capital, it demands strict compliance with ownership rules, capital thresholds, and licensing requirements.

For U.S. investors, the key takeaway is simple: a properly structured PT PMA provides legal certainty, while shortcuts create serious risk. Understanding the legal framework and acting strategically from the outset can prevent costly disputes and regulatory problems.

Frequently Asked Questions (FAQ)

Can a foreigner own 100% of a PT PMA?
Yes, if the business sector is fully open under Presidential Regulation No. 10 of 2021.

Is a PT PMA required to have Indonesian directors?
No, but immigration and work permit rules apply to foreign directors.

Can a PT PMA sponsor work visas?
Yes, provided employment and immigration regulations are complied with.

Is paid-up capital required upfront?
Yes. Declared capital must be genuinely injected and defensible.

What happens if a PT PMA violates investment rules?
Sanctions range from fines to license revocation and business closure.