Know the Difference between PMDN and PMA
“The difference between domestic investment and foreign investment still often raises question marks. The following is a summary of the differences between the laws and regulations, from the old to the newest.”
If you want to set up a business, both an individual and a business entity, it is clear that you must have capital. Capital is the most important component, because if there is no capital, it is impossible to start a business.
Activities related to business and capital are an investment. Referring to Law Number 25 of 2007 concerning Investment (Law 25/2007), the definition of investment is all forms of investment activities, both by domestic investors and foreign investors to conduct business in the territory of the Republic of Indonesia.
From the above definition, it can be concluded that there are two categories of investment in Indonesia, namely domestic investment (PMDN) and foreign investment (PMA).
What are the differences between PMDN and PMA, especially since the issuance of Law Number 11 of 2020 concerning Job Creation? Check out this review in the following article.
Definition and Actors who Make Investments
First, let’s understand the meaning of PMDN and PMA as regulated in the Regulation of the Investment Coordinating Board Number 4 of 2021 concerning Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (PBKPM 4/2021).
The definition of PMDN is an investment activity to conduct business in the territory of the Republic of Indonesia carried out by Domestic Investors using domestic capital.
Meanwhile, PMA is an investment activity to conduct business in the territory of the Republic of Indonesia which is carried out by Foreign Investors, both those who use fully foreign capital and those in joint ventures with Domestic Investors.
The keywords of the two definitions above are “domestic investors” and “foreign investors”. Investors, both domestic and foreign, are actors or subjects who carry out investment activities.
So, included in the second discussion, namely the actors who do PMDN and PMA.
Based on PBKPM 4/2021, the definition of domestic investors and foreign investors can be detailed as follows.
- The perpetrators of PMDN include:
- Individual business actor Indonesian citizen (WNI)
- Indonesian business entity
- Republic of Indonesia
- Regions of the Republic of Indonesia
The four parties invest in the territory of the Republic of Indonesia.
- The perpetrators of PMA include:
- Individual business actors foreign nationals (foreigners)
- Foreign corporation
- Foreign government
The three parties invest in the territory of the Republic of Indonesia.
Forms of Business Entities that Can be Established by Investors
Next is about the various forms of business entities regulated in PBKPM 4/2021, including:
- Limited Liability Company (PT)
- Limited partnership (commanditaire vennotschap/CV)
- Fellowship firm (venootschap onder firma)
- Civil Guild
- Cooperative
- Foundation
- Public Company
- Regional public company
- Other legal entities owned by the state
- Broadcasting agency
Based on PBKPM 4/2021, PMA is required to establish a business entity in the form of a Limited Liability Company (PT) based on Indonesian law and domiciled within the territory of the Unitary State of the Republic of Indonesia, unless stipulated otherwise by law.
Therefore, PMA business entities may only be in the form of PT. Meanwhile, PMDN is free to organize a business entity in any form, as long as it does not conflict with the provisions of the law.
Minimum Investment Requirements (Investment)
PMDN does not have a stipulation on how much-authorized capital must be invested. Referring to Government Regulation Number 8 of 2021 concerning Company’s Authorized Capital and Registration of Establishment, Amendment and Dissolution of Companies that Meet the Criteria for Micro and Small Businesses (PP 8/2021), the amount of authorized capital is determined by the decision of the company’s founders.
The authorized capital must be issued and fully paid up at least 25% (twenty five percent) as evidenced by a valid proof of deposit. PMDN can be started in the micro business category with a minimum issued capital of less than IDR 1 billion.
Furthermore, based on Presidential Regulation Number 10 of 2021 concerning the Investment Business Sector (Perpres 10/2021), PMA can only be carried out in the category of large business activities with an investment value of more than IDR 10 billion excluding the value of land and buildings.
Ease of Immigration Facilities/Permits
PMDN is not provided with ease of service for immigration facilities.
Meanwhile, based on PBKPM 4/2021, PMA is given the ease of service and/or licensing of immigration facilities. This facility is provided after receiving a recommendation from a government institution that has the task of carrying out government affairs in the field of investment coordination (BKPM).
Recommendations related to the ease of immigration facilities/permits for PMA, among others (PBKPM 4/2021):
- Recommendation to change the status of a visit stay permit to a limited stay permit
- Recommendation to change the status of a limited stay permit to a permanent residence permit
Capital Restrictions
PMDN does not have rules regarding capital restrictions unless there is a joint venture with a foreign investor.
Meanwhile, for PMA, there are restrictions on foreign capital ownership if a company experiences the following (Perpres 10/2021):
- Companies that accept the merger
- Takeover company
- New company smelting
All three must be listed in the business license of their respective companies.
Dispute Resolution when in Dispute with the Government
In Law 25/2007, it is stated what path should be followed if investors, both domestic and foreign, have a dispute with the government. The dispute resolution pathways referred to include (Article 32 paragraphs (3) and (4) of Law 25/2007):
- Disputes between PMDN and the government can be resolved through:
- Arbitration, if based on the agreement of the parties
- The court, if dispute resolution through arbitration is not agreed
- Disputes between PMA and the government can be resolved through:
- International arbitration, to be agreed upon by the parties
Those are some of the differences between PMDN and PMA. Still having trouble managing PMDN or PMA in the latest OSS system? Consult us, Prolegal!
Author & Editor: Bidari Aufa Sinarizqi
Translator: Desak Nyoman Ratna Sari