PT PMA Without the 10 Billion rupiah ?

[El_Goretto]

I talke with a Private lawyer about this and he told most of the PT PMA don't have the 10 billion requierement he also told me that nothing bad can happens as long as every 3 month the company report the tax

The company must report taxes every month. The quarterly report is the LKPM report (investment realisation report).

So I'm a Bit lost I really want to invest. Not for the stay Permit but for the business itself I'm just scare about if they see I don't have the 10 billion I dont want to be blacklisted or the money inside the company bank account block or something. And I don't want to get marry yet :/

The razia from immigration was on foreigners who were abusing the investor visa. Agents would create empty PT PMAs and give shares to their clients so that they can apply for an investor kitas. This is not recommended and it isn't your case either.

Realistically, if you can show that you are not abusing the investor/director Kitas, you will have no troubles from immigration. The important point being that you are showing that you are running a business, with money coming in and out, LKPM reporting is sound and tax reporting (and paying) is on point.

If the BKPM comes knocking and asking for a full investment, it will not come overnight. There will be 3x warning letters at least before they pull the company license. And then... that's it. If you can't negotiate with the BKPM to keep operating, you can then spend $10K to close the company (nobody talks about this, but that's how much it costs), or simply make it dormant with a zero tax reporting every year, and let it be.

Even then, if you were to set up a PT PMA, you don't even need to use it for your KITAS. Your wife can still sponsor your KITAS and you will only need to apply for a work permit under your PT PMA, as the position of President Director (your wife, or any local can be a 2nd director to sign the HR documents (foreigners are forbidden from carrying out any HR duties, including signing employment contracts), and you need a third local as Commissioner). Side note: once again, things will be a bit "complicated" because you will need to have a minimum number of employees, etc.

There is another alternative though. Your wife can set up a local PT with local shareholders, with a minimum capital of 1Bn (to make it a medium size company, the minimum requirement to hire foreigners), this local PT is allowed to employ you as director (but you will not be able to be a shareholder, obviously, because that would transform it into a PT PMA). So you will still need another local director for HR purpose, a local commissioner and 2 local shareholders. In the same spirit as the PT PMA, you can omit to inject the 1Bn (only declared on paper), and if the BKPM comes knocking, it's "easier" to come up with 1Bn than 10Bn. And frankly, by the time any trouble comes knocking, you will have probably come up with the capital requirements with careful accounting simply with the business daily operations and running all your expenses through the company.

Also, with the regular local PT, you can decide for it to sponsor both KITAS and work permit or just work permit only and KITAS under spouse.

So of course, neither option is perfect, here are the pros and cons:

PT PMA:

Pro:

• You control the company as majority shareholder

Con:

• Capital requirements and uncertainty over government application of its own regulation is a source of stress

Regular PT:

Pro:

• No ridiculous capital requirements
• Everything else is the same as PT PMA (except shareholding)

Cons:

• You have no control over the company because you are not a shareholder. Whoever has majority shareholding can kick you out any time. Although, only the director is able to run the company, take out loans, etc, so as long as you have clearly written articles of association and you remain the director, things should be rather safe.

So at the end of the day, the decision is yours: either be in the grey area and run the risk that your company may be closed by the government. Or be fully compliant but relinquish control over your company to a third party. Neither option is great but c'est la vie en Indonésie!

Now, you may hear about nominee shareholders from some agencies, loan agreements and all sort of bullshit. Please ignore, none of it is legal and you will be screwed when (not if) troubles arise.

 

[El_Goretto]

Tax office does not monitor the capital requirment fulfillment.

Capital requirement in amount of 10 billion is ridiculous and among highest, or even highest in the world. This have few consequences, among them preventing foreign investments, and inflated data about foreign investments, as every company is recorded as 10 billion Rp investment (realistic FDI are probably 20-40% of the government's official statistic).

If the requirement is strictly enforced, it will lead to a significant foreign investment decrease and closure of companies.

I disagree with this, and here's why:

I've pulled out the data from BPS (Badan Pusat Statistik) for Realized FDI in 2023:

As you can see, if you take the total FDI value and divide it by total projects, you get $700K which is about IDR 10Bn. Sweet, right?

Well no, because if you look at the composition of FDI, you see that if you add up all the projects with an average capitalization above that 700K mark, they represent 90% of total FDI.

Conclusion: those companies reporting 10Bn "pas" but not actually injecting the capital represent a very small contribution to total FDI. Those companies reporting higher investments are obviously reporting actual FDI.

 

[centurion]

I disagree with this, and here's why:

I've pulled out the data from BPS (Badan Pusat Statistik) for Realized FDI in 2023:

View attachment 4404

As you can see, if you take the total FDI value and divide it by total projects, you get $700K which is about IDR 10Bn. Sweet, right?

Well no, because if you look at the composition of FDI, you see that if you add up all the projects with an average capitalization above that 700K mark, they represent 90% of total FDI.

Conclusion: those companies reporting 10Bn "pas" but not actually injecting the capital represent a very small contribution to total FDI. Those companies reporting higher investments are obviously reporting actual FDI.

Thanks for the source, useful,but the data are coming from BKPM-the data from BKPM are not good. In finance, it is called "garbage in=garbage out", when you feed the excel with poor quality data.

I disagree with this, and here's why:

I've pulled out the data from BPS (Badan Pusat Statistik) for Realized FDI in 2023:

View attachment 4404

As you can see, if you take the total FDI value and divide it by total projects, you get $700K which is about IDR 10Bn. Sweet, right?

Well no, because if you look at the composition of FDI, you see that if you add up all the projects with an average capitalization above that 700K mark, they represent 90% of total FDI.

Conclusion: those companies reporting 10Bn "pas" but not actually injecting the capital represent a very small contribution to total FDI. Those companies reporting higher investments are obviously reporting actual FDI.

At first glance your analysis is logical, but in the subgroups you do not know how much each project overweights or underweights in each group. I.e. Freeport made a smelter that costs 2-3 billion USD. That is equivalent of 1.500 projects.

And these data are "garbage in-garbage out" process, self-reporting and often not thrue.

 

[El_Goretto]

Freeport made a smelter that costs 2-3 billion USD. That is equivalent of 1.500 projects

Whether the data from BKPM is garbage or not is only speculation, on your part.

But what you say there is exactly my point: if you add up all the projects with an average capitalization above USD 700K, you come up with 16,412, or 23%. Now do the same with the value of the projects and you get 84%. So 23% of projects make up 84% of FDI in Indonesia. That's the 80/20 law right there. And so we are in agreement that the huge projects have a much bigger impact on FDI (and less likelihood of misreporting because of scrutiny), that the random bules setting up a PT PMA to open a café in Bali and not depositing his 10Bn. You would need a shit ton of these bules to outweigh the big projects in energy, resources, etc.

 

[El_Goretto]

And these data are "garbage in-garbage out" process, self-reporting and often not thrue.

The self reporting you mentioned is the LKPM report. The BKPM has limited resources to verify that all the PT PMAs are compliant, so they target the following (educated guess):
1. Based on receiving information of non-compliance (competitor, disgruntled employee, etc)
2. Low hanging fruits of empty shell companies from visa agents all registered at the same virtual office address
3. Larger corporations with significant tax reporting, transactions, etc.

The small PMAs they are too numerous for being systematically targeted with the current manpower and technology in place. But even then, this small fish won't teint the data in my opinion, because even combined, their FDI value is still far outweighed by the large projects. They are like a thin layer of sand at the bottom of a bucket of rocks. There are more individual grains of sand than rocks but the rocks still contribute the vast majority of the bucket's weight.

 

[centurion]

Whether the data from BKPM is garbage or not is only speculation, on your part.

It is a fact, nor speculation, based on observation and experience. on the to tof it, non-verified self reporting data especially in Indonesia are garbage.

 

[centurion]

The self reporting you mentioned is the LKPM report. The BKPM has limited resources to verify that all the PT PMAs are compliant, so they target the following (educated guess):
1. Based on receiving information of non-compliance (competitor, disgruntled employee, etc)
2. Low hanging fruits of empty shell companies from visa agents all registered at the same virtual office address
3. Larger corporations with significant tax reporting, transactions, etc.

Non of this is thrue. BKPM simply does not have resurces to send anybody to check anything. They also handle millions of Indonesian corporations (local PTs, CVs etc) and they are ovelhelmed to do anything.

 

[centurion]

But what you say there is exactly my point: if you add up all the projects with an average capitalization above USD 700K, you come up with 16,412, or 23%. Now do the same with the value of the projects and you get 84%. So 23% of projects make up 84% of FDI in Indonesia. That's the 80/20 law right there. And so we are in agreement that the huge projects have a much bigger impact on FDI (and less likelihood of misreporting because of scrutiny), that the random bules setting up a PT PMA to open a café in Bali and not depositing his 10Bn. You would need a shit ton of these bules to outweigh the big projects in energy, resources, etc.

My estimate between mismatch of the data of Bank Indonesia foreign direct investments and BKPM is that mismatch is between 20-50%.

If reported 10 billion realization and realization was only 1billion,the data are garbage. In big groups you do not know how much are big projects and how much underreported, reported from previous years or overreported-because sometimes companies just fill-in the realization of 10 billion and in reality much less. Actually that was a practice advised informally even by large lawyer firms.

These reports are not clear to report even for accountants in the companies that report.

Garbage in-garbage out.

 

[Samoerai]

So, all these reports about foreign investments are bs?

Indonesia Foreign Direct Investment YoY

Foreign Direct Investment YoY in Indonesia increased to 18.55 percent in the third quarter of 2024 from 16.60 percent in the second quarter of 2024. This page includes a chart with historical data for Indonesia Foreign Direct Investment YoY.

tradingeconomics.com

 

[El_Goretto]

It is a fact, nor speculation, based on observation and experience. on the to tof it, non-verified self reporting data especially in Indonesia are garbage.

Please provide sources? If it's your experience and observation, then by definition it's speculation.

Non of this is thrue. BKPM simply does not have resurces to send anybody to check anything. They also handle millions of Indonesian corporations (local PTs, CVs etc) and they are ovelhelmed to do anything.

Please read my post again, I clearly wrote that BKPM has limited resources. Because they cannot check every company, they go after low hanging fruits.

My estimate between mismatch of the data of Bank Indonesia foreign direct investments and BKPM is that mismatch is between 20-50%.

If reported 10 billion realization and realization was only 1billion,the data are garbage. In big groups you do not know how much are big projects and how much underreported, reported from previous years or overreported-because sometimes companies just fill-in the realization of 10 billion and in reality much less. Actually that was a practice advised informally even by large lawyer firms.

These reports are not clear to report even for accountants in the companies that report.

Garbage in-garbage out.

Please provide evidence of your mismatch estimate?

It's clear that you have your opinion on this, and that's fine.

But based on actual data, it shows that the general FDI figures are still representative of reality because at a country level, these many companies reporting 10Bn investment realisation when they have actually only done a fraction of it are a drop in the ocean compared to the huge investments of large projects. So whether those small PMAs report 100 mill or 10Bn would (evidently) not move the needle as much as you seem to think it would.

Anyway, I've made my point. Let's not deviate too much from the topic.

@VartanRilen, feel free to ask if you have more questions.

 

[centurion]

Please provide sources? If it's your experience and observation, then by definition it's speculation.


Please read my post again, I clearly wrote that BKPM has limited resources. Because they cannot check every company, they go after low hanging fruits.


Please provide evidence of your mismatch estimate?

It's clear that you have your opinion on this, and that's fine.

But based on actual data, it shows that the general FDI figures are still representative of reality because at a country level, these many companies reporting 10Bn investment realisation when they have actually only done a fraction of it are a drop in the ocean compared to the huge investments of large projects. So whether those small PMAs report 100 mill or 10Bn would (evidently) not move the needle as much as you seem to think it would.

Anyway, I've made my point. Let's not deviate too much from the topic.

@VartanRilen, feel free to ask if you have more questions.

It is part of my line of business/expertize for more than 12 years in various forms, so can give a qualified opinion.

You can dig data from Bank Indonesia and compare mismatch data by yourself.

Mismatch by other sources is enought to make the data doubtful. In the link source pointing to mismath 20 bln vs 40 bln USD.

Indonesia Foreign Direct Investment 1970-2024

Foreign direct investment refers to direct investment equity flows in the reporting economy. It is the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a...

www.macrotrends.net

Armchair analysis is by definiton a speculation.

 

[centurion]

Please provide sources? If it's your experience and observation, then by definition it's speculation.


Please read my post again, I clearly wrote that BKPM has limited resources. Because they cannot check every company, they go after low hanging fruits.


Please provide evidence of your mismatch estimate?

It's clear that you have your opinion on this, and that's fine.

But based on actual data, it shows that the general FDI figures are still representative of reality because at a country level, these many companies reporting 10Bn investment realisation when they have actually only done a fraction of it are a drop in the ocean compared to the huge investments of large projects. So whether those small PMAs report 100 mill or 10Bn would (evidently) not move the needle as much as you seem to think it would.

Anyway, I've made my point. Let's not deviate too much from the topic.

@VartanRilen, feel free to ask if you have more questions.

Indonesian Government's Audit Agency claims that BKPM/LKPM data are not showing the real investment value,underlying forestry, coal & mineral sector.

BPK Ungkap Kejanggalan Data Investasi BKPM, Begini Temuannya!

Badan Pemeriksa Keuangan (BPK) mengungkapkan temuan mengenai realisasi investasi di Kementerian Investasi atau Badan Koordinasi Penanaman Modal (BKPM)

www.cnbcindonesia.com

 

[Samoerai]

Indonesian Government's Audit Agency claims that BKPM/LKPM data are not showing the real investment value,underlying forestry, coal & mineral sector.

BPK Ungkap Kejanggalan Data Investasi BKPM, Begini Temuannya!

Badan Pemeriksa Keuangan (BPK) mengungkapkan temuan mengenai realisasi investasi di Kementerian Investasi atau Badan Koordinasi Penanaman Modal (BKPM)

www.cnbcindonesia.com

Interesting ... so the data regarding investments in other sectors are reliable?

 

[centurion]

Interesting ... so the data regarding investments in other sectors are reliable?

Underlying 3 sectors and calling for reliable system for reporting (for all). This is implying all data are unreliable.

 

[El_Goretto]

Underlying 3 sectors and calling for reliable system for reporting (for all). This is implying all data are unreliable.

But why is it unreliable? According to the article, it's because not all businesses have NIB (!!) and not all are submitting their LKPM (investment realization reports). If they are not submitting these documents, it means they are under reporting their investment (by absence of reporting). Meaning, if anything, actual investment should be even higher than data suggests for these sectors.

 

[centurion]

But why is it unreliable? According to the article, it's because not all businesses have NIB (!!) and not all are submitting their LKPM (investment realization reports). If they are not submitting these documents, it means they are under reporting their investment (by absence of reporting). Meaning, if anything, actual investment should be even higher than data suggests for these sectors.

We don't know are these cohorts of data from the previous years (companies established earlier0 reporting in this one, or the investments from 2023 reporting in 2023 or they are overrlaping, or combined. The big players also can overreport, especially Chinese companies where compliance is on low level.

Discrepancy between various data mentioned earleir point to that (20 bln+ vs 40 bln+ from BKPM).

Similar was with export of commodities. The country recorded 10s of billions of USD trades surplus from commodities and refined minerals, and acutally very little money came into the country,staying on industry players' bank accounts abroad. At the end the government or BI ordered that export proceeds have to stay in the country for 3 months.

 

[El_Goretto]

We don't know are these cohorts of data from the previous years (companies established earlier0 reporting in this one, or the investments from 2023 reporting in 2023 or they are overrlaping, or combined. The big players also can overreport, especially Chinese companies where compliance is on low level.

Discrepancy between various data mentioned earleir point to that (20 bln+ vs 40 bln+ from BKPM).

Similar was with export of commodities. The country recorded 10s of billions of USD trades surplus from commodities and refined minerals, and acutally very little money came into the country,staying on industry players' bank accounts abroad. At the end the government or BI ordered that export proceeds have to stay in the country for 3 months.

That's not what the article says.

It says that the investment realization data is incomplete because some actors don't report it. It's not that these actors are under or over reporting, or reporting previous year, or any other assumption you make. They are just not reporting.

The link you shared clearly states the opposite of what you are trying to convey.

 

[centurion]

That's not what the article says.

It says that the investment realization data is incomplete because some actors don't report it. It's not that these actors are under or over reporting, or reporting previous year, or any other assumption you make. They are just not reporting.

The link you shared clearly states the opposite of what you are trying to convey.

The BPK said that its findings included that there were business actors who were recorded as not having a Business Identification Number (NIB) and not reporting LKPM. In addition, the BPK also found weaknesses in the LKPM feature in the Risk-Based Business Licensing (OSS-RBA) supervision subsystem.

This weakness causes the investment realization value in LKPM not to show the actual investment value. This weakness also causes the investment realization achievement data in the forestry, metal minerals and coal sectors to be unreliable.

"So the LKPM investment realization value cannot fully show the real investment value," wrote the BPK.

"As a result, the data on investment realization in the forestry, metal mineral and coal sectors that are informed to the public are not reliable and can mislead stakeholders in decision making," wrote the BPK again.

Due to this problem, BPK recommends that the Minister of Investment/Head of BKPM develop the LKPM feature in the OSS RBA supervision subsystem which can provide accurate investment realization value information.

The system is also expected to be able to send notifications to business actors who do not comply with LKPM reporting, as well as carry out coaching and supervision of business actors to fulfill their obligations to submit LKPM.

 

[centurion]

So to point anotther things about LKPMs.
The capital fulfillment (paid in capital is min 10 bil Rp).
The investment fulfillment is not 10 billion Rp per company, but 10 billion per project. Every KBLI is a different project, and if there is multiple locations, every location is different project. I.e. If the company has 5 KBLIs (business classification numbers) and every KBLI on 2 locations, it will be 50 billion Rpx2=100 billion Rp. So there are many companies with "project values" above 10 billion Rp. This is basically how the Potemkin's village works.