Indonesia Construction 2015

Title: Construction 2015
Publisher: Getting The Deal Through

                                                                       

                                                                       

                                                                       

1 Foreign pursuit of the local market

If a foreign designer or contractor wanted to set up an operation to pursue the local market, what are the key concerns they should consider before taking such a step?

First, the foreign contractor will have to decide which business vehicle to adopt in Indonesia. Basically, according to the construction laws there are two business vehicles that can be considered by a foreign contractor: establishing a local limited liability company (known as a foreign investment company or ‘PT PMA’), or establishing a representative office (RO).

In relation to the first model, investors usually have to deal with the following issues:

  • obligation to find a local partner for establishing a PT PMA company, which shall own a minimum of 33 per cent of shares in the company. There is an exception for establishing a PT PMA in the business of engineering, procurement and construction (EPC) for the energy and mineral sectors, where the maximum foreign ownership is raised to 95 per cent;
  • obligation to meet a minimum investment value of more than 10 billion rupiah or its equivalent value in US dollars;
  • time constraints and a long process for establishing a PT PMA, including the process for obtaining contractor certifications, business licences (IUJK) and other necessary general licences for the operation of the PT PMA.