Establishing a joint venture together with a local company is one of the more expedient ways for foreign individuals or companies to set up a business in Indonesia. Additionally, this type of cooperation allows the partners to combine their respective qualities so as to leverage their prospective project’s chances of success; provided that the partnership arrangements have been thoroughly negotiated and agreed upon, and set out clearly and comprehensively in the joint venture agreement draft to minimize the potential for disputes in the future. Through a proven local company as a partner, a foreign firm also has the opportunity to gain access to their partner’s national network and knowledge of the local market.

It is worth noting that in some cases, international firms do not have a choice but to find a local company to partner with in order to be able to pursue a business venture in Indonesia depending on the sector. Such pertains to the existence of the Negative Investment List, a regulation last amended with Presidential Regulation No. 39 of 2014 which declares sectors in the Indonesian economy that are open, partially open, entirely closed, or open but with certain conditions, to foreign investment. Forming a joint venture especially becomes relevant when a sector has a restriction regarding foreign ownership of a company, e.g. pharmaceutical companies can be up to 85% foreign-owned, or film distribution companies must be at least 51% locally-owned.

As with any business activity in Indonesia that are fully or partially funded by foreign capital, a planned joint venture involving foreign and local companies also falls into the category of a foreign investment company (PMA), thus as regulation dictates, it must be established as a limited liability company in accordance with Indonesian law. Furthermore, to be able to carry out commercial operations, the newly-founded company will also need to obtain a principal license and a business license from the Indonesian Investment Coordinating Board (BKPM).

In order to establish a joint venture company, the following items should be prepared:

• Application form I-A.
• A written business proposal complete with activity plans and work flowchart.
• Copy of the company’s deed of establishment.
• Copy of the company’s articles of association.
• Copy of the company’s certificate of domicile.
• Copy of proof of identity for individuals.
• Copy of a valid passport for foreign individuals.
• Copy of NPWP for individuals and companies.
• Draft of the joint venture agreement.

In addition to the general steps in establishing a PMA (See Incorporating a PMA Company in Indonesia), the main difference between a joint venture PMA and a 100% foreign-owned one is the inclusion of a joint venture agreement. The document will typically contain:

• The governing law of the agreement.
• Organizational and management matters such as the business obligations of each partner, as well as the composition of the new company’s Board of Commissioners and Board of Directors.
• Agenda and quorum pertaining to shareholder meetings and board meetings.
• Matters related to share ownership.
• Specific restrictions and general provisions.

In overview, the main legal basis for the establishment of a joint venture is the provisions set forth in the Indonesian Civil Code (KUHPerdata), specifically article 1338; Law No. 40 of 2007 on Limited Liability Companies; and Law No. 25 of 2007 on Investment.

For more information about establishing a joint venture company or finding a local partner in Indonesia, contact GBG Indonesia

Global Business Guide Indonesia - 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

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