Foreign direct investment (FDI) has played a key role in Indonesia’s economic history, dating back to the colonial era. Today, the government actively encourages FDI to build a more advanced and stable economy. Moreover, foreign investment helps create more job opportunities for Indonesians, which directly supports national economic growth and improves public welfare. As a result, Indonesia has developed various types of FDI to accommodate different investor needs.
The Indonesian government requires foreign investors to establish their businesses as limited liability companies (PT). This regulation, stated in Law No. 40/2007, aims to provide legal certainty and protection for international investors. To operate legally in Indonesia, a foreign business entity must meet several conditions. These include avoiding the Negative Investment List (DNI), holding a minimum capital of IDR 10 billion, and complying with foreign shareholding limits.
Main Types of FDI in Indonesia
1. Joint Venture
A joint venture involves a collaboration between a foreign investor and a local (national) investor. Both parties combine resources and expertise to create a new business entity with shared goals. Typically, this partnership runs for a specific period and focuses on particular objectives.
Law No. 25/2007 categorizes joint ventures as foreign investments. For example, PT Nestle Indofood Citarasa Indonesia was formed through a partnership between Nestle S.A. and PT Indofood Sukses Makmur Tbk.
2. Joint Enterprise
A joint enterprise is a specific type of joint venture where the foreign and local investors create a new legal entity under Indonesian law. The key difference from a regular joint venture lies in this legal formation. Capital in a joint enterprise may come in both foreign currency and Indonesian rupiah, which investors inject into the newly formed company.
3. Contract of Work
In this model, both foreign and national investors establish a legal Indonesian company, which then enters into an agreement with another domestic company funded by local capital. This structure allows them to carry out joint operations while maintaining legal compliance.
A well-known example is PT Pertamina, a state-owned enterprise, which collaborated with PT Caltex International Petroleum from the United States.
4. Foreign Investment under the Disc–Rupiah Scheme
This hybrid model combines credit financing and foreign equity investment. Investors initially provide loans calculated in foreign currency, but the borrower repays them in Indonesian rupiah. Businesses often use this scheme for foreign creditor claims that lack government guarantees.
5. Investment Through Investment Credit
Local investors frequently choose this option to fund their projects in Indonesia. It usually begins with foreign-sourced investment loans, which are then converted into national capital, often through a joint venture structure.
6. Profit-Sharing System
This FDI model allows foreign investors to extend credit to local businesses. Instead of repaying the loan with money, the local company returns the principal and interest through production output. As part of the agreement, the borrower must export the goods to the foreign creditor’s country.
Set Up Your Foreign-Owned Company (PMA) in Indonesia
Establishing a foreign-owned company (PMA) in Indonesia may seem complex, but it becomes straightforward with the right assistance. At MESO Serviced and Virtual Office, we offer comprehensive services to help you register your PMA, secure licenses, and get your business running smoothly.
MESO Serviced and Virtual Office also provides FDI company establishment services in Indonesia.
Visit www.meso.co.id or contact us via WhatsApp at 0812 1315 4189 or call 021 2789 9919 for more information.
