Chinese companies expanding into Indonesia will generally need an Indonesian PT PMA to conduct commercial operations. The ownership decision is whether the PT PMA should be held directly by the existing Chinese company or through a separate holding company.
When Direct Ownership by the Chinese Company Makes Sense
Direct ownership can suit a group establishing a single Indonesian company that will remain a subsidiary of the Chinese business.
The Chinese company invests directly into the PT PMA and appears as its corporate shareholder. Additional equity funding can also be provided directly by the Chinese shareholder when the Indonesian business requires further capital.
This avoids establishing and maintaining another company solely to hold the Indonesian investment.
Establishing a PT PMA under your Chinese company? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com
If another investor later enters the Indonesian business, its investment can be made through a transfer or issuance of shares in the PT PMA.
When Does a Separate Holding Company Make Sense?
A holding company becomes more relevant when a group expects to own several Indonesian businesses under a common parent.
A Chinese group may establish an Indonesian manufacturing company, later create a separate distribution company, and acquire an Indonesian business. A holding company can own the shares in all three rather than having the Chinese operating company hold each investment directly.
This also changes where a strategic investor or joint venture partner can enter the structure. An investor seeking exposure to several Indonesian businesses may invest at the holding-company level rather than acquiring shares separately in each PT PMA.
The holding company may be located in China or another jurisdiction, but the existence of an Indonesian tax treaty should not by itself determine the jurisdiction selected.
How Does the Shareholder Structure Affect Indonesian Tax?
The immediate shareholder determines where dividends from the PT PMA are paid.
Under direct ownership, dividends are paid to the Chinese shareholder. The Indonesian withholding-tax treatment must be determined under domestic law and the Indonesia-China tax treaty where the shareholder qualifies for treaty relief.
If a separate holding company owns the PT PMA, dividends are paid to that company instead. The withholding-tax position can differ according to its jurisdiction, the applicable treaty, and whether the shareholder satisfies the requirements for treaty relief.
Comparing direct and holding-company ownership? MAP Resources Indonesia can review the Indonesian tax implications at info@mapresourcesindonesia.com
A holding company does not automatically reduce Indonesian tax. Tax residence, beneficial ownership, and applicable anti-abuse provisions can affect access to treaty benefits.
Cross-border loans, interest, royalties, management charges, and other related-party transactions can separately create Indonesian withholding-tax and transfer pricing consequences based on the transaction and the parties involved.
What Happens When an Investor Enters, or the Indonesian Business Is Sold?
Assume a Chinese group owns three PT PMAs, each valued at IDR 100 billion (USD 5.7 million). If the Chinese company owns each PT PMA directly and an investor wants 30% of all three businesses, the ownership of each Indonesian company would need to be addressed separately.
If a holding company owns all three PT PMAs, the investor could instead acquire 30% of the holding company, subject to the corporate and regulatory rules applying to that structure. The immediate ownership of the three PT PMAs would remain unchanged.
Planning to bring an investor into your Indonesian operations? Email MAP Resources Indonesia at info@mapresourcesindonesia.com
A holding structure can also change how a future sale is executed. One PT PMA can be sold through a disposal of its shares, while an investor acquiring the wider Indonesian platform could acquire an interest at the holding-company level.
Selling shares in an offshore holding company does not necessarily remove Indonesian tax exposure. Indonesia’s rules governing indirect transfers of Indonesian interests and any applicable tax treaty must be considered.
Structure Your Indonesian Investment with MAP Resources Indonesia
MAP Resources Indonesia can assess whether direct ownership or a holding company is appropriate for your Indonesian investment. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
