Foreign investors undertaking a statutory merger in Indonesia must comply with company law, foreign investment restrictions, tax rules and competition requirements. A statutory merger allows one company to absorb another, with the surviving company inheriting its assets and liabilities without a separate liquidation process.
Unlike a statutory merger, a consolidation creates a new legal entity, while a share acquisition preserves the acquired company’s legal identity.
Conducting Legal and Financial Due Diligence
Financial due diligence should examine the participating companies’ financial statements, unresolved audit findings, outstanding debts, tax liabilities and related-party transactions.
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Legal due diligence should cover corporate ownership, material contracts, outstanding litigation and business licenses.
Where property forms part of the transaction, investors should verify applicable land rights, including Hak Guna Bangunan (HGB) and Hak Guna Usaha (HGU).
Existing employment obligations, including outstanding wages, contractual entitlements and potential severance liabilities, must also be examined.
Complying With Indonesia’s Foreign Investment Requirements
Foreign investors must establish whether the surviving company’s business activities permit foreign ownership under Indonesia’s Positive Investment List. Certain sectors impose foreign ownership limits or additional investment conditions.
The surviving company must also satisfy applicable PT PMA capital requirements.
The general minimum paid-up capital requirement for a PT PMA is IDR 2.5 billion (USD 150,000). Separately, the general minimum investment requirement exceeds IDR 10 billion (USD 650,000) per five-digit KBLI business classification and project location, excluding land and buildings. Different calculation rules and exceptions apply to certain business activities.
Preparing and Approving the Merger
Indonesia’s Company Law requires the directors of participating companies to prepare a merger plan covering the transaction’s rationale, share conversion arrangements, financial information and proposed changes to the surviving company.
The merger plan must be announced in at least one newspaper, and employees must receive written notification, at least 30 days before the notice convening the general meeting of shareholders.
Creditors have 14 days following the announcement to submit objections. Unresolved objections must be addressed before the merger can proceed.
Shareholder approval must satisfy the applicable voting requirements under company law and the participating companies’ articles of association.
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Following approval, the merger must be documented through an Indonesian notarial deed and submitted to the Ministry of Law under the applicable approval or notification procedure.
The merger’s legal effective date depends on whether ministerial approval is required or notification is sufficient.
Assessing the Tax Implications of a Merger
Asset transfers in Indonesia generally use market value for income tax purposes. However, companies undertaking qualifying mergers may apply to the Directorate General of Taxes for permission to transfer assets at their existing tax book values, subject to the applicable tax regulations.
Eligibility depends on the transaction meeting the applicable requirements, including a legitimate business purpose and conditions for continuing business operations. Applications must generally be submitted within six months of the merger’s effective date.
Investors must also assess outstanding tax liabilities, potential VAT obligations and applicable land and building transfer taxes.
Meeting Competition Notification Requirements
Certain mergers must be notified to Indonesia’s Business Competition Supervisory Commission (KPPU).
Notification generally applies when the relevant business groups’ combined Indonesian assets exceed IDR 2.5 trillion (USD 150 million) or their combined Indonesian sales exceed IDR 5 trillion (USD 300 million). A higher asset threshold of IDR 20 trillion (USD 1.2 billion) applies to banking transactions. The obligation is also subject to the applicable transaction and jurisdictional criteria.
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Where notification is mandatory, it must generally be submitted within 30 working days after the transaction becomes legally effective. Transactions between affiliated companies are generally exempt.
Completing Post-Merger Corporate and Licensing Changes
After the merger becomes effective, the surviving company may need to update its corporate records and information registered through Indonesia’s Online Single Submission (OSS) system, amend sector-specific licenses and register changes to shareholders or management.
Contact MAP Resources Indonesia for Merger Advisory
MAP Resources Indonesia assists foreign investors with corporate transactions, financial due diligence, regulatory compliance and business restructuring in Indonesia. For assistance, contact us at info@mapresourcesindonesia.com.
