A PT PMA’s shareholder structure determines who owns the Indonesian company, who can exercise shareholder voting rights, how additional equity can be introduced, and who ultimately sells the investment. Although the structure can be changed later, doing so may require shareholder approval, notarial documentation, corporate and regulatory updates, and compliance with any foreign ownership restrictions applying to the business.
How Should Foreign Investors Hold Shares in a PT PMA?
Foreign investors can hold shares in a PT PMA through qualifying corporate or individual shareholders, subject to the ownership rules applying to the company’s business activities.
Using a corporate shareholder can place the Indonesian investment within an existing group structure. If an overseas parent owns the Indonesian subsidiary, changes higher in the group’s ownership chain may be possible without transferring the shares of the PT PMA itself.
Individual ownership creates a different succession and transfer position because the PT PMA shares are held directly by the individual. A future change in ownership requires dealing with those shares rather than changing ownership of an overseas corporate shareholder.
When Does an Indonesian Shareholder Need to Be Involved?
Indonesia permits 100% foreign ownership in many business activities, but foreign ownership restrictions continue to apply to specified activities.
Where the relevant business activity permits 100% foreign ownership, an investor does not generally need to introduce an Indonesian shareholder simply to establish a PT PMA.
Where an ownership restriction applies, the permitted foreign shareholding depends on the business activity and applicable investment or sector-specific rules.
A foreign investor may also establish a joint venture with an Indonesian partner for commercial reasons even where 100% foreign ownership is permitted. In that case, the Indonesian shareholder is an actual equity owner with the shareholder rights attached to its shares, rather than simply a requirement for establishing the company.
Structuring ownership of an Indonesian PT PMA? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com to review the shareholder structure
Why Does Ownership Percentage Not Always Equal Control?
Holding a majority of the shares does not mean a shareholder can make every company decision independently.
Indonesian Company Law and the company’s articles of association determine voting and approval requirements for shareholder decisions. A joint venture can also establish reserved matters requiring specified shareholder approval, subject to Indonesian Company Law and the company’s articles of association.
Reserved matters can require minority shareholder approval for decisions that would otherwise be controlled by the majority shareholder.
For example, a foreign investor may own a majority of the company while an Indonesian minority shareholder has approval rights over specified reserved matters. The foreign investor retains majority ownership but cannot exercise unilateral control over those decisions.
What Happens When the PT PMA Needs More Capital?
Under the current foreign investment framework, a PT PMA generally requires at least IDR 2.5 billion (USD 150,000) in issued and paid-up capital per company, unless another requirement applies.
When a company issues additional shares, existing shareholders generally have the right to subscribe in proportion to their existing holdings, subject to exceptions under Indonesian Company Law. If a shareholder does not participate in the capital increase, its ownership percentage can be diluted.
Planning additional equity for an Indonesian PT PMA? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com to assess how the capital increase could affect the shareholder structure
Can the Shareholder Structure Be Changed Later?
A share transfer must comply with Indonesian Company Law, the company’s articles of association, applicable shareholder arrangements, and any foreign ownership restrictions. Depending on the structure, existing shareholder rights or corporate approvals may also be relevant.
A change in ownership requires the appropriate corporate documentation and updates to the company’s registered and, where applicable, beneficial ownership information.
A transfer that changes the foreign and Indonesian ownership percentages must leave the company compliant with the ownership rules applying to its business activities. A structure that was permitted when the company was established cannot simply be replaced with an ownership arrangement that exceeds the applicable foreign ownership limit.
Changing the shareholders of an existing PT PMA? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com to assess the proposed ownership change
How Does the Holding Structure Affect Dividends?
The identity and jurisdiction of the foreign shareholder can affect the Indonesian withholding tax imposed when profits are distributed overseas.
Dividends paid to a non-resident shareholder are generally subject to 20% Article 26 withholding tax under Indonesia’s domestic rules. An applicable tax treaty may reduce the rate if the shareholder satisfies the requirements for treaty relief.
A treaty reduction applies only where the shareholder satisfies the relevant treaty and Indonesian requirements.
Changing the shareholder receiving the dividend may require restructuring the ownership chain if the PT PMA shares themselves need to be transferred.
How Does the Original Shareholder Structure Affect a Future Sale?
Where a PT PMA has several shareholders, the ability to sell can depend on the rights contained in the articles of association and applicable shareholder arrangements. Rights of first refusal, consent provisions, and other agreed transfer mechanisms can affect whether one shareholder can sell independently and how the other shareholders participate in the transaction.
A sale to another foreign investor must also comply with the foreign ownership restrictions applicable to the company’s business activities.
The identity of the seller can have tax consequences as well. A direct sale of PT PMA shares by an overseas shareholder and a transaction occurring higher in an international holding structure are not necessarily treated as the same transaction for Indonesian tax purposes.
Why Do Nominee Shareholding Arrangements Create a Different Risk?
Using an Indonesian individual or company to hold shares on behalf of a foreign investor is not a substitute for complying with Indonesia’s foreign ownership restrictions.
Indonesia’s Investment Law prohibits arrangements under which shares are formally held in one person’s name for and on behalf of another person. Agreements containing such nominee arrangements are declared null and void.
A foreign investor that cannot legally own the desired percentage of a restricted business activity should not treat an Indonesian nominee shareholder as a mechanism for obtaining the economic equivalent of prohibited foreign ownership.
Structure Your PT PMA Ownership with MAP Resources Indonesia
MAP Resources Indonesia supports foreign investors establishing and restructuring shareholder ownership in Indonesian PT PMAs. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com to review your proposed shareholder structure.
