Real Estate Investment Vehicles in Indonesia

By Denny Rahmansyah

For domestic investors, Indonesian law recognizes vari­ous corporate vehicles, including those with (i) non-legal entity status, such as a (a) maatschap (civil partnership), (b) firm and (c) comanditer venootschape (limited partnership, or CV); or (ii) legal entity status, such as a limited liability company (perseroan terbatas, or PT) or co-operative.

Small to medium-sized business players usually use a CV or PT as their corporate vehicle, while large-scale businesses will use a PT.

For foreign investors, as generally required under Law No 25 of 2007 regarding Capital Investment (the Investment Law), direct investment in Indonesia is imple­mented through the establishment of a limited liability com­pany (usually referred to as a PT PMA, with PMA standing for Penanaman Modal Asing, or foreign capital investment), or other forms allowed under relevant Indonesian laws and regulations.

All the foregoing corporate vehicles are able to acquire real estate, with certain limitations. PT or PT PMA are the pre­ferred entities and more commonly used to acquire real estate and invest in the sector, depending on whether the investors are entirely domestic or consist of foreign investor(s).

Main Features of the Constitution of Each Type of Entity

In addition to the same characteristics as the other afore­mentioned entities (eg, have their own assets, have a specific purpose as a group, have their own interest), PT and PT PMA also have the following features:

• the capital consists of shares;
• the highest authority lies in the general meeting of share­holders;
• the owners of a PT or PT PMA are shareholders; and
• shareholders will obtain revenue in the form of divi­dends.

The following can be considered as the benefits of PT and PT PMA:

• shareholders are only liable for debt equivalent to the value of their shares;
• the continuity of a PT or PT PMA as a legal entity is more secure; and
• the owners (in this case the shareholders) can change subject to certain common procedures; it is not difficult to transfer ownership of shares to another party.

Minimum Capital Requirement

For a PMA company engaging in the development and management of property, there is a 4:1 debt-to-equity ratio requirement if the property development is not integrated in a building or one housing compound.

Other than the foregoing, there is currently no applicable minimum capital for a company that invests in the real estate sector. However, there are minimum capital requirements for a PT and PT PMA as explained below.

Indonesian law recognizses three types of capital of any Indo­nesian company: authorized, issued and paid-up. Authorized capital may be up to four times greater than issued capital and all issued capital must be fully paid-up. The Company Law provides that the minimum authorized capital of a PT should be IDR50 million. The payment for shares may be in a monetary form or through an in-kind contribution to be valued by an independent appraisal company.

Notwithstanding the minimum capitalization requirements of the Company Law, in practice, the Indonesian Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal, or BKPM) and the Online Single Submission (OSS) system require that the total investment in the PT PMA be reason­ably sufficient so that the intended business can achieve commerciality. A low level of investment might cause delay as it may not be considered as sufficient by the BKPM.

The BKPM policy on the total investment for a PT PMA is still applicable under the OSS regime. Article 6 (2) of BKPM Regulation No 6 of 2018 Regarding Guidelines and Proce­dures on Capital Investment Licensing and Facilities (BKPM Reg 6/2018) requires that the minimum total investment should be more than IDR10 billion (excluding land and building), which will be further divided into equity (issued and paid-up capital) and loan(s). Under Article 6 (3) (b), the minimum issued and paid-up capital shall be IDR2.5 billion, while the balance of the total investment, IDR7.5 bil­lion, may be contributed by way of loan. In current practice, the OSS system requires the paid-up and issued capital of a PT PMA to be at least IDR2.5 billion, the minimum amount required in BPKM Reg 6/2018. Accordingly, the OSS system will reject any application with paid-up and issued capital of less than IDR2.5 billion.

BKPM Reg 6/2018 also requires the minimum total nominal value of shares that a shareholder needs to own in the PT PMA to be at least IDR10 million.

Applicable Governance Requirements

A PT or PT PMA must have, at all times, at least two share­holders. If for any reason it has only one shareholder for a period longer than six months, it will lose its limited liability status and the sole shareholder\'s liability will not be limited to the equity invested in the company (ie, it will be person­ally liable for the actions of the company).

For PT PMA, investors have to determine the business line of the PT PMA and review Indonesia\'s valid Negative Invest­ment List to confirm whether the intended business line in the real estate sector is subject to any foreign ownership restriction.

It must have at least one director and one commissioner. A foreign national may serve as a director or commissioner.

The PT or PT PMA will also need to obtain the customary permits and approvals required for the establishment of a company, such as a Business Identification Number (Nomor Induk Berusaha), a Taxpayer Registration Number (Nomor Pokok Wajib Pajak), a Company Registration Certificate (Tanda Daftar Perusahaan), a Certificate of Domicile (Surat Keterangan Domisili Perusahaan) and other regional/secto­ral licenses.

This first appeared in the Chambers Real Estate 2019 Guide, published by Chambers and Partners. You can find the full chapter here.

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