A Guide to Establishing a Factory in Indonesia from Scratch

1. Foreign Equity Restrictions
2. Minimum Capital Requirements
   • General Foreign Company (PT PMA): IDR 10 billion (≈ RMB 4.5 million)
   • Construction Company: IDR 50 billion (≈ RMB 25 million)

• Initial payment of at least 25% (i.e., IDR 2.5 billion ≈ US$188,000)
• Remaining capital can be paid in installments after operations commence

• AMDAL (Environmental Impact Analysis): For large/high-pollution projects (approval period 6-12 months)
• UKL-UPL (Environmental Management and Monitoring Plan): For medium and small projects (approval period 3-6 months)

1. Foreign Employee Quota
   • Ratio of Local to Foreign Employees: 1:4 to 1:5
   • Restricted Positions: Positions such as HR managers and finance directors must be held by Indonesian citizens.
2. Work Permits
   • KITAS (Temporary Residence Permit): Valid for 1-2 years, renewable
   • Special Economic Zone Policy: Foreign employees can work up to 10 years

1. Land Ownership
   • HGB (Building Land Right): Can be held by foreign investors, with a maximum duration of 80 years
   • New Capital Project: Offers land use rights for up to 190 years
2. Site Selection Comparison

1. Tax Incentives
   • Corporate Income Tax Exemption:
     • Special Economic Zone (KEK): 5-10 years of tax exemption
     • New Capital Project: Tax exemption for up to 30 years for investments exceeding US$650,000
     • Manufacturing: 5-20 years of 100% tax exemption based on investment amount (e.g., 20 years of exemption for investments ≥ RMB 1.5 billion)
   • Other Incentives:
     • R&D Expenditure: 350% tax deduction
     • Import Duty Exemption: Duty-free for self-used equipment and construction materials for the new capital
     • VAT Offset: VAT on raw materials purchased for factory construction can be offset against corporate income tax
2. Land and Subsidies
   • Industrial Parks: Exemption from land/building tax and street lighting tax
   • Free Trade Zone Policy (KB): Duty-free import of raw materials, export tax ≤ 10%
3. Other Support
   • Simplified Approval: No need for building permit (IMB) for factories within the park
   • Infrastructure Guarantee: The park provides “five utilities and one leveling” (water, electricity, roads, communications, gas + land leveling)

1. 1. ODI Filing (Mandatory for Chinese Companies)
      • Filing Conditions:
        • Projects under US$300 million: Filing with the Ministry of Commerce/National Development and Reform Commission
        • Projects over US$300 million: Approval required from the National Development and Reform Commission
      • Core Documents:
        • Foreign Investment Filing Form, Feasibility Study Report, Audit Report (must show profitability + debt-to-asset ratio ≤ 70%)

2. Five-Step Factory Establishment Process

• • A. Preparatory Work:
    • Industry Access Analysis → Site Inspection → ODI Filing
  • B. Company Registration:
    • ① Capital Contribution
    • ② Name Verification
    • ③ Notarization of Articles of Association
    • ④ Tax Registration
    • ⑤ Bank Account Opening
  • C. Land and Environmental Assessment:
    • Industrial Park: Direct contract signing, with infrastructure support
    • Non-Park: Requires proof of land ownership + environmental assessment (AMDAL/UKL-UPL)
  • D. Construction:
    • Within the Park: Partial exemption from IMB permit
    • Outside the Park: Approval of architectural design (3-4 months) → Obtain SLF certificate after completion (4-5 months)
  • E. Operation Launch:
    • ① Activation of Business License → ② Recruitment (meeting foreign employee quotas) → ③ Product Certification (SNI/BPOM)

1. Industrial Park Selection: Parks can accelerate establishment and avoid the cumbersome approval processes outside parks (e.g., Pati Industrial Park).
2. Hidden Costs: For non-industrial parks, at least 6 months should be reserved for environmental assessment and 4 months for construction permits.
3. Compliance Red Lines: Exceeding the foreign employee ratio or employing prohibited positions (e.g., non-local finance director) will result in severe penalties.

• Indonesian Investment Law (Revised in 2020)
• Latest Policies from BKPM (Indonesian Investment Coordinating Board)