What is the business entity of a foreigner who wants to establish a Restaurant in Indonesia with small capital?
Please note that if a foreign citizen (“foreigner”) wants to start a business in the restaurant sector, it will be considered foreign investment. Based on Article 1 point 3 of Law Number 25 of 2007 concerning Investment (“Investment Law”), what is meant by foreign investment is investment activity to conduct business in the territory of the Republic of Indonesia carried out by foreign investors, whether using foreign capital wholly or in joint ventures with domestic investors.
Foreign investors are foreign individuals, foreign business entities, and/or foreign governments investing in the territory of the Republic of Indonesia.[1]
Since this is a foreign investment, to do business, it must be done in the form of a limited liability company based on Indonesian law as regulated in Article 5 paragraph (2) of the Investment Law:
Foreign investment must be in the form of a limited liability company based on Indonesian law and domiciled within the territory of the Republic of Indonesia unless stipulated otherwise by law.
Foreign investment in the form of a limited liability company can be done by:
- take part in shares at the time of the establishment of the limited liability company;
- buy shares; and
- take other means following the provisions of the legislation.
So, if this restaurant is built by a foreigner, it must be in the form of a limited liability company, regardless of how much capital the foreigner has.
In addition, you need to check whether there are restrictions on foreign ownership in the restaurant business sector, as can be seen in Presidential Regulation Number 44 of 2016 concerning the List of Business Fields Closed and Business Fields Open with Requirements in the Investment Sector (“Perpres 44/2016 “).
In Presidential Decree 44/2016, there are no restrictions on foreign ownership in the restaurant business sector. This is different from the previous presidential regulation, namely Presidential Regulation Number 39 of 2014 concerning the List of Business Fields Closed and Business Fields Open with Conditions in the Investment Sector (“Perpres 39/2014”) which limited foreign ownership in the restaurant sector. With the enactment of Presidential Decree 44/2016, Presidential Decree 39/2014 is declared revoked and is not valid.
The implication is that as many as 35 business fields are excluded from the Negative Investment List (“DNI”). These include:
- the crumb rubber industry;
- cold storage;
- tourism (restaurants; bars; cafes; recreational, arts, and entertainment businesses: sports arenas);
- film industry;
- organizers of electronic trading transactions with a value of Rp. 100 billion and above;
- establishment of telecommunication equipment testing institute;
- toll road concessions;
- management and disposal of non-hazardous waste;
- pharmaceutical raw material industry.
In conclusion:
Foreign citizens (foreigners) who do business in the restaurant sector are included as foreign investments. Because it is a foreign investment, to do business, it must be done in the form of a limited liability company based on Indonesian law.
So, if this restaurant is made by a foreigner, it must be in the form of a limited liability company, regardless of how much capital the foreigner has.
The solution:
Use a special purpose vehicle company to be able to set up a restaurant in Indonesia.
