PMA and PMDN are: understanding, differences and examples in the business world

PMA and PMDN are two important terms to be understood by business actors and investors who are interested in investing in Indonesia. Both of these terms have a significant difference in the regulation and licensing process.

So, what is meant by PMA and PMDN? This article will completely discuss the definitions, differences, and concrete examples of PMA and PMDN as a provision for you in making business decisions that are right in Indonesia.

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What is PMA (Foreign Investment)?

Foreign investment or commonly abbreviated “PMA” is the activity of investing capital carried out by foreign investors to run a business in the territory of Indonesia. This activity is generally long -term and aims to generate profits from these business activities.

In its implementation, PMA does not always use fully foreign capital, but can also be done through work with domestic capital farmers.

Also read: Financing Agreement in Business Law

What is PMDN (Domestic Investment)?

Investment Domestic or commonly abbreviated “PMDN” is the activity of investing capital carried out by domestic investors to run businesses in the territory of Indonesia. Or in other words, PMDN is also interpreted as an investment activity that fully uses domestic capital to drive the economic and business sectors in Indonesia.

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The difference between PMA and PMDN

To further understand the dynamics of investment in Indonesia, it is important to identify the fundamental difference between PMA and PMDN. The following is the difference between PMA and PMDN:

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The process of establishing PMA and PMDN in Indonesia

Before establishing PMA or PMDN in Indonesia, the first step that must be taken is to determine the form of a business entity. For PMA, the form of business entity that must be chosen is PT. Meanwhile, PMDN, can be chosen between PT, CV, Firm, Cooperative, or Individual.

After determining the form of a business entity, the following are steps that can be taken to establish PMA or PMDN in Indonesia:

1. Submit a proposal to BKPM
2. Registration of company names
3. Compilation of Law -Attitude Law
4. Capital deposit
5. Management Management
6. Fulfillment of capital requirements
7. Company account making
8. Operational licensing

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The advantages and disadvantages of PMA vs PMDN

After knowing the difference from PMA and PMDN, the following are the advantages and disadvantages of PMA and PMDN.

PMA Strengths:

1. Long -term, so that foreign capital that enters substantially increases national investment capacity and has the potential to help sustainable economic growth.
2. Has the potential to improve the quality of human resources and production efficiency, due to the transfer of technology, innovation and international management to Indonesia.

PMDN Strengths

1. Is flexible because there are no minimum capital provisions that are as strict as PMA and can be done in various forms of business entities, both legal entities, not legal entities, or individuals.
2. Has the potential to reduce unemployment because of the obligation to prioritize local workers which means it can create more employment and improve the welfare of the community.
3. Can encourage the progress of local industries and reduce dependence on foreign products, so as to save on the country’s foreign exchange and strengthen the independence of the national economy.

Lack of PMA:

1. Has very strict regulations and supervision related to share ownership, capital repatriation and profit transfer.
2. Limitations of business forms and business sectors, because they can only be in the form of PT and can only operate in certain sectors in accordance with applicable regulations.
3. The high minimum capital requirements compared to PMDN.

PMDN Lack of:

1. The high pressure of competition with PMA, because PMA usually has a stronger capital, technology and network advantage, so that it requires PMDN to continue to innovate and efficiently.
2. Limited capital and technology, because PMDN is very dependent on resources from within the country, so the capacity of innovation and business development tends to be more limited than PMA.

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Also read: Business Competition Law: Definition, Principles, and Impact in Indonesia

(This article has been edited by the perqara editorial team)

Legal basis

1. Law Number 25 of 2007 concerning Investment

Reference

1. Gunawan Aji, et al, “Analysis of PMDN, PMA, Inflation, and Labor on Indonesia’s Economic Growth”, Trending: Journal of Economics, Accounting, and Management, Vol. 1, No. 3, (2023).
2. Wahyu Dwi Utomo Billa, et al, “Juridical Study Regarding Foreign Investment through the Establishment of PMA Companies According to Law Number 25 of 2007”, Personal law Vol. 8, No. 3, (2020).
3. Nindya Atria Noviani, Indarto, Paulus Wardoyo, “Strategy for Investing Investment in Foreign and Domestic Investment Intererts in Central Java”, Semarang University Scientific Journal, Vol. 2, No. 2, (2023).