The government of Indonesia understands that the capital market plays a strategic role in the national development as one of the sources of funding for business and also as investment instruments for Indonesians. Accordingly, to increase capital market’s role, having a strong legal basis to ensure legal certainty of the parties conducting capital market activity in Indonesia and to protect the interests of public investor is imperative. Thus, the Law No. 8 of 1995 on the Capital Market (“Law No. 8/1995”) was promulgated.
Capital market is the activity related to public offering and trade of stock, issuance stock of public company, as well as institution and profession in the field of stock “Capital Market”). Stock is securities i.e. promissory notes, commercial paper, shares, bond, proof of debt, unit collective investment contract, participation unit of collective investment contract, futures contract on the stock, and any derivatives of stock (“Stock”). Indonesia Stock Exchange (Bursa Efek Indonesia/”BEI”) is the party in Indonesia that conducts and provides the system and/or the place to meet the parties who are going to sell and buy Stock. Those parties include individual, company, joint venture, association, or organized group (the “Parties”).
Who Can Invest in Indonesia?
The investment by selling or buying Stock in Indonesia by the Parties consists of direct investment or indirect (portfolio) investment. Direct investment is regulated under the Law No. 25 of 2007 on the Investment Law where the investors (local or foreign) are involved directly or indirectly on the management or the setting of their company. An investment in the Capital Market refers to indirect or portfolio investment which is open to all parties, including foreign investors.
The investor (local and foreign) cannot directly conduct any Capital Market activity in BEI. It is stipulated under the law that the one who is eligible to use the system and/or facility of bourse in terms of conducting stocks trading activity in BEI is the member of stock exchange. Member of stock exchange is regarded as stocks trading broker who has obtained business license from Financial Services Authority (Otoritas Jasa Keuangan/ “OJK”) to perform stock trading in BEI (“MSE”).
A company that is allowed to sell stock to foreign or Indonesian investor is the company conducted business as Investment Manager. However, an Investment Manager is not considered as an agent/broker. An Investment Manager company must obtain business license of security underwriter (Izin Usaha Penjamin Emisi Efek/”IPEE”) from OJK to be able to sell participation units of a foreign-registered fund to Indonesian investors, in which the IPEE is also regarded as license for conducting business as securities trading broker (Izin Perantara Pedagang Efek/ “IPPE”).
Initial Public Offering
An offer or sale of foreign or domestic stocks or bonds to Indonesian investors shall be performed through Initial Public Offering (IPO) in Stock Market. An offer of securities through IPO is where the issuer offers and sells securities through mass media or offer it to more than 100 (one hundred) parties or sold to more than 50 (fifty) parties. Issuer is a company which intends to gain fund/money through IPO in the Stock Market by issuing securities such as stocks or bonds.
The process of IPO can be seen in the following flow chart:
- Company’s Internal Preparation:
- conduct General Meeting of Shareholders (“GMS”) to approve the intention of the Company for going public;
- appoint underwriter, public accountant, appraisal, and legal counsel to work together under the coordination of underwriter preparing the documents required to be submitted to OJK;
- submit letter of intent to Indonesia Stock Exchange (Bursa Efek Indonesia/ “BEI”) followed with the signing of preliminary agreement of securities recordation in BEI;
- drafting and reviewing (i) agreement of equity securities registration between the company and Indonesian Central Securities Depository (Kustodian Sentral Efek Indonesia/ “KSEI”), (ii) deed of agreement of administrative of public offering stock management between the company and securities administration bureau, and (iii) deed of agreement of securities underwriting agreement between the company and underwriter.
- Submission of the Registration Statement (Pernyataan Pendaftaran) and its supporting documents in quadruplicate.
- Request of amendment/additional information of Registration Statement by OJK to the Issuer (if necessary) for the purpose of public disclosure.
- Response on amendment/additional information of Registration Statement by OJK to the Issuer, in which the Issuer must submit the amendment/additional information of registration statement by the latest in 10 working days since the request from OJK has been received.
- Grant of license to publish Brief Prospectus from OJK to the Issuer.
- Announcement of Brief Prospectus by the Issuer which must be announced at least in 1 (one) daily Indonesian language newspaper that has national circulation by the latest in 2 (two) working days.
- Book Building (first offer) and/or publish information in connection to IPO can be conducted by the Issuer (if necessary) after the announcement of Brief Prospectus.
- Grant of price information and other disclosure by the Issuer to give confirmation to on whether there is an amendment of information (7 working days by the earliest).
- Statement letter of effectiveness issued by OJK on the 45th day from the date of receipt of complete Registration Statement and its supporting documents and after the said effectiveness, the company must provide Prospectus for public society or prospective buyer.
- Announcement of correction/addition of Brief Prospectus and the start of IPO period:
- announce the correction/addition of Brief Prospectus regarding additional information and date of effectiveness at least in 1 (one) newspaper by the latest in 1 (one) working day;
- IPO period may also be started;
- Issuer shall perform IPO by the latest in 2 (two) working days after Registration Statement has became effective and IPO Period will last for 5 (five) working days;
- Issuer can also postpone the IPO for 3 (three) months if there is an unforeseeable condition such as index stock price is declining 10% in 3 (three) consecutive days, natural disaster, etc.
- The End of IPO Period.
- Payment of the order of securities shall be paid in full;
- Allotment shall be conducted if demand of securities is more than the offered securities;
- Allotment of securities shall be done by the latest in 2 (two) working days.
- Refund/Distribution of securities along with its evidence of securities ownership shall be granted to buyer in IPO by the latest in 2 (two) working days since the allotment.
- Listing of securities in BEI shall be conducted by the latest in 1 (one) working day since the date of securities handover.
- Report of IPO result shall submitted to OJK by the latest in 5 (five) working days since the allotment.
Pursuant to Law No. 8/1995, an offer of securities that is offered to less than 100 (one hundred) or sold less than 50 (fifty) parties is deemed as private offering and it does not have to be offered through the IPO.
Private offering of a securities to the investor is not regulated under Indonesian law. There are no certain requirements to be fulfilled by such private offeror. In addition, private offering cannot use mass media in offering securities according to the law since it will be considered as an offer to more than 100 (one hundred) parties.
Income Tax Imposed for the Listed Securities
According to the law, an income tax will be imposed for revenue received by an individual or entity from transaction of sale of stock/share in Stock Exchange. The amount of such tax is 0,1% (zero point one percent) from the gross amount of the purchase transaction value. there is no income tax imposition for futures transaction activity at the moment. Previously, derivative transaction conducted through Futures was imposed by an income tax with the amount of 2,5% (two point five percent) of initial margin.
Establishment of Company in Business of Asset Management
A company conducting business in asset management can be conducted through a joint venture company with a maximum of 99% foreign ownership. Asset management company in Indonesia is categorized as a securities company conducting business as Investment Manager which manages the securities portofolio for customers or manage collective investment portfolio for a group of customers, except for insurance company, pension fund company, and bank which conduct its business field by itself pursuant to the applicable law (as stated in the Standard Classificattion of Business Field in Indonesia/KBLI).
An Investment Manager company shall at least have a paid-up capital of Rp. 5.000.000.000,00 (five billion rupiah). In addition, for securities company conducting business as both security underwriter and Investment Manager, shall at least have a paid-up capital of Rp. 55.000.000.000,00 (fifty five billion rupiah).
In order to for the company to be operational, the company must have:
- legalization from Ministry of Law and Human Rights (“MOLHR”) of foreign Investment Manager company as a legal entity in Indonesia;
- obtain the Taxpayer Registration Number (“NPWP”);
- obtain the Company Registration Certificate (“TDP”);
- business license from OJK to conduct business as Investment Manager.
Besides the corporate compliance documents as stated above, every Director and at least 1 (one) employee of an Investment Manager company must obtain individual license as the representative of Investment Manager.
Foreign manpower can obtain the individual license as the representative of Investment Manager as long as he/she has obtained the work permit for foreign manpower. Furthermore, foreign manpower who has already obtained an individual license as Investment Manager issued by his/her origin country shall follow requirement procedures that are stipulated under Financial Services Authority (OJK) Regulation No. 25/POJK.04/2014 of 2014 on the License of Representative of Investment Manager (“OJK Regulation No. 25/2014”) in order to be able to work as representative of Investment Manager in Indonesia.
Establishment Process of an Asset Management/Investment Manager Company
The establishment process of an asset management company shall first follow the general procedure of the establishment of a company (PT) as set out in Law No. 40 of 2007 on the Limited Liability Company (“Law No. 40/2007”). The general procedure of company’s establishment under the provision of Law No. 40/2007 is summarized as follows:
- founder of company must at least 2 (two) or more parties;
- deed of establishment must be made in notarial deed created in Indonesian Language;
- each founder must take part on shares;
- deed of establishment must be approved by the MOLHR and published in the State Gazette of the Republic of Indonesia (Berita Negara Republik Indonesia);
- there should be at least 1 (one) director and 1 (one) commissioner;
- authorized capital must at least Rp. 50.000.000,00 (fifty million rupiah) while the paid-up capital must at least 25% of the authorized capital;
- shareholders can be an individual or legal
The estimated duration process of company’s establishment is highlighted in the table below:
By analyzing the above table, it can be concluded that the estimated duration of company’s establishment depends on the applicant while submitting the application. If applicant has submitted application properly, the authorized party may speed up the process since the given time is notified ‘by the latest’.