In yesterday's essay, we examined the corporate governance requirements for PT-PMA; this essay discusses the new capital requirements for PT-PMAs.

Legal Framework for Establishing and Operating a PT-PMA

The legal framework for establishing and operating a PT PMA is regulated by the Law on Corporation (UU 40/2007) and the Law on Investment (25/2007), amended by the Law on Job Creation (UU 11/2020) as lex specialis for foreign investments. More important than the underlying laws are the governmental implementation regulations, which regulate specific operational aspects.

Fourfold Increase in Paid-up Capital Requirement

In April 2021, the Investment Board (BKPM) issued Regulation No. 4 of 2021, Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities. Article 12 (6) and (7) of the regulation require PMAs, as a rule, to have a minimum paid-up capital of IDR 10 billion, excluding land and buildings. The term "paid-up capital" or "modal ditempatkan/disetor" refers to requirements set out in the Law on Corporations (UU 40/2007), or more specifically, Article 33 (1) of the Law on Corporations. Fully placed and paid-up capital must be evidenced by a valid proof of deposit.

Before this new BKPM regulation in 2021, the minimum issued and paid-up capital for foreign investors was IDR 2.5 billion. By increasing the paid-up capital requirements, the government aims to attract more high-value investments to the country.

The Difference Between Share Capital (Issued Capital), Paid-up Capital, and Investment Value

Share capital (issued capital) and paid-up capital are key components of a company's equity structure, recorded in the equity section of the balance sheet.

• Share capital refers to the total nominal or par value of shares issued to shareholders, representing the amount the company has authorized and issued.

• Paid-up capital, on the other hand, represents the amount shareholders pay for these shares. If shares are not fully paid, paid-up capital is less than share capital, with the difference often listed as "Calls in Arrears" in liabilities.

• Investment value, distinct from share capital, is determined under the Investment Law, reflecting the PT-PMA's commitment to its business activities based on the Business Classification Code (KBLI).