INDONESIA Trends and Developments Contributed by: Alvin Suryohadiprojo and Dimas Nandaraditya, KARNA
Furthermore, although the OJK allows other forms of legal entities such as co-operatives and Shariah units, most venture capital companies opt to establish themselves as a limited liability company ( Perseroan Terbatas , or PT). Only a few operate as Shariah units or Shariah companies. This preference for a PT is because it is a more familiar choice for both foreign and local inves - tors. A PT is generally seen as a more credible business entity and provides limited liability pro - tection to its shareholders, ensuring their per - sonal assets are shielded from the company’s debts and liabilities. Investors should also assess legal restrictions before choosing an investment structure. For example, OJK Regulation 25/2023 restricts ven - ture capital companies from investing directly in non-Indonesian companies without business operations in Indonesia. This requires venture capital companies to focus on local ventures, unlike in countries such as Singapore where these (or similar) limitations do not exist. The regulation also sets a maximum ten-year invest - ment period for direct investments in Indonesian or foreign companies having business opera - tions in Indonesia, and no time limit for convert - ible bonds. However, if the convertible bonds are converted into equity, the same investment period restriction applies. A concern often raised by investors when con - sidering obtaining a licence from the OJK is the requirement to have a paid-up capital of IDR50 billion for a VCC or IDR25 billion for a VDC. This means that before starting operations, the shareholders of such applicant must inject this amount. According to the OJK in its 2024–28 roadmap for venture capital companies, many licensed venture capital companies in Indonesia do not have at least IDR50billion in equity, and the equity is mostly concentrated in Jakarta, the
current capital city. While the capital requirement serves the purpose of ensuring venture capital companies can sufficiently operate, these chal - lenges may have caused companies lacking funding access to seek financing from unli - censed venture capital companies, convention - al alternatives (eg, banking or lending compa - nies) or offshore venture capitalists, particularly those based in Singapore. Due to its geographi - cal proximity, many venture capital companies in Singapore are also managed by Indonesian venture capitalists that are very familiar with the market, making these venture capital companies more accessible for Indonesian businesses. Another key factor is the imposition of capital gains tax on share sale transactions based on Indonesian tax regulations. Conversely, Singa - pore does not impose capital gains tax on share sale transactions and withholding tax on divi - dends for Singapore tax residents. The above factors make a Singapore holding company more appealing for certain investors considering investing in Indonesia. As a result, many start- ups are advised by venture capital companies to establish holding companies in Singapore. How - ever, concerns about transaction and compli - ance costs remain significant considerations for start-ups. Companies that are just starting may also lack the experience in managing operations across multiple jurisdictions and for companies that need to restructure, there may be poten - tial tax leakages in the restructuring process. Moreover, foreign venture capital companies or holdco looking to invest in Indonesia will also be subject to more regulatory requirements, includ - ing foreign shareholding restrictions such as the 85% maximum foreign shareholding for insur - ance and venture capital businesses (if appli - cable) and capitalisation requirements. Compa - nies with foreign ownership status ( Perseroan Terbatas Penanaman Modal Asing , PT PMA) are
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