Abstract

Foreign Direct Investment in Indonesia, in the form of foreign companies, is one of the sources of funds for the state budget. This is because Indonesia will receive additional two tax sources by approving the foreign investment, which are: [1.] the foreign company; and [2.] the personal foreign investor itself. However, during the business process, some of the foreign companies decided to dissolve their company due to many reasons, among others the internal conflict among the shareholders. Since not many foreign companies receive proper information about the Indonesian Law of tax, property, intellectual property, business, etc, many foreign companies do not have a proper financial report, property licenses, or even staying permits, and these situations become the challenges for the company dissolution process. Thus, it is important for the government to oblige every foreign company to have legal consultants and tax consultants, so all legal and financial matters could be properly maintained and the process of foreign company dissolution is able to be well facilitated.

I. Introduction

Foreign investment has been known in Indonesia since the colonial period, around the 17th and 18th centuries. At that time, several European countries had made foreign investments in Indonesia, especially in the mining business sector. However, on independence day, Indonesia has begun to design laws to regulate the flow of foreign investment in Indonesia. The purpose of foreign investment regulations is business specifications that involve foreign investment and are limited to certain sectors so as not to hinder Indonesia's development.

ABasically, there is no need to be afraid of foreign investment in Indonesia. Because there are restrictions on foreign investment for business sectors that affect the lives of Indonesian people (such as mining, energy and natural resources). In addition, the fact is that foreign investment also has positive effects for Indonesia, including the opening of new jobs. Foreign investment is also possible to help nourish and stimulate the economic growth in Indonesia.

II. Direct Foreign Investment Under Indonesian Law

According to Indonesian Law number 25 of 2007 concerning Investment, direct foreign investment is the investment activity by foreigners (could be personal and/or company) with purpose to have business in Indonesia jurisdiction, by using whole foreign investment and/or joining investment with local investors. However, there are restrictions on foreign equity participation for investment in Indonesia, which is regulated under the Presidential Regulation No. 44 of 2016 concerning List of Closed Business Fields and Open Business Fields with Requirements in the Investment Sector, including trade in weapons and war equipment.

The fundamental distinction between foreign direct investment company and local investment company lies in the capital, the shareholders, the permits, and the report progress to the related institution. If local investment has no minimum amount of capital, the direct foreign investment company has to be ready in the amount of minimum Rp. 10.000.000.000 (equals approximately USD 655,694.71) for the capital, according to The Indonesian Investment Coordinating Board Regulation Number 6 of 2018 concerning Guidelines and Procedures for Investment Licensing and Facilities and The Investment Coordinating Board Regulation Number 4 of 2021. The shareholders of a direct foreign investment company will involve foreign investors, could be a company or person, meanwhile the local investment company consists of local investors only, based on Indonesian Law no 25 of 2007 concerning Investment. For permits, the direct foreign investment company shall be the sponsor of staying permits to all the foreign investors, meanwhile the local company does not need specific staying permits because all the shareholders are Indonesian.

However, there is also a similarity between direct foreign investment company and local investment company, which is the regular report of investment to the Indonesian Investment Coordinating Board. As mandated by the Indonesian Law number 6 of 2023 concerning Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation to become Law, both foreign or local investment has to do the investment activity regular report every 3 months. The report contains progress on investment realization and problems faced by business actors. This report is also a form of controlling and monitoring investment in Indonesia.

The benefits for foreign investor of investing in Indonesia is they are able to have a staying permits as the investor for 2 (two) years and it can be extended, as mandated by the Indonesian Law number 6 of 2011 concerning Immigration and Indonesian Government Regulation Number 48 of 2021 concerning the Third Amendment to Government Regulation Number 31 of 2013 concerning Regulations for Implementing Law Number 6 of 2011 concerning Immigration. The legal certainty of this residence permit provides security and comfort for foreign investors who wish to live in Indonesia. Meanwhile the benefit for Indonesia of the direct foreign investment is the new job opportunity, gain new tax sources, and as the good benchmark of public trust to Indonesia state management, public services, and legal certainty.

III. Company Dissolution as Solution to The Internal Conflict

In the business process, however, there are some problems that cannot be avoided among stakeholders, such as disagreements about the business that could lead to company closure. If the majority shareholders agree with the company closure, then the next process shall be done is the company dissolution. According to Indonesian Law Number 40 of 2007 concerning Limited Liability Company, company dissolution is the process of managing and sorting out the assets and liabilities of a company which is handled by the liquidator to pay debts from debtors to creditors. Company dissolution results in legal action upon the decision to disband the direct foreign investment company.

The procedures of company dissolution under Indonesian Law Number 40 of 2007 concerning Limited Liability Company is as explained below:

• Based on the general meeting of shareholders (“GMS”), has to appoint a liquidator team to handle the dissolution process together with the president director of the foreign direct investment company;
• Liquidator will maintain the announcement on the mass media concerning the result of the GMS as stated on number 1 above, together by stating to all creditors to report their debts to the liquidator;
• If there were creditors that registered their debts to the liquidator under the Indonesian Law, then liquidator will remark and observe the debts report;
• Liquidator will also inform to the tax office about this company dissolution, with purpose to check the tax debts that might still be possessed by the direct foreign investment company
• Basically, the liquidator will pay the debts of direct foreign investment company to the Indonesia Government first, if any. Meanwhile, the debts of creditor will be paid by using a specific counting based on the available company assets
• After all the debts and obligations to the state and payment of debts to creditors are completed, the liquidator will report to Indonesia Investment Coordinating Board concerning the company dissolution for the approval
• Liquidator will inform to the immigration concerning the company dissolution, with the consequences that all investors’ staying permit will not anymore under the foreign company
• After the settlement of assets and debts is completed, reporting to state institutions is also completed, the liquidator will submit the liquidator's report at the last GMS. In the last GMS there will also be revocation of the liquidator's authority because the work has been completed in the company dissolution
• The final stage after the GMS is completed, is to make an announcement in the mass media to inform that the direct foreign investment company has been legally dissolved and closed

During the dissolution process, the liquidator together with the President Director holds the highest responsibility and authority over the legal actions of foreign company, including debt repayment. Thus, if the collection of debts to foreign company during the dissolution process is not carried out in ways regulated by laws and regulations in Indonesia, then the liquidator together with the president director have the authority not to pay the debt to creditors

With the dissolution of the direct foreign investment company, then the foreign company is no longer a legal subject based on laws and regulations in Indonesia. Thus, lawsuits cannot be filed against the foreign company, and the foreign company cannot take any legal action. The legal relation among stakeholders also discontinued, and thus they are now free from the legal responsibilities as stakeholders

The Challenges on the Dissolution Process of Direct Foreign Investment Company in Indonesia

Even though direct foreign investment companies are guaranteed its protection under Indonesian Law, there are still challenges in executing the dissolution process. The challenges are among others as follows:

• The process of calculating assets and debts takes a long time because it depends on the completeness of foreign company documents. So if a foreign company has no proper financial records and is in accordance with the accounting system in Indonesia, the foreign company must be prepared to accept the consequences of liquidation which takes a lot of time and effort;
• Invalid foreign company taxpayer numbers due to tax debts or never reporting taxes at all. As a consequence, the administrative process for closing the foreign company's taxpayer number becomes difficult because they have to manage the previous tax report;
• The distribution of assets which will take time because the assets are not handled legally. Consequently, asset values cannot be counted as company property (e.g. brands, industrial designs, trade secrets, etc.);
• The management of employees status due to the lackness of employment agreement. The consequence is the foreign company has to declare and provide legal documents about the legal status of the employee, so that the employee will not sue the foreign company based on the reason of work termination and severance pay

Closing Statement

Learning from the challenges confronted by the direct foreign investment company, the Indonesian government has tried to prevent this situation by requiring the foreign company to have one Indonesian managerial person that understands the Indonesian Labor Law, as stated on the Indonesian Decree of The Minister of Manpower and Transmigration Concerning Prohibited Certain Positions for Foreign Workers. However, it would be astounding if the Government also obliged all foreign companies to have an Indonesian managerial person that understands the Indonesian law as a legal manager, and/or obliged the foreign company to appoint one legal consultant and tax consultant for the best interest of foreign company. By having legal consultants, the foreign company will be updated with all Indonesian regulations and will manage the business according to Indonesian law, thus the potential of criminal or employment dispute cases could be minimized. The tax consultant also will protect the foreign company from the tax mistake counting and late report, thus the foreign company could avoid the risk of bearing tax penalties.