Since 1967, Government of the Republic of Indonesia has encouraged investment. There are two types of investment in Indonesia, i.e. foreign investment and domestic investment . Foreign investment is known as PMA : "Penanaman Modal Asing" and domestic investment is called PMDN: "Penanaman Modal Dalam Negeri".

Foreign investment {PMA} regulation is managed by law No.1 of 1967 dated January 10,1967 as amended by law No.11of 1970 dated August 7, 1970 and domestic investment {PMDN} is regulated by law No. 6 of 1968 dated July 3, 1968 as amanded by law No. 12 of 1970 dated August 7, 1970

A. Foreign Investment (PMA)

A foreign investment with direct investment undertaken in accordance with or by virtue of the laws on Foreign Investment and applied to undertake business in Indonesia , and the investors directly bear all the risks eminating from such capital investment.

According to the Foreign Investment Law , what is meant by "Foreign Capital" are :

Foreign payment intruments (normally in the form of cash money or cheques); 
which do not constitute foregn exchange / assets owned by the Indonesia people ;
which have obtained the approval of the Government of the Republic of Indonesia to be used for the development of the investment in Indonesia; (Obviously this refersto the incoming and outgoing procedure of foreign payment instruments which must be legal and formal).

Company's equipment (machineries, equipment) including new inventions owned by foreigners, brought into Indonesia from abroad, so long as such equipment is not financed from the founds/foreign exchange owned by the Indonesia people.

Part of the company's reveneus which is allowed to be transffered abroad (in conformity with the stipulations / principle agreement for free transfer of foreign exchange) but which is in fact used / reinvested to enlarge the capital / funds of the company. According to the stipulations, the part which is normally allowed to be transfered are among others :

The profit of the company after deduction of taxes and other obligations in Indonesia.

The costs for expatriate manpower employed in Indonesia including the fees for education and training by the expatriates or the dispatch of the Indonesia Citizens abroad for the same purpose.

Other costs such as the sale of shares of foreign partners to Indonesia partners (other Indonesia Citizens), payment of the principal foreign loan with interest, compensation in case of nationalization by law, amortization of imforted goods (which have been approved by the Government), repatriation of the remaining foreign capital as a consequence of the withdrawal of the company performed after the term of corporate tax exemption.

B. Foreign Company

A company which does not comply with the stipultions as referred to in the meaning of a national company.

C. Domestic Investment (PMDN)

The utilization of a part of the assets of the Indonesia people (including the rights and property), both owned by the state as well national entrepreneur or foreign entrepreneurs domiciled in Indonesia, which are reserved / provided to undertake business under the stipulations of law No : 6 of the year 1968, either directly or indirectly [ e.g. through the purchase of obligation, bonds, emessions or shares issued by a company or time deposit / saving of a minimum of one year.

From the above understanding it is evident that the domestic capital in the property of the assets of the Indonesia people , owned by the state and entrepreneurs, both national entrepreneurs and foreign entrepreneurs residing in Indonesia . It is not foreign assets brough into Indonesia . Both the national and foreign entrepreneurs owning such domestic capital may consist of persons and / or legal entities established and govermed under the laws applicable in Indonesia (including cooperatives). Where as companies using such domestic investment can be distinguised between national companies and foreign companies.

D. National Company

A company with at least 51% of the invested domestic capital owned by the state and / or national entrepreneurs. In other words, a national company can be wholly owned by the state and/ or national entrepreneurs or a joint venture between the state and / or national entrepreneurs, with the understanding that at least 51% of the capital is owned by the state and / or National entrepreneurs.

If such company is in the form of a limited Liability Company , then this percentage is against the subscribed capital . The establishment that at least 51% of the capital invested is owned by the state. And / or national entrepreneurs is to be done by submitting among others subscribed shares, notary Deed, etc.

If the evidence is inadequate, the company is determined as a foreign company. It is noteworthy that it is not compulsory to have subscribed shares. This is aimed towards the expansion of the capital market so that therefore it is expanding the possibilities of the national entrepreneurs to streng then his capital and business.