Understanding the Legality of Syndicated or Umbrella PMAs (SCAMS) in Indonesia: Risks for Foreign Investors
Michael Lenihan, founder of PT Gateway Consulting Group, shares his insights and warns foreigners about alternative ways of entering Indonesia.
Unwary foreigners are paying agencies thousands of dollars online to purchase foreign investor KITAS (Visas) for themselves and their families. Many are either knowingly entering Indonesia to reduce the cost of setting up their compliance or unknowingly misinformed by agents regarding their legitimate visa and stay options.
In recent years, foreign investment in Indonesia has attracted significant interest, further encouraging government compliant legal frameworks and incentives. However, some arrangements, specifically syndicated or umbrella PMAs (Penanaman Modal Asing or Foreign Investment Companies), have become a source of legal controversy and risk for foreign investors.
This article discusses why these arrangements are deemed illegal and how foreign investors may unwittingly become ensnared by agencies promising easy investment pathways.
What Are Syndicated or Umbrella PMAs?
Syndicated or umbrella PMAs refer to structures that allow multiple foreign investors to combine their resources under a single investment scheme. Local agencies may promote these arrangements to assist foreign companies in circumventing investment restrictions.
Why Are They Considered Illegal?
Violation of Indonesian Investment Laws
Indonesia’s Investment Law No. 25 of 2007 defines clear regulations on foreign investment. Under this law, every foreign investment should be made through a legitimate PMA, where investors own a significant share and comply with sector-specific requirements.
Syndicated PMAs violate these terms by pooling investments together without proper registration, leading to non-compliance, breaches in regulations and potential sanctions by exiting foreigners from Indonesia due to their involvement with the Syndicated or Umbrella PMA.
Lack of Direct Control
In a legitimate PMA, the foreign investor should have direct control over the company and its operations and the ability to report to the government on its activities monthly, quarterly, and annually. However, syndicated arrangements typically dilute this control, placing it under the management of local agents or entities. This circumvents the principle of direct participation that the Indonesian government requires and exposes investors to legal repercussions.
Unlawful Employment Practices
Many agencies promoting syndicated/umbrella PMAs might also encourage practices such as employing foreign workers without the proper permits and contravening applicable labour laws. This negligence can lead to further complications for foreign investors, including fines or prohibitions on entering the Indonesian market.
How Foreigners Get Caught
Many foreign investors fall victim to these scams while seeking to establish a foothold in Indonesia. Here are some reasons why:
Lure of Exaggerated Benefits
Some agencies market these illegal PMA schemes by promising guaranteed foreign investment, visas, and permits. Eager to capitalise on the market potential, foreign investors may overlook the legal implications and rush into agreements without due diligence.
Misleading Information
Agencies may provide misleading information about the legality and requirements of subsidised investment schemes. A lack of understanding of Indonesian laws and procedures can lead foreign investors to engage in non-compliant activities, thinking they follow proper channels.
Pressure Tactics
Potential investors may face pressure to act quickly to secure favourable deals, which creates a risk of bypassing necessary legal consultations. This hurried approach can increase the chances of falling prey to illegitimate schemes.
Protecting Yourself – Best Practices
Conduct your research and engage a reputable consulting service.
Foreign investors should familiarise themselves with Indonesian laws and regulations. Understanding the investment landscape is crucial to ensuring compliance and identifying reputable and proven agencies to support your resources, relocation and transition.
Engage Reputable Relocation Advisors
Consulting with an experienced Indonesian relocation company such as Gateway Consulting Group can help you choose the legal structure that best suits your investment objectives and avoid illegal arrangements.
Verify Agency Credentials
Always ensure that the agencies or consultants you engage are active, approved companies with a proven track record of assisting foreign investments legally. Verifying their credentials helps mitigate risks associated with fraudulent practices. Ask around, check testimonials, and speak with clients to gain insights into their experiences.
The allure of investing in Indonesia comes with challenges, particularly concerning legality and compliance. The government prioritises safeguarding national interests by ensuring all foreigners follow the appropriate legitimate entry processes. The Indonesian government’s digital central systems ensure traceability, compliance, and transparency.
Syndicated or umbrella PMAs represent a significant risk for foreign investors aiming to establish their business in the region.
Understanding the legal framework and adopting prudent measures to safeguard your investment is crucial.
By partnering with reputable advisors, conducting thorough due diligence, and adhering strictly to regulations, foreign investors can protect themselves from potential legal pitfalls and contribute positively to Indonesia’s economy. As a relocation company, we are often called to support foreigners who have applied for an investment visa through syndicated/umbrella PMAs and are unable to renew their visa stays due to their inability to prove their legitimate ownership of their PMA or provide the Indonesian Government with the compliance reports necessary for each foreign investment stay who has been registered under these false company structures.
At Gateway Consulting Group, we know this is causing foreign investors and their families who have built a life in Bali, with their children going to school and contributing to their communities, to be caught out unknowingly in scams and having to reset their legitimacy in Indonesia.
If you or someone you know is registered with a syndicated/umbrella PMA, contact Gateway Consulting Group for a confidential discussion.
We are experienced in resetting your legitimate stay and supporting your future in Bali and broader Indonesia.
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