LKPM: What is it? Why is it Important? How do I submit it?

Introduction: What is LKPM reporting?

The Investment Activity Report (Laporan Kegiatan Penanaman Modal, or LKPM) is a collection of financial and legal documents that must be submitted to the Indonesian Investment Coordinating Board (BKPM). All PT PMA (foreign investment companies) and locally owned companies that have an investment value exceeding IDR 10 billion are required to file LKPM reports. 

Why does the government require LKPM reporting? What is the government trying to achieve?

The LKPM is a tool the government uses to monitor, guide, and conduct oversight on foreign investments in Indonesia. The main purpose of the report is to periodically provide snapshots of a company’s investment activity. More specifically, it is a way for the Indonesian government to keep foreign companies and investors accountable with respect to the following responsibilities stated in articles 15 and 16 of Law No 25/2007.

According to article 15, companies must:

• Guarantee the availability of capital from sources that are not in conflict with the provisions of the legislation. 
• Bear and settle all liabilities and losses if the investor stops, leaves, or abandons business activities unilaterally in accordance with statutory provisions.
• Create a fair business competition climate by preventing monopolistic practices and other practices that may harm the country.
• Preserve the environment.
• Create an environment that emphasizes worker safety, health, comfort, and welfare.
• Comply with all statutory provisions.

Furthermore, according to article 16, companies must also:

• Apply the principles of good corporate governance.
• Practice corporate social responsibility.
• Prepare reports on investment activities and submit them to the Investment Coordinating Board.
• Respect the cultural traditions of the communities around the location of investment business activities.
• Comply with all statutory provisions.

Which government agency do companies need to submit LKPM reporting to?

Companies must submit their LKPM reports to the BKPM either online or manually. However, the manual submission process is cumbersome as it requires filing a report via fax or in-person to BKPM offices in each of the municipalities or cities where the company’s capital investments are located[i]. It is also important to note that businesses investing in multiple sectors must declare their involvement in each field by filing separate reports for each sector.

What are the key components of LKPM reporting? What does the process look like? How often do companies need to do it?

The LKPM consists of a series of financial, legal, and administrative documents that provide a snapshot of a given company’s activities. These documents include:

• Financial statements: Including balance sheets and the profit and loss report of your company. How much money the company and its shareholders have invested
• A comprehensive list of your staff: This specifies the number of local Indonesians and foreign citizens under your employment.
• A detailed list of your company’s investment activities: Including legal files (business license, izin usaha, NIB, etc.). Please note that when the BKPM refers to investment activities they are focused on understanding where the company has spent its capital to grow its business in Indonesia (e.g. purchase of assets, hiring employees, etc.). The focus is not financial investments the company may have made in Indonesia, although those would qualify as valid investment activities as well. 

For online submissions, companies must register and submit their LKPM reports through the National Single Window for Investment portal (NSWi portal).  Portal access is granted by BKPM and a single company representative must be designated as a contact person submitting the report in case the BKPM decides to reach out at any point during the reporting process[ii].

Investors must submit LKPM reports quarterly (3 months) or on a half-year (6 months) basis, depending on the phase and sector of their business. Businesses in the development phase (tahap pembangunan), must submit quarterly reports, while businesses that have entered the commercial production phase (tahap produksi/komersial) are allowed to submit on a semester basis. Businesses that have only acquired a principle license (izin prinsip) and have not yet entered commercial distribution of their products or services are classified as still in the development phase, while businesses that have acquired a fully-fledged business license (Izin usaha) are considered to have entered the commercial production phase[iii].

What is the cost of reporting? What are the consequences of not reporting?

Potential administrative sanctions, as referred to in article 31 of the BKPM’s investment controls handbook, are carried out by:

• Written or online warnings;
• Restrictions on business activities;
• Freezing of business activities and/or capital investment facilities; or
• Revocation of business activities and/or capital investment licenses and/or facilities

Failure to submit the LKPM on time will lead to a series of warning letters which if not complied with will lead to serious sanctions. The first warning letter, which arrives on the quarterly or semesterly deadline, carries a 30-day grace period and no further administrative sanctions. However, if the company does not submit an LKPM report within that thirty-day period, a second warning letter will be issued, which may be accompanied by the freezing of business activities and/or capital investment facilities by the BKPM.

The second letter also carries a thirty-day grace period, at the end of which a third warning letter will be sent, which may be accompanied by revocation of business activities and/or capital investment licenses and/or facilities. Further failure to submit the LKPM within thirty days of the third warning letter[iv] carries severe administrative sanctions, including the revocation of the company’s business license by the BKPM and sanctions 2 through 4. on the list above.

Additionally, irregularities or misreporting in the LKPM relative to an investment company’s actual business activities will result in BKPM contacting the business and requesting them to revise their report. Compliance with LKPM procedures is examined by auditors from the BKPM and DPMPTSP (One-Stop Investment and Integrated Services Office), who conduct field visits and audits on registered businesses. On these visits, the officials will fill out a Field Inspection Report (BAP), which will have to be signed off by a company representative at a managerial level or higher to be considered valid[v].

Pursuant to the LKPM, if the PT PMA is found conducting production and commercial activities without a business license, or is found conducting business activities forbidden for a PT PMA in accordance with its principle license, the BKPM may cancel the company’s principal license or revoke its business license altogether.

Conclusion

Submitting your LKPM doesn’t have to be an arcane process. If you need further assistance putting together your report or have any further questions, please reach out to us at anita@permitindo.com or on our website via this link. 

References

[i] Penyampaian LKPM, BKPM, Page 25 [Link]
[ii] Panduan Pengunaan Aplikasi LKPM Online, Page 12 [Link]
[iii] Panduan Pengunaan Aplikasi LKPM Online, Page 7 [Link]
[iv] BKPM Regulation No 7/2018 Pasal 35, Ayat 1
[v] BKPM Regulation No 7/2018 Pasal 24, Ayat 4

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