Foreign-owned company formation in Indonesia

Posted 7.04. 2014 by Michal Wasserbauer / Last update on 6.04. 2017

Foreign-owned company formation in Indonesia Review by Michal Wasserbauer on 7. 4. 2014 Company Registration in Indonesia, Market Research in Indonesia, Work Permit in Indonesia, Product Registration in Indonesia, Local Partner Selection in Indonesia, Trade Mission in Indonesia, Company Formation in Indonesia, Company Establishment in Indonesia, Company Set Up in Indonesia, Payroll Outsourcing in Indonesia, Tax Reporting in Indonesia, Medical Product Registration in Indonesia, Medical Device Registration in Indonesia, Cosmetic Registration in Indonesia, Food Supplement Registration in Indonesia.
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The economy and the population make Indonesia a very attractive market to set up a company. Between the rapidly growing middle class and increased government expenditures in health care and infrastructure, opportunities abound.

Indonesia has abundant natural resources and strategic location in the international water, a large number of populations, approximately 230 million people do have the potential and capability to support the investment climate. Indonesia has also made substantial progress in the field of democracy economic reforms and security over the last decade. Indonesia is welcoming foreign capital investors.

The road to business success in Indonesia can be paved with challenges and frustrations without the proper guidance in how to register a company in Indonesia. The requirements for foreign-owned company registration in Indonesia can be complex and sometimes seem chaotic. Hence, we provide you this article in order to give foreign investors a deeper insight and idea about investing and establishing a company in Indonesia.

 

If you want to establish a business in Indonesia as a foreigner, note these points:

  • What type of legal entity should you have: a foreign direct investment company or a representative office?
  • What line of business will your legal entity be engaged in? Is the sector open to foreign investment? If so, what is the percentage of ownership open to foreign participants?
  • Make sure you investigate the regulatory framework, minimum capital requirements, organizational structure, tax regulations, Indonesian staff, required activity reports, and more.

 

#1 Establish a representative office

This can be useful in the early stages of business, but may not be flexible enough for some ventures. This gives a company a legal presence in Indonesia but does not allow a firm to conduct business transactions or take payments for sales.  If a company only wants to sell products in Indonesia, then a local partner can help find the proper agents and distributors and pursue product licensing in Indonesia. This type of business entity is more suitable for marketing and market research purpose before deciding to build a complete legal entity like PMA. More about Representative office in Indonesia you can get here.
 

#2 Set up a Foreign Direct Investment Company

This is basically a limited liability company (LLC) called PT in Indonesian. Known as a PMA—Penanaman Modal Asing–it is the only way to do foreign-owned company registration in Indonesia. In Indonesia, the core of law that regulates FDI Company are Law No. 25 of 2007 regarding Capital Investment (hereinafter referred to as “Investment Law”), and Law No. 40 of 2007 regarding Limited Liability Company (hereinafter referred to as “Company Law”) as well as President Regulations No. 39 Year 2014 regarding List of Business Fields Closed ad Open with Conditions to Investment which also known as Indonesian Investment Negative List.

Any business that has foreign shareholders must register as a PMA. Some market sectors have percentage requirements for Indonesian ownership. Depending upon the nature of a business, a foreign company will need to comply with those rules as well. The Indonesian Government maintains a Negative Investment List (DNI), which spells out what areas of business are unavailable to foreign investment or are restricted in some way. Some fields are open to full foreign-owned companies, which are also identified in the DNI.

To complete company registration in Indonesia, a firm must get approval to invest from the country’s Investment Coordination Board. Doing this efficiently will require a local consultant to assist with researching documents and preparing investment approval paperwork. While this part of the process can be fairly quick, it is only the first step in a rigorous program of licensing and registration requirements. But this is only the beginning of the process. Once Investment Approval is given, there are a number of other licences the investor must seek from local authorities, depending upon the exact nature of the business activity. This can take considerable time and is often fraught with bureaucratic chicken-egg situations. The SP also permits the investor to establish an Indonesian company, a process that will take at least two months.

Here’s the detailed timeline for PMA registration process:

No. Procedure Duration (working days)
1. Approval of company name at the Ministry of Law and Human Rights 1
2. Approval of Principal License at the Indonesian Investment Coordinating Board (BKPM) 15
3. Preparation of Article of Association by Notary 4
4. Obtain Deed of Establishment at the Ministry of Law and Human Rights 3
5. 0btain Certificate of Domicile at the local government office 3
6. Obtain Tax payer registration number 3
7. Obtain Company Registration Certificate at the local government 10

One of the initial challenges in establishing a business is the minimum capital requirement for foreign owned company set up in Indonesia. The required minimum for foreign-owned companies in any industry is US$1.2 million as the equivalent 10 billion Indonesian Rupiah.

This does not mean that a company needs to establish a bank account with more than a million US dollars. Rather, it must have an investment plan that spells out how the company will use the capital. The required figure may seem very high, but the investment law is designed to protect small and medium local Indonesian companies. This allows the government to deny foreign investment plans that are too small. Based on the new regulation from the beginning of 2015, the implementation of this minimum capital investment plans has now become a priority requirement for any PMA to actually spend the USD 1 million investment plan before able to obtain permanent Business Licence. Since the permanent business licence is very important to further apply other licences such as Export/Import Licences etc. Hence it is important to be able to fulfill this minimum capital plan as soon as possible.

The Indonesian Government does require that a company have at least 25 percent of the investment plan in paid-up capital, which is a minimum of US$300,000. This can be accomplished by simply depositing the funds in an Indonesian bank. The more popular option is to get a notarized letter, signed by all shareholders, that explains that the capital will be paid when the company is registered.

Other requirements to incorporate a PMA in Indonesia to provide minimum 2 shareholders, 1 Director, and 1 Comissioner. Once the company is registered and all legal documents is obtained the PMA company then can applied to make Company Bank Account to be used for depositing the paid-up capital in which the PIC of the company if a foreigner should hold a Working Visa first.

Although PMA Company are allowed to hire foreign employees, there’s still some limitation when submit the application form to BKPM. A PMA will be obliged to have 1 : 3 benchmark between the amount of local employee and foreign employee.

As you can see from this very brief introduction, the process is a complicated and lengthy for someone who is unfamiliar with dealing with Indonesian ministries. It is essential to acquire the advisory services of a professional investment consultant which specializes in assisting foreign companies who want to establish businesses in Indonesia.

Once the investment plan is complete and a company has approval to register, the company can be incorporated.  Cekindo has extensive experience in handling all steps related to the PMA company registration process, including preparing the articles of incorporation and deed establishment. As a trusted, experienced partner, Cekindo also provides support after your company formation in Indonesia for  accounting and tax reporting, payroll outsourcing, legal advice, etc.



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4 Responses to “Foreign-owned company formation in Indonesia”

  1. An Gel says:

    to whom this may concern, i am looking into setting up a PMA, 100% foreign owned by malaysians. type of business is interior designing. would appreciate if you could assist me. tq

  2. Sean Mak says:

    To the person in charge,

    We wish to establish a PMA (PT). The shareholders are mainly Singaporeans.
    Can you advise us on do we get to do this? What other the information do yo require?

    In addition, does your company provide advisory on market legislation?
    I will be making a trip to Jakarta from the 21st – 23rd Oct.

    Can I request to meet up at your office to further discuss this on the 22nd or 23rd morning at 10am?

    Best regards,

    Sean Mak

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