A Guide to Establish a Holding Company in Indonesia

In the dynamic Indonesian business landscape, the holding company plays a crucial role, acting as the central hub for a network of subsidiary companies. This structure offers a unique way to manage and control various business ventures, fostering growth and efficiency. 

What is A Holding Company, and How Does It Work?

A holding company is a business entity, often a corporation or limited liability company (LLC), that generally does not manufacture, sell products or services, or conduct business operations.

Instead, this business entity primarily owns controlling stock in other companies. It is also referred to as an “umbrella” or parent company.

While a holding company possesses its subsidiaries’ assets, it typically maintains an oversight role rather than participating in daily business operations. It supervises management decisions without directly managing the day-to-day activities.

What is the Purpose of a Holding Company?

Generally, the role of a holding company is broad and multifaceted. Some of the key roles you should be aware of include:

1. Planning and Controlling a Company

A holding company’s primary duty is to establish general plans for each subsidiary. Subsidiaries are required to implement these plans with their strategies.

To manage other companies, the holding company must own at least 25% of the subsidiary’s total shares. Falling below this minimum percentage means the holding company cannot exercise control.

2. Company Operations

A holding company’s second duty is to manage a business’s operational aspects. This helps reduce the risk of bankruptcy or losses for the subsidiaries.

The holding company is responsible for any losses incurred by its subsidiaries. When a subsidiary succeeds, it generates profits for the holding company.

3. Merging Companies with Similar Products and Services

The third objective is to merge several companies that offer similar products or services. This merger aims to simplify planning and operational management for the future.

4. Achieving a More Strategic Market Position

The fourth duty is to secure a more strategic market position. Merging several markets in Indonesia can strengthen and expand the position of the holding company and its subsidiaries.

READ MORE:

• The Steps To Establishing A Private Limited Company In Indonesia
• How To Register A Foreign-Owned Company As PT PMA In Indonesia
• An In-Depth Guide To Representative Office In Indonesia

What is the Difference between an Ltd and a Holding Company?

Holding companies and Ltds, which operate within a dual-company structure, fulfill unique and complementary roles essential to the overall organizational framework.

The difference can be seen in the table:

Holding Company	Ltd
A holding company possesses the assets of the Ltd, encompassing intellectual property, stocks, equipment utilized by the Ltd, and real estate. Despite overseeing the Ltd, it refrains from involvement in operational decision-making or producing and delivering goods and services.	An Ltd is tasked with managing daily operations within the business structure. Typically, it functions as a subsidiary under the holding company.

Advantages and Disadvantages of a Holding Company

The benefits and drawbacks are significant considerations in corporate strategy. Here is the list for your consideration:

Advantages

Advantage	Description
Risk Diversification	By spreading risk across various subsidiaries, the impact of losses from one business on the entire group is minimized.
Tax Advantages	Often, they take advantage of tax benefits, such as lower tax rates applied to dividends received from their subsidiaries.
Centralized Control	They can streamline operations, enforce consistent strategies, and optimize resource allocation.

Disadvantages

Disadvantage	Description
Complexity	Managing multiple subsidiaries with diverse operations and industries can be intricate and demanding.
Regulatory Challenges	They may encounter regulatory scrutiny due to their influence over multiple businesses.
Interdependence	Their success hinges on their subsidiaries’ performance, creating a dependency on their operational efficiency and profitability.

Types of Holding Companies in Indonesia

Holding companies can be categorized based on their business operations. Some solely hold a single subsidiary, while others engage in additional business activities. The various types of these companies include:

Pure Holding Companies

These companies exist solely to own other firms and do not engage in different business activities. Their primary function is to provide strategic oversight, financial resources, and centralized management expertise to their subsidiaries, fostering growth and efficiency.

Mixed Holding Companies

Also known as holding-operating companies, these entities manage their subsidiaries while conducting business operations in a different sector or industry. 

This allows them to leverage synergies between their subsidiaries and operations, potentially creating a more robust and diversified business portfolio.

Immediate Holding Companies

These companies own other businesses but are owned by another entity, essentially making them subsidiaries of another holding company.

They are typically the top entity within a corporate group, but they may also be owned by another holding company, creating a more complex ownership structure.

Intermediate Holding Companies

These companies act as a middle layer within a multi-tiered holding company structure. They own and control subsidiaries but are themselves subsidiaries of a larger, ultimate holding company. 

This structure can be used for various purposes, such as managing geographical expansion or isolating risk within specific business segments.

What are the Examples of a Holding Company?

In Indonesia, there are numerous holding companies operating across various business sectors. Some examples of holding companies in Indonesia include

PT Semen Indonesia

A state-owned enterprise (SOE) that serves as the parent company for several prominent cement producers in Indonesia. These subsidiaries, such as Semen Padang, Semen Tonasa, and Semen Gresik, contribute significantly to the nation’s construction sector.

PT Semen Indonesia manages these subsidiaries, centralizes resources, and streamlines operations for enhanced efficiency.

PT Astra International

One of Indonesia’s largest conglomerates, PT Astra International, exemplifies the power of diversification through a holding company structure.

Its subsidiaries operate in a wide array of fields, including automotive (PT Astra Otoparts, PT Toyota Astra Motor), financial services (PT Astra Financial), and property (PT Astra Land).

This diversification allows PT Astra International to leverage its expertise and resources across various sectors, mitigating risk and maximizing growth potential.

PT Pupuk Indonesia

Another state-owned holding company, PT Pupuk Indonesia, plays a crucial role in Indonesia’s agricultural sector. It oversees fertilizer production and distribution through its subsidiaries, such as Pupuk Sriwijaya and Pupuk Kujang.

By centralizing management and resources, PT Pupuk Indonesia ensures a stable supply of fertilizers for Indonesian farmers, contributing to national food security.

How Do You Register a Holding Company?

The holding company will be registered in Indonesia like any other company. The investor must select a structure that best suits the future holding company’s activities.

Most foreign entrepreneurs opt for a limited liability company with foreign ownership (PT PMA). This entity type has specific requirements, including submitting an investment plan for approval and injecting a minimum share capital into the project.

In general, the requirements for a PT PMA are as follows:

• At least two shareholders;
• An investment of USD 700,000, regardless of the business activity;
• A corporate income tax rate of 22% or a reduced rate of 0.5% of gross income for a specified period in some instances.

It is important to note that these requirements can change, and the relevant authorities review the investment project.

The next step involves obtaining the company’s tax identification number, a procedure our team can also assist with. The application is submitted to the local tax office, and once complete, the tax number is issued to the company.

PT PMA may be subject to divestment obligations; however, this may not apply if the company is not wholly foreign-owned and the Indonesian shareholders waive the divestment requirement.

Register Your Holding Company with InCorp

Foreign investors looking to establish a holding company in Indonesia often face a maze of regulations and bureaucratic hurdles. These complexities can significantly delay your investment plans and divert your valuable focus.

InCorp can assist you in providing a comprehensive solution specifically designed to navigate the intricacies of Indonesian holding company registration.

With our expertise, navigating the regulatory landscape becomes much more accessible, allowing you to focus on your business goals.

Our comprehensive company registration services include:

• Company Registration: We’ll handle all the paperwork and filings with the relevant government agencies, ensuring a smooth and timely registration process.
• Business License: We’ll help you obtain the necessary tax identification number (NPWP) and any required business licenses for your holding company’s operations.

Let InCorp be your trusted advisor for a successful entry into the Indonesian market. Fill out the form below and find out how we can streamline your holding company registration journey.