Home Blog 5 Important Points to Remember before Entering a Business Partnership in Indonesia Business Licenses | Business Setup | Indonesia 5 Important Points to Remember before Entering a Business Partnership in Indonesia InCorp Editorial Team 14 October 2024 6 minutes reading time Table of Contents How to Start a Business in Indonesia as a Foreigner Types of Foreign Business Presence in Indonesia The Benefit of Doing Business Partnership in Indonesia What to Know Before Entering a Partnership in Indonesia Seamless Business Partnerships in Indonesia with InCorp Have you ever wondered why big or small businesses form strategic partnerships in Indonesia? It has been evident that finding a good business partner in Indonesia will not only increase the bottom line but also expand your network and open the door to many opportunities. However, not all business partnerships in Indonesia work out as planned. Some companies have faced all sorts of minor or major problems when they work with business partners who fail to bring anything to the table. Therefore, before you seal a deal with a business partner in Indonesia, consider the five important points discussed below. How to Start a Business in Indonesia as a Foreigner Establishing a business in a foreign country can be both thrilling and challenging. Indonesia presents promising opportunities for foreign entrepreneurs. If you’re considering entering the market, follow these detailed steps on how to register a company in Indonesia as a foreigner. Conduct Market Research Conducting thorough market research is essential before establishing your business in Indonesia. This includes identifying market gaps, understanding local consumer preferences, and analyzing your competitors. With this information, you can create a solid business plan that explains your objectives, target market, value proposition, and revenue projections. A well-defined plan guides your actions and demonstrates your commitment to Indonesian authorities. Select the Right Business Structure Selecting the appropriate business structure is vital. As a foreigner, you may choose a Limited Liability Company (PT PMA Indonesia), allowing foreign ownership. Collaborate with a legal consultant to choose the best structure for your company. Register your business name and get a tax identification number (NPWP). Capital and Investment Requirement Indonesia mandates a minimum capital requirement for foreign-owned businesses. Prepare the funds and deposit them in a local bank account to comply. Your investment plan should align with the Indonesian Ministry of Investment/BKPM regulations. Arrange financial statements and a feasibility study to showcase your business’s viability as a foreign-owned company in Indonesia. Get Required Licenses and Permits Navigating Indonesia’s regulatory landscape requires acquiring the appropriate licenses and permits. Work closely with legal experts to secure approvals from the proper authorities, such as the BKPM and local government agencies. Key permits include the Business License (Izin Usaha) and the Location Permit (Izin Lokasi). Visas and Employment You must adhere to Indonesia’s labor laws if your business involves hiring local employees or expatriates, such as: Secure the work permits and visas for your foreign employees. Consider partnering with a professional employer organization (PEO) to simplify employment. Ensure compliance with employment regulations. Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Updates Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe Types of Foreign Business Presence in Indonesia Foreign businesses looking to start a presence in Indonesia have two main options: Establishing a New PT PMA (Limited Liability Company with Foreign Ownership): This process involves creating a deed of establishment that includes the company’s articles of association and securing approval from the Ministry of Law and Human Rights (MOLHR) through the Online Single Submission (OSS) system. Acquiring an Existing PT PMA: This option necessitates conducting due diligence to evaluate the company’s financial and legal status before the acquisition, followed by registration with the OSS system. The Benefit of Doing Business Partnership in Indonesia Indonesia offers a compelling investment environment due to several key factors. Here are some reasons why doing business partnerships in Indonesia could be profitable and sustainable for your business. Low Labor Costs: A large workforce and competitive wages make Indonesia an attractive destination for businesses seeking to reduce operational expenses. Favorable Trade Agreements: The Regional Comprehensive Economic Partnership (RCEP) and the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) provide significant advantages for companies operating in the Indonesian market. Investment Incentives: Tax breaks, fiscal benefits, and special economic zones encourage foreign investment. Abundant Natural Resources: Indonesia’s rich resources offer a competitive advantage to production industries. Ease of Doing Business: Government reforms have simplified the business registration process. Technology Transfer: Foreign investment often brings advanced technologies to Indonesia. Land Ownership: Foreign companies can own land under building rights titles. What to Know Before Entering a Partnership in Indonesia Before venturing into a partnership venture, it’s essential to carefully consider the legal framework, cultural factors, and potential challenges that may arise. 1. Prepare in Advance Both parties should prepare a framework before establishing business operations with their partners. This framework should include details on financing options, financial responsibilities, profit sharing, and other issues, providing a clear example of a business partnership in Indonesia. Money is important in this partnership, so you must be meticulous and precise on financial issues upfront. This can prevent the fallout from a business partnership. 2. Ensure You Are Ready for a Long-term Commitment The best business partnership is not for the faint-hearted. It is a long-term commitment for all partners, just like marriage. If this is not something that you see yourself in for the next five or ten years, you should probably give up the thought of forming a business partnership. This is because breaking up with a business partner in Indonesia is costly when you have a contract that holds all parties responsible legally. Dissolving a partnership in Indonesia takes significant money, time, and other resources. Therefore, working with a business partner in Indonesia with whom you can best have a long-term relationship. READ MORE:How to Write a Persuasive Business Proposal: 7 Effective Steps15 Global Business Expansion Strategies to Consider 3. Communicate Clearly Effective and clear communication is pivotal for you and your business partner to thrive together. Sometimes, it may be challenging to agree on everything. However, effective, two-way communication allows partners to understand each other’s viewpoints. This mutual understanding enables both parties to achieve shared business goals. 4. Conduct Due Diligence Many business owners overlook the importance of conducting due diligence on their business partners in Indonesia. Due diligence is a deep screening and investigation of the partnering individuals or organizations. Due diligence is imperative before signing a contract or establishing a partnership. You should assess the credibility of the company or business partner in Indonesia with whom you want to collaborate. 5. Prepare a Partnership Agreement All partnerships in Indonesia require a partnership agreement, and working with a business partner without a partnership agreement is considered illegal in Indonesia. Furthermore, a partnership agreement is one of the critical factors to its success because it guides how this partnership operates. It outlines all terms, responsibilities, rights, regulations, ownership percentage, capital contribution, profit percentage, and dispute resolutions that serve both parties and prevent future legal complications. READ MORE:Doing Business in Indonesia: 5 Challenges You Must KnowA Guide to the Advantages and Disadvantages of Joint Ventures in Indonesia Seamless Business Partnerships in Indonesia with InCorp Entering into a business partnership in Indonesia can be both rewarding and challenging. Our extensive experience meets your investment and regulatory compliance objectives. To ensure a successful collaboration, InCorp is dedicated to providing you with the essential support you need with: Company Registration Business License Legal Agreement Services Fill out the form below to ensure your partnership thrives in Indonesia. Read Full Bio Verified by Hotdo Nauli Senior Legal & Delivery Manager at InCorp Indonesia Hotdo heads the Legal and Delivery team at InCorp Indonesia, managing Product Registration, Legal Advisory, and Business Licensing. With over 8 years of experience, she focuses on compliance and integrity, ensuring all client operations align with Indonesian laws and regulatory standards, including contract reviews and sector-specific licenses. She is also a licensed advocate and a member of the Indonesian Advocates Association (PERADI). Frequently Asked Questions What duties do investors have when they own shares in a company that has been liquidated? Shareholders must appoint a liquidator during the shareholders’ meeting approving liquidation. If no liquidator is appointed, the Board of Directors assumes the role. Creditors can submit claims within two years of the liquidation announcement, provided there are proceeds available. If proceeds have been distributed, shareholders must return them proportionally to settle creditor claims. Whereas employee termination packages vary based on employee status, service years, and reason for liquidation. What is the difference between PT and CV? You can find the difference below: PT: limited liability company (shareholders are not legally liable for company liabilities) CV: a proprietary company where liability falls on the shareholders Can an individual or a business organization be a shareholder in a PMA company, and is there a minimum number required? A limited liability corporation is required by Indonesian company law to have two or more shareholders, who may be either a legal entity or an individual. The foreign investor must find a second shareholder to own shares in the PMA firm for investments that are 100% open, which could be an affiliated party. What requirements are needed if my Indonesian company registers the product? Register the product with BPOM (National Agency of Food and Drugs) and MoH (Ministry of Health). The type of testing and document requirements depend on the type of product you want to register. Also, the time frame for registration could vary between 3 to 15 months. Get in touch with us. 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