How to Set up a Business in Indonesia: The Ultimate Checklist

Indonesia is a land that is full of diverse resources, an abundant workforce, and rich culture. This is why Indonesia offers a wide array of opportunities that have sparked many investors’ interest. A report from Trading Economics states that, foreign direct investments in Indonesia recorded a total value of US$6.4 billion. This positive business outlook is what prompted business investors to commence their business setup in Indonesia.

However, before you leap, read through the ultimate checklist for incorporating a company in Indonesia.

Company Setup in Indonesia: The Ultimate Checklist

Before starting your business in Indonesia, there are several important things you need to know to ensure compliance and smooth business operations. Here are the checklists for you:

1. Choose the Right Legal Entity

There are for major types of legal entities you can choose from when incorporating a company in Indonesia:

• Foreign-owned company (PT PMA): Foreigners can own this type of company with shares 1-100%
• A local company (PT): Fully owned by Indonesian nationals. Foreigners can set up this type of company through a Special Purpose Vehicle arrangement
• Representative office (RO): Easy setup compared to PT and PT PMA. However, this type of structure does not allow you to generate income
• Shelf company: This type of company has aged for years. Business owners can purchase it through reputable provider and run their business right away

2. Preparation for Immigration Permits and Documents

You will need the necessary documents to work and stay legally in Indonesia:

Stay visa

A stay visa or a temporary stay permit (KITAS) or also known as ITAS is a type of visa in Indonesia that allows you to remain in the country while you work. An KITAS/ITAS must be sponsored by an employer or a spouse.

Work permit

Foreigners who want to work and earn an income in Indonesia must apply for a work permit before entering the country. To get one, your sponsor company must obtain the Foreign Worker Utilization Plan approval (RPTKA) from the Indonesian Ministry of Manpower. RPTKA approval now serves as the basis for the authority to grant a limited stay visa (VITAS). Once you have received a VITAS, the immigration in Indonesia will issue your KITAS/ITAS.

Investor KITAS/ITAS

An investor KITAS/ITAS is a great choice for many investors due to its many benefits including easy application and work permit fee waiver. Besides, foreigners can start work right away with this visa.

3. Satisfy Local Director Requirement

Under the Indonesian Company Law, all foreign-owned companies must have at least one resident director or local director.

A resident director has to be an Indonesian resident. If investors of the foreign companies do not reside in Indonesia, they can assign a local as their resident director through Special Purpose Vehicle arrangement.

4. Comply with Indonesian Tax Laws and Regulations

The main taxes in Indonesia, among many others, you need to adhere to:

• Corporate tax: Corporate tax is also known as company tax. It is a type of tax imposed on legal entities doing business in Indonesia. The general rate for corporate tax is 25% (becoming 22% in 2020).
• Withholding employee tax: This is a tax withheld from salaries of the employees and paid directly to the Indonesian tax authorities.
• Value-added tax (VAT): VAT is a consumption tax levied on goods and services at every point of sale. The VAT rate for most goods and services in Indonesia is 10%.

5. Open a Bank Account

Foreigners can open a personal bank or a corporate bank account in Indonesia. A foreign individual bank account requires proof of residency such as KITAS/ITAS or KITAP/ITAP. To open a corporate bank account, you will need the following:

• A recent photo of the applicant
• A copy of passport or identity card
• Investment approval from BKPM
• Domicile letter
• Tax registration number
• Deed of establishment
• A deposit

READ MORE:

• Does Every Business Setup in Indonesia Require Shareholders?
• How to Obtain a Tourism Business License in Indonesia
• How to Start a Business: 10 Essential Tips for Expanding to Indonesia

Key Differences Between All Business Entities in Indonesia

When planning to setup business in Indonesia, choosing the right type of entity is a key step in the company establishment process. Each option serves different needs and comes with unique requirements.

PT PMA (Foreign-Owned Company)

A PT PMA (Perseroan Terbatas Penanaman Modal Asing) is a limited liability company that allows foreign investors to hold shares. This type of business entity is best for foreigners who want to register company in Indonesia with direct ownership and full operational rights.

Here are several key requirements to establish PT PMA:

• Minimum of two shareholders (can be individuals or corporations).
• Subject to the Negative Investment List and relevant business classification rules.
• Full legal entity that can generate revenue, hire staff, and import/export.

PT (Local Limited Liability Company)

A PT (Perseroan Terbatas) is a local company owned entirely by Indonesian citizens or legal entities, best for local entrepreneurs or joint ventures with Indonesian partners. The requirements include:

• Requires at least two local shareholders.
• Foreigners cannot directly own shares, but cooperation is possible through nominee arrangements.
• Eligible for many local tenders and business activities restricted to Indonesians.

Representative Office (RO)

An RO serves as an extension of a foreign company in Indonesia, but it is not permitted to earn revenue. Its main function is to help companies explore the Indonesian market before a full company establishment, including market research, promotion, and liaison activities.

Shelf Company

A Shelf Company is a legally registered entity that has never conducted business activities. It offers investors a fast-track option to begin operations immediately, making it ideal for urgent projects or tenders. By acquiring a shelf company, businesses can bypass the time-consuming process of starting a new company from scratch.

How to Choose the Right Company Structure in Indonesia

Before investing in Indonesia, selecting the right company structure is essential. The choice will impact your legal requirements, investment opportunities, and how smoothly your operations run. Here are the key considerations:

Define Your Ownership Goals

• If you are a foreign investor looking for direct ownership, PT PMA Indonesia is the most suitable option, as it allows foreigners to hold shares legally.
• For fully local ownership, a PT (local limited liability company) is the standard route.

Clarify Your Business Activities

• If your priority is testing the waters before full company establishment, a Representative Office can help with research and promotion without commercial transactions.
• If speed is crucial, you may choose to register company in Indonesia through a Shelf Company, which is already established and ready for use.

Consider the Scale of Operations

• Large-scale projects often require a PT PMA due to its broader scope and compliance with foreign investment rules.
• A small business in Indonesia may benefit more from setting up a local PT, which is simpler and allows access to local markets and tenders.

Evaluate Long-Term Flexibility

Your company structure should not only meet today’s needs but also support future growth. For example, many investors start with a Representative Office and later upgrade to a PT PMA for full operational control.

Business Setup in Indonesia with InCorp Indonesia

Investors worldwide favor the company incorporation in Indonesia due to its established business environment, improving legal and taxation systems, low costs, well-equipped infrastructure, and high-quality professionals.

Indonesia offers unlimited business opportunities and tens of thousands of international businesses have benefited from starting a business in Indonesia. InCorp Indonesia can offer expert services to help your business thrive. Join the countless other entrepreneurs who have launched their businesses with InCorp Indonesia.

Should you have any inquiries about company incorporation or business setup in Indonesia, please complete the form below and we will get back to you soon.

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