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company incorporation indonesia

Company Incorporation Indonesia: Learning from the Expert

Indonesia is opening all its doors for grand business opportunities, and many foreign investors do not want to miss the chance to become one of the early birds and start with business incorporation.

Are you wondering what kind of company would fit your needs the best and how to start a business in Indonesia? If the fruitful Indonesian market also attracted your attention, this article will help you with the first steps you must take.

What Kind of Company Fits You Best?

Indonesia has several types of companies that foreign are commonly making mistakes of when starting a business. Before paying closer attention to individual types, there are few points at which you should concentrate on during the process of choosing the most suitable kind of your future business entity.

  • A kind of business your legal entity is engaged in
  • Openness to foreign investment
  • Percentage of ownership which is open to foreign Investment
  • Regulatory framework
  • Minimum capital
  • Organization structure
  • Tax regulations
  • Indonesian and foreign staff
  • Mandatory reports

Foreign Limited Liability Company (PT PMA)

The foreign-owned company, also known as “PT PMA,” is the favorite choice of foreigners who want to build a business in Indonesia. Even though foreigners can still own up to 100%, you still have to investigate the exact ownership limits in accordance with the Negative Investment List according to their business line.

The minimum authorized share capital must be IDR 10 billion of which 25% must be paid up to the company bank account once the company is established.The PMA company has to have a minimum of 2 shareholders, 1 director, and 1 commissioner (all of whom can be foreigners, individual/corporate). In addition, it’s mandatory to report Investment Activity (LKPM) after obtaining the principal license quarterly.

Local Company (PT PMDN)

Business entities in Indonesia usually use the type of Limited Liability Company, or “PT”. PT’s paid-up share capital depends on the size of the company. Local PT can conducting specific business activities. However, 100% shareholder of this company is from local people. In other words, foreigners need a local partner from the joint venture with. Or else, they should use a local special purpose vehicle who then will act on their behalf.

Please note that we strongly recommend using a trustworthy local corporate vehicle such as Cekindo to sign a legalized special purpose agreement. This agreement will eliminate many potential risks that might occur in case you use the service of individuals shareholders.

Representative Office in Indonesia (KPPA)

The representative office of a foreign company, also known as “KPPA” is a convenient way for foreign businesses to gain market presence in Indonesia. Its services are limited to marketing and promotion activities, as it is not permitted to do direct selling or receive income.

  • Foreign can only be incorporate a KPPA in the capital of Indonesian provinces (i.e. Jakarta, Bandung, Yogyakarta, Kalimantan, etc.)
  • The location of KPPA must be in the office building.
  • KPPA permit is valid for 3 (three) years and can be extended 2 (two) times for 1 (one) year each.
  • After 5 years foreigners could grant their KPPA extension for different activities than before.
  • KPPA must be incorporated in an office building/tower.
  • In case the representative executive is a foreigner, he/she must obtain KITAS and Work Permit to stay and work in Indonesia.

Cekindo will assist you to choose the type of a business that fits your needs the best. General information about differences can be foundhere. However, do not hesitate to approach us directly.

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Incorporation in Indonesia: Top Mistakes You Should Avoid

We already mentioned that it is not advisable to start a business with low initial capital. Not only that, you also need to use services from a trustworthy special purpose vehicle when incorporating PT. However, many foreign investors are guilty of committing other common mistakes they should have avoided earlier. This mistake can have serious consequences on their business.

Time-consuming Process

Do not expect running a company incorporation Indonesia in a fast and smooth process. Rather, take into consideration to all delays that might occur during the legislation. Also, to avoid delay, you need to start the process well in advance.

Unprofessional (and Unreliable) Agent

Starting a business in Indonesia is not easy. Many unprofessional agents take advantage of it by becoming the service providers. Therefore, you need to have a closer look at the references and their knowledge of the market.

Cekindo is the leading consulting firm providing services for businesses operating in Indonesia. We register dozens of companies every month and our legal team is always ready to assist you.

Contact Our Consultants