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Understanding Non-Profit Organization in Indonesia : How to Establish a Foundation

Understanding Non-Profit Organization in Indonesia : How to Establish a Foundation Review by Michal Wasserbauer on 17. 5. 2016 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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According to the Law Number 28 Year 2004 and amendment of Law Number 16 Year 2001, Foundation (Yayasan), one of types of Non-Profit Organization, as a non-membership legal entity, established based on the separation of assets, and intended as a vehicle for attaining certain purposes in the social, religious, or humanitarian fields.

One or more persons may establish a foundation, being an individual or legal entity. Law 16/2001 acknowledges the right of foreigners to establish yayasan.
Foreign Party(ies), or Foreign Party and Indonesian Party may establish Foundation (Yayasan) in Indonesia. ‘Foreign Party’ shall mean foreign individual person or foreign legal entity, while ‘Indonesian Party’ shall mean Indonesian individual person or Indonesian legal entity.

The amount of initial asset of a Foundation/Yayasan established by Foreign Parties, or Foreign Party and Indonesian Party, which originated from the separation of the personal assets of the founder, shall be at least in the amount of IDR 100 Million. The separation of assets shall be accompanied with a statement letter from the founder regarding such separated assets and shall be a part of the financial documents of the Foundation/Yayasan.

However, there is another regulation, Law No. 17 of 2013 re Societal Organization which states that a Foundation established by foreign individuals, or foreign individuals and Indonesian party, must have initial assets of IDR 1 Billion, while a Foundation established by foreign entity must have initial assets of IDR 100 Billion. These inconsistencies are not yet cleared up and require further clarification with notaries and ministry of law.

Establishment of Foundation (Yayasan)

New Procedures for Establishing Foundations On 26 March 2014, the Minister of Law and Human Rights issued Regulation No. 5 of 2014 on Validation of Foundations. All applications for the establishment of foundations processed electronically through the Legal Entities Administration System (Sistem Administrasi Badan Hukum/SABH) under the Directorate General of Law Administration.

Approval for a Foundation’s Name

Based on the Government Regulation No. 63 of 2008 on the Implementation of the Law on Foundations. The Minister will issue an approval letter with the following information:

  • Registration number of the name of the foundation;
  • Approved name of the foundation;
  • Date of registration;
  • Expiration date; and
  • Code for the administration fee payment.
  • The applicant must start using the name within 60 days of receiving the approval.

Validation of Foundation

Once the name has been approved, the applicant submits an application for validation of the foundation as a legal entity to the Minister using the electronic form provided; in the SABH. This application must be submitted within 10 days of the signing of the deed of establishment and must be accompanied by the following documents:

  • The foundation’s deed of incorporation;
  • A written statement providing the address of the foundation, acknowledged by the local village head (lurah);
  • Proof of a capital deposit or a written statement from the founders stating the value of the foundation’s initial assets. This statement require a separate letter from the founders confirming the initial assets;
  • Proof of payment for approval of the foundation’s name;
  • A recommendation from the Minister of Foreign Affairs or Minister of Defense, if the foundation is established respectively by foreign and domestic legal entities; and
  • The deed of the last will and testament if the foundation establish under a will or testament.

Upon receiving the application, the Minister will verify whether it complies with applicable laws and regulations. If all the requirements are satisfied, the Minister will notify the applicant of his/her approval for the establishment of the foundation as a legal entity. Afterwards, the Minister has 14 days to issue an official decree confirming his/her approval.

Governing Bodies

The governing bodies of a yayasan are:
a. Patrons (Pembina)
b. Executives (Pengurus)
c. Supervisors (Pengawas)

Patrons

The powers of Patron are not able delegate to the executives and supervisors by the prevailing laws or the articles of association of the yayasan, and include the right to :

  1. Amend of the articles of association;
  2. Appoint and dismiss executives and supervisors;
  3. Determine the general policy of the yayasan based on articles of association;
  4. Ratify work programs and the proposed annual budget;
  5. Merge or dissolve the yayasan.

Patrons or Pembina in Bahasa must have a minimum 1 (one) member. Maximum number is not specified. If all patrons/founders are all Indonesians, then the requirement for initial asset will be at least IDR 100 Million. However, this kind of Foundation/Yayasan is not allowed to have foreigners as supervisors or executives.

But if 1 Indonesian patron/founder is Indonesian and the other patron(s)/founder(s) is individual foreigner, then the requirement for initial asset will be at least IDR 1 Billion. This is based on Law No. 17 of 2013 re Societal Organization which, under legal theory, trumps Government Regulation 63/2008 re Implementation of Foundation Law, which only requires at least IDR 100 Million.

Further complications for that case are as follows: (i) the individual foreigner(s) who act as the founding patron must have been living in Indonesia for 5 years consecutively, (ii) such individual foreigner(s) as founding patron must also the holder of KITAP (Permanent Stay Visa) and (iii) at least one of the following positions, Chairman, Secretary, or Treasurer within the Board of Executives, must be held by an Indonesian citizen.

Executives

The executives of a yayasan include a (i) chairman; (ii) secretary; and (iii) treasurer, but it can have more functions as per the Articles of Associations. The executives are responsible for the day-to-day operation of the yayasan. Further, the executives may represent the yayasan in and outside of court, which means an executive may legally bind the yayasan. The executives may not however:

  1. Bind the yayasan as a guarantor;
  2. Transfer assets of the yayasan without the approval of the patrons; or
  3. Encumber the assets of the yayasan for the interest of other parties.

The authority of the executives may be further restricted under the articles of association of the yayasan. Executives are not able from making an agreement with any organization affiliated with yayasan, patrons, executives, and/or supervisors of the yayasan or someone who works for the yayasan (an exception to the prohibition being an agreement which benefits the purposes and objectives of the yayasan).

A Yayasan established by Foreign Party, or Foreign Party and Indonesian Party, one of its executives who holds the positions of Chairman, or Secretary, or Treasurer, must be held by an Indonesian Citizen. All executives of a Yayasan established by Foreign Party, or Foreign Party and Indonesian Party must also reside in Indonesia (including having a KITAS).

Supervisor

A yayasan must have at least one supervisor. The supervisor is responsible for supervising and advising the executives.

An individual may hold only one governing body position in a yayasan. (For example a patron cannot also be an executive, a supervisor cannot be a patron ect…). A patron, executive and supervisor of a yayasan are not able from holding the position. The position consist of a member of board of directors, management, board of commissioners or supervisor of a business entity established by the yayasan or in which the yayasan has an investment. Each member of Executives and supervisors may be held jointly and severally liable for losses that result from the bankruptcy of the yayasan caused by the fault or negligence in performing his/her duties.

Assets

Restrictions upon the use and disposal of the assets of a yayasan are:

  1. The assets of a yayasan can not transfer or distribute directly or indirectly, to patrons, executives, supervisors, employees, or other party having interest in the yayasan.
  2. Patrons, executives and supervisors of a yayasan must volunteer their services. And are therefore not able to receive assets of the yayasan whether in the form of salary, wage or fixed honorarium.
  3. In the event a yayasan is liquidated, any remaining assets of the yayasan must be transferred to another yayasan. Yayasan Should having the same purpose and objective of the liquidated yayasan. Assets not transferred in accordance with the preceding sentence shall be transferred to the state and used in accordance with the purposes and objectives of the liquidated yayasan.
  4. While a yayasan may invest in businesses undertaking activities consistent with the yayasan’s purposes and objectives. That investment in the aggregate cannot be more than 25 % of the total assets of the yayasan.

Conclusion

A yayasan able to established with assets wholly contributed by a foreign person and/or foreign legal entity.

The patron is not responsible for the day-to-day operation of the yayasan which left to the executives and supervise by the supervisor; the patron may exercise control through its right to appoint and dismiss executives and supervisors, ratification authority and such other controls placed on the actions of the executives in the articles of association of the yayasan. For example the approval of a patron might needed for transactions above a specified monetary amount.