Everybody heard about Bali, but not everybody knows that Bali has become one of the most potential markets in South-East Asia. Bali’s economy has been continually growing for a while, reaching 6.24 percent growth in 2016. The highest growth which came from the information and communication sector (9.15 percent), confirms that The Island of Gods is turning into “The Island of Entrepreneurs”.
Whether you want to expand your business and enter the Indonesian market, or a business idea came by when living in Bali as an expat, this article will provide you with everything you need to know about registration of a foreign-owned company in Bali.
PT PMA (Perseroan Terbatas Penanaman Modal Asing) is one of the forms of limited liability companies established in Indonesia. Based on law No. 25/2007 regarding Investment (New Investment Law), it is the only legal entity through which a foreign national or a foreign company can generate revenues, profit, or engage in sales within the Indonesian territory.
PT PMA, in other words, a foreign-owned company, represents a legal entity where any of shares (does not matter if 5% or 99%) are held by a foreign national or an institution. Even though a legal form of the company is not directly linked to a number of its foreign shares, their percentage is further restricted by Negative Investment List (Daftar Negatif Investasi).
The Negative Investment List (the latest revision done through Presidential Regulation No. 44/2016) is a list compiled and regularly revised (usually every three years) by the Indonesian Investment Coordinating Board (BKPM). It states the maximum allowed percentage of foreign ownership based on a business sector in Indonesia.
If the sector in which you want to conduct your business is partially or fully closed to the foreign investment, a local partner – an Indonesian citizen or a legal entity – will be needed.
Even though there are not many disadvantages concerning establishing and running PT PMA, some investors might be distracted by large capital requirements or ownership restrictions. In this case, a representative office or a local company may correspond with your needs more.
Foreigners who do not need to engage in commercial transactions and wish to explore business opportunities in Bali instead (through market research, networking, etc.) can take advantage of establishing a representative office.
Kantor Perwakilan Perusahaan Asing also known as “KPPA” is a convenient way for foreign businesses to gain a market presence and evaluate business potential.
As services of KPPA are limited to marketing and promotion activities, a limited liability company must be established to conduct business activities and receive income.
Although a local limited liability company, also known as “PT” is the most common type of companies in Indonesia, foreign nationals still prefer to start PT PMA. Not only that PT must be fully owned by Indonesian citizens, an amount of work permits for foreigners is also limited based on a size of the capital.
In general, PT can be classified into four major groups based on the capital size. This division should not be underestimated as it will significantly affect human resources in your company. Keep in mind that only medium and large sized PTs can apply for work permits for their foreign workers.
The sectors are classified as follows:
Under some conditions, PT can be established by a foreign national as well. A foreign investor can find a local partner with whom s/he will start a joint venture. It might mean undergoing potential risk, and it is highly recommended to use services of a trustworthy local corporate nominee such as Cekindo instead.
Read more about “How to start a PT with a help of Cekindo”.
Commonly mistaken with paid-up capital, the investment plan only serves as the demonstration of how much and where your funds of the investment capital will be spent. Regarding the updated regulation from BKPM, the official minimum investment to start PT PMA is IDR 10 billion (USD 750,000) for each business classification. Thus, the amount doubles when applying for two classifications – an investment plan for such a company would be IDR 20 billion.
The investment plan can be either cash or fixed assets, but a value of land and buildings is excluded from its amount.
Even though minimum paid-up capital and investment plan are not the same, both are very important when establishing PT PMA. The minimum paid-up capital represents the value which must be injected into your business. Likewise investment plan, the capital can be both in a form of money and other assets with a total value of IDR 2.5 billion (USD 190,000). However, the paid-up capital requirement remains the same even in case of several business classifications.
Note, that once your company is already registered, you are obliged to report your investment activities regularly (frequency depends on your licenses).
A location of your business is a crucial condition in the process of its incorporation. Even though regional policies might vary in individual premises, a domicile letter is in 100% cases a prerequisite document when starting PT PMA.
To get a domicile letter, a rental agreement must be submitted. Thus, a location of your business must be carefully considered as certain cities, such as Jakarta, do not allow a residential address (such as an apartment or a house) to be used as a business address. In some other cities, a residence address might be used upon written agreement of nearby community members.
Beware that properties in Bali have specific licenses that classify their purpose. Before signing a rental agreement, make sure that the building has a license which allows operating an office.
Exemptions in regional policies and complicated legalities are one of the main reasons why more and more foreign investors decide to choose shared or virtual offices.
Get to know more about Cekindo virtual and shared office services in Bali.
Every limited liability company in Indonesia must have at least two shareholders. These can be individuals (natural person) or corporations (juridical person) or a combination of both.
When planning the organization structure of your company, it is important to keep in mind the minimum amount of shares which belongs to each shareholder. This amount, which must appear in your investment application, is stated as IDR 10 million (USD 750).
Based on Indonesian law, each PT PMA must have at least one commissioner. This can be either Indonesian resident or a foreign national. In case of non-resident commissioner, this person cannot be a resident commissioner in another company in Indonesia as additional work permit (IMTA) would be required.
The main responsibility of a commissioner is to supervise a director or Board of Directors eventually.
A director in PT PMA is responsible for running day-to-day operations. Following the Indonesian regulations, the number of directors is not limited. In case of having more than one, one of them must be appointed as a president director and the authority and tasks are divided based on an agreement.
Note that a non-resident director cannot sign documents on behalf of a company. In case a local director cannot be appointed, both work and stay permits must be processed immediately after the appointment of a foreign resident.
The length of the process of company incorporation varies from 6 to 12 weeks depending on business classification, readiness, and correctness of the documents. In case any additional material is needed, the procedure gets even longer.
Cannot wait that long? Purchase one of our ready-made shelf companies.
The infographic below summarizes general procedures and institutions involved. Overall, seven governmental institutions take part in the process, and it is no secret that the process is complicated for many foreign businessmen who seek the assistance of professionals.
For elaborate information about each step, check our article “How to register foreign company as PT PMA in Indonesia”
Permanent Business License (Izin Usaha Tetap – IUT) is a mandatory document for any business activities conducted by foreign-owned (PMA) company in Indonesia. Even though it is often mistaken with temporary Principal License (Izin Prinsip), their functions are different.
A Principle License is acquired during the process of business incorporation as it is one of the prerequisite documents. Contrary, only when the process is over, and your business has fulfilled the legal regulations, at this moment you are finally eligible to apply for the permanent business license. This includes settling the paid-up capital and accomplished the investment plan.
PT PMAs conducting business in Indonesia must acquire several business licenses based on the field in which they do business. Import licenses, medical distribution licenses, and trademarks belong to the most important ones.
Further information on these documents can be found in “Business Import Licenses”.
However, the business environment in Bali differs from the rest of Indonesia and businesses there are usually operating in the field of services such as bar, cafe, restaurant, surfing schools or hotel. In these fields, environmental, disturbance, operational, hygiene or SIUP MB (license to sell alcohol) are generally required.
Balinese business culture is quite complicated, and many regulations are operated on a regional level. Thus, professional assistance and guidance through the procedure are more than recommended mainly through the application itself.
Our professional team is ready to assist you, consult any of your inquiries and we will help you so that you can solely focus on your business plan.