If you have been planning to start a foreign-owned business in Indonesia. One of the first few barometers you should be well acquainted with is Indonesia’s EoDB (Ease of Doing Business) – The World Bank has placed Indonesia at rank 73, with an improvement of 1.4% score change. The World Bank has also reclassified Indonesia with a middle-income status in early 2021. This is largely in lieu of its consistent economic growth (prior to the COVID-19 crisis).
As the Indonesian government continues to digitalize its ecosystem, we can expect time taken to set up a company would shorten and with lesser clicks. However, snappy this process might be, it is imperative new business owners have a good grasp of the foundation when it comes to regulations on setting up a business in Indonesia. To start you off on the right foot, we have compiled a list of FAQs.
How to Start a Business in Indonesia: FAQ
1. What are the types of legal entities in Indonesia?
Firstly, there are 3 common types of legal business entities in Indonesia.
- A foreign-owned limited liability company is locally referred to as a PT PMA (Perseroan Terbatas Penanaman Modal Asing)
- A locally-owned limited liability company is locally referred to as a PT (Perseroan Terbatas).
- Depending on the nature of your business, foreigners starting a business in Indonesia Branch or Representative Office (RO)
2. What types of companies limit foreign ownership in Indonesia?
The prevailing document and regulation new business owners need to refer to is Indonesia’s Positive Investment List (previously referred to as Indonesia’s Negative Investment List – DNI)
The foreign ownership percentage share, entity types (i.e.: PT, PT PMA, RO), business sectors, and business lines (locally referred to as KBLI) is outlined in Indonesia’s Positive Investment List. It is a comprehensive document that details thousands of KBLIs, each with a different set of regulations. It is therefore important to first understand what KBLI does your business fall under.
3. How long does it take to start a business in Indonesia?
Starting a business in Indonesia ranges from 1 to 3 months – the time taken is highly dependent on how quickly business owners are able to send across company documents, deeds, reports to their market-entry consultants to fulfill the process. Companies that have their full set of documents ready can start operating in under 30 working days, from the time their documents are submitted to the Indonesian authorities.
4. How to obtain a Domicile Letter?
A Domicile Letter (locally referred to as a Surat Keterangan Domisili) is legal proof that you have registered your company’s office location or address. All foreign-owned companies are legally required to own an office during the process of their incorporation. To obtain a Domicile Letter, all that is required is an office lease agreement. Domicile Letters are issued by both the Kelurahan (administrative village) and Kecamatan (city/regency’s subdivision). It is worth noting, a residential address is unacceptable as a business address.
For business owners who are looking to start small, a Virtual or Serviced Office is a total solution for obtaining your Domicile Letter, and space for small teams to remain productive.
5. What are the capital requirements for starting a foreign-owned business in Indonesia?
To start a PT PMA in Indonesia, business owners are required to invest a paid-up capital of IDR 10 billion (approx. USD680,000+). This paid-up capital is required at the start of the company incorporation and excludes building and land assets. This regulation was passed in June 2021 with no details on sanctions, should a company fail to meet these requirements.
The Indonesian economy is mainly sustained by Micro, Small, and Medium Enterprises (MSMEs) – it generates 50% of its GDP and accounts for the largest (approx. 58 million) MSMEs in ASEAN. It is often regarded as the backbone of Indonesia’s economy and requires the segment to flourish.
6. What activities are allowed for a Representative Office?
A Branch or Representative Office in Indonesia is commonly used for but not limited to, market research of investment opportunities, building early-stage market presence, building vendor relations, branding and promotions, research and development. A Rep Office is also suitable for companies who are looking to set up a back or support office (e.g.: call centers or design house).
From the examples listed above, the common thread that lies between them is, these business activities do not generate revenue for the business – this remains the key characteristic of a Rep Office. To provide a clearer idea, here are some activities a Representative office in Indonesia cannot carry out.
- Engagement in any trading (including export and import), commercial activities that can generate profits
- Entering a business contract on behalf of the parent company or provide a service for a fee
- Participation in the management or operation of any of its branches, subsidiaries, affiliates in Indonesia
- Issuance of invoices and receipts
7. Can a foreigner start a PT local company?
The answer to your question lies in Indonesia’s Positive Investment List (previously referred to as Indonesia’s Negative Investment List – DNI). Please scroll up to question 2 in this FAQ for more.
8. Can a foreign-owned company hire a foreigner?
Yes, a foreign-owned company can employ foreigners and sponsor their work permits (locally referred to as a Work KITAS). However, it is important to note, some sectors do not permit foreign employment. Here are
- Supply Chain Management (including procurement and logistics)
- Human Resource
- Legal & Compliance
- Quality Control and Inspection
- Health, Safety, and Environment
HR is often the main obstacle for newly set up companies, find out how we can help recruit, select and draft employment contracts with our HR consulting capabilities.
9. What is the exact process of starting a foreign business in Indonesia?
The key steps to starting a business in Indonesia is as follows:
The following documents must be submitted to BKPM to start a foreign company PT PMA in Indonesia:
- Principle license and business license
- Domicile letter
- Deed of establishment
- Approval of Business Registration Number (NIB)
- Tax identification number (NPWP)
- Taxable entrepreneur confirmation (PKP)
- Company welfare report and manpower report
- Proof of deposit of capital requirement (IDR 10 billion)
The incorporation of a PT PMA requires at least two shareholders – a President Commissioner and a President Director. At least one of the shareholders has to be a foreign national or foreign entity.
13. What is OSS (Online Single Submission) System in Indonesia?
OSS is a new licensing application administered by BKPM – Indonesia’s Investment Coordinating Board. It is an online platform designed to improve the ease of doing business in Indonesia by housing all company-related information into one platform thus facilitating business players to acquire their business licenses related to their company and sector with more efficiency. It is also a central system used by various Indonesian government authorities and agencies – including the General Law Administration System, the Indonesia National Single Window (INSW), and the Information System of Population Administration.
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