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starting a business in indonesia as a foreigner

FAQ: How to Start a Business in Indonesia as a Foreigner

Thinking of starting a business in Indonesia as a foreigner and you still have any questions? Check out our FAQs below to find the answers to some of the most popular questions we have always received.

Starting A Business in Indonesia as a Foreigner: FAQ

1.What are the types of legal entities in Indonesia?

There are three common types of legal entities in Indonesia, each has distinct characteristics: foreign-owned limited liability company (PT PMA), local company (PT), representative office (RO).

Related article: The Pros and Cons of Business Entities in Indonesia

2. Is foreign ownership limited?

Yes or no, it depends. Businesses that are mentioned in the Negative Investment List (DNI) in Indonesia cannot be fully owned by foreign companies. They are either closed for foreign investment or partially open with certain requirements. For businesses partially opened for foreign investments under DNI, foreign ownership is allowed between 49%-95%.

On the other hand, businesses or sectors that are not listed in the DNI are 100% open for foreign ownership. The Negative Investment List was updated in 2018, however, it is advisable for foreign investors to get in touch with Cekindo to ascertain the latest updates.

3. How long does it take to start a business?

With respect to PT PMA (the most common type of legal entity set up by foreigners), it usually takes 2-6 months for an establishment to start a business.

4. How to get a domicile letter?

Under the Indonesian Law, foreign companies PT PMA are required to have an office during the process of incorporation. The document to prove your office location is called a domicile letter, or Surat Keterangan Domisili in Indonesian. A domicile letter will be provided based on your office lease agreement.

To obtain a domicile letter, first of all, you need a lease agreement of your office as mentioned. Noticeably, a residential address is most commonly not accepted as a business address. In this case, it is possible to use the services of a virtual office.

Then, a domicile letter for your PT PMA will be issued by the Kelurahan (administrative village) and Kecamatan (city/regency’s subdivision). Please note that moving your office to other parts of Indonesia may require you to change your domicile letter.

5. What are the capital requirements for starting a business in Indonesia as a foreigner?

In general, the minimum capital requirement for starting a business in Indonesia as a foreigner with the establishment of a PT PMA is IDR 10 billion (approximately US$ 675,000), and 25% of which (the paid-up capital around IDR 2.5 billion or US$170,000) must be deposited in advance.

However, for foreign investors planning to operate in a capital-intensive field, the minimum capital and its paid-up capital requirements might be higher. Learn more about capital requirements of PT PMA and their deposit procedure by contacting Cekindo.

6. Is buying a shelf company legal in Indonesia?

Yes, buying a shelf company is legal in Indonesia, only if you have found the right shelf company provider.

A shelf company in Indonesia is a previously established legal entity but does not have any previous corporate transactions. As a result, buying a shelf company allows foreign investors and new businesses to have an established presence in Indonesia immediately.

7. What activities are allowed for representative offices?

A representative office in Indonesia is an office of a foreign company used for market research of investment opportunities, market presence, bilateral trade relations enhancement, goods and services promotions, and research and development (R&D).

An approved representative office is allowed to carry out the following activities that do not result in the generation in any sort of income:

  • Coordination or planning of business activities
  • Product research and development
  • Raw materials, industrial products, and other components and parts identification
  • Coordination for parent company’s affiliates, agents and subsidiaries
  • Other activities that do not result in actual commercial transactions
8. What activities are NOT allowed for a representative office?

A representative office in Indonesia is not allowed to carry out the following activities:

  • 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
9. Can a foreigner start a local company?

Technically, a foreigner is not permitted to have ownership of a local company (PT) in Indonesia, which should be only owned by Indonesian nationals.

However, for some sectors under the Negative Investment List which only allow local investments, foreigners can opt for a local company through a nominee company. Besides, a nominee company will allow foreigners to dive into the flourishing Indonesian markets without a hefty minimum capital of IDR 10 billion.

By engaging Cekindo’s nominee company service, foreigners will be able to invest in almost all sectors in Indonesia without huge capital. Besides, you will have full control over the company and a legal contract to ensure that the Indonesian you appoint is only the owner of the PT on your behalf.

10. Can a foreign-owned company sponsor a work permit for a foreigner?

Yes, a foreign-owned company can employ foreigners and sponsor a work permit for a foreign employee. However, the work permit is only allowed for positions that are listed by the Ministry of Manpower. Some sectors are not permitted for foreign companies to employ any foreign employees:

  • Supply Chain Management
  • Human Resource (read also: HR Recruitment in Indonesia)
  • Legal Entity
  • Quality Control and Inspection
  • Health, Safety, and Environment Affairs

Besides, the government of Indonesia requires to hire some Indonesians before applying for a work permit for a foreign employee. Usually, it is five locals for one international worker, however, the law does not mention any specific ratio.

11. What is the exact process of starting a foreign company in Indonesia?

Indonesia Investment Coordinating Board (BKPM) is the organisation foreigners need to turn to for all company incorporation in Indonesia.

It will be of foreigners’ advantage if they are able to speak Indonesian as most documents are in Indonesian and officials have limited knowledge of English. Therefore, to ensure a smooth procedure for starting a foreign company in Indonesia, most foreign investors prefer to engage a local professional consultant such as Cekindo to deal with all the complex procedures.

Generally, in order to start a foreign company PT PMA in Indonesia, the following documents are required for submission to BKPM:

  • 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

As mentioned in the above question, the minimum capital requirement is IDR 10 billion and the paid-up capital is 2.5 billion. At least two shareholders are required for the incorporation of PT PMA – the President Commissioner and the President Director. At least one of the shareholders has to be a foreign national or foreign entity.

12. When can I open a bank account?

PT PMA can open a bank account after the PT PMA registration is complete. You will have to submit a list of documents required by the Indonesian bank to open a bank account as a PT PMA.

Opening a bank account in the midst of PT PMA registration is possible in certain banks in Indonesia only, and more documents are needed.

13. What is the OSS (Online Single Submission) System?

The Online Single Submission (OSS) System is implemented for the ease of investment in Indonesia, making business and permit registration easier and faster.

The integrated OSS is supported by several systems from Indonesian government authorities and agencies, including the General Law Administration System, the Indonesia National Single Window (INSW), and the Information System of Population Administration.

Related article: Securing an Import License via OSS

Contact Us

Still cannot find your answer about how to start a business in Indonesia? Or do you want more information on specific subjects? Contact us now. Our teams located in Jakarta, Semarang, and Bali will be happy to assist you.

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