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Foreign-owned company formation in Indonesia

Company Formation in Indonesia: Establish a Foreign-Owned Company

The economy and the population make Indonesia a very attractive market to set up a company. Between the rapidly growing middle class and increased government expenditures in health care and infrastructure, opportunities abound.

Indonesia has abundant natural resources and strategic location in the international water, a large number of populations, approximately 230 million people do have the potential and capability to support the investment climate. Indonesia has also made substantial progress in the field of democracy economic reforms and security over the last decade. Indonesia is welcoming foreign capital investors.

The road to business success in Indonesia can be paved with challenges and frustrations without the proper guidance in how toregister a company in Indonesia. The requirements for foreign-owned company registration in Indonesia can be complex and sometimes seem chaotic.

Hence, we provide you this article in order to give foreign investors a deeper insight and idea about company formation, particularly about investing and establishing a company in Indonesia.

If you want to establish a business in Indonesia as a foreigner, note these points:

  • What type of legal entity should you have or what kind of company formation in Indonesia will you have: a foreign direct investment company or a representative office?
  • What line of business will your legal entity be engaged in? Is the sector open to foreign investment? If so, what is the percentage of ownership open to foreign participants?
  • Make sure you investigate the regulatory framework, minimum capital requirements, organizational structure, tax regulations, Indonesian staff, required activity reports, and more.

#1 Establish a representative office

This can be useful in the early stages of business, but may not be flexible enough for some ventures. This gives a company a legal presence in Indonesia but does not allow a firm to conduct business transactions or take payments for sales.

If a company only wants to sell products in Indonesia, then a local partner can help find the proper agents and distributors and pursue product licensing in Indonesia.

This type of business entity is more suitable for marketing and market research purpose before deciding to build a complete legal entity like PMA. More about Representative Office in Indonesia.

#2 Set up a Foreign Direct Investment Company

This is basically a limited liability company (LLC) called PT in Indonesian. Known as a PMA—Penanaman Modal Asing–it is the only way to do foreign-owned company registration in Indonesia.

In Indonesia, the core of law that regulates FDI Company are Law No. 25 of 2007 regarding Capital Investment (hereinafter referred to as “Investment Law”), and Law No. 40 of 2007 regarding Limited Liability Company (hereinafter referred to as “Company Law”) as well as President Regulations No. 39 Year 2014 regarding List of Business Fields Closed ad Open with Conditions to Investment which also known as Indonesian Investment Negative List.

Any business that has foreign shareholders must register as a PMA. Some market sectors have percentage requirements for Indonesian ownership. Depending upon the nature of a business, a foreign company will need to comply with those rules as well.

The Indonesian Government maintains a Negative Investment List (DNI), which spells out what areas of business are unavailable to foreign investment or are restricted in some way. Some fields are open to full foreign-owned companies, which are also identified in the DNI.

To complete company registration in Indonesia, a firm must get approval to invest from the country’s Investment Coordination Board. Doing this efficiently will require a local consultant to assist with researching documents and preparing investment approval paperwork. While this part of the process can be fairly quick, it is only the first step in a rigorous program of licensing and registration requirements. But this is only the beginning of the process.

Once Investment Approval is given, there are a number of other licences the investor must seek from local authorities, depending upon the exact nature of the business activity. This can take considerable time and is often fraught with bureaucratic chicken-egg situations. The SP also permits the investor to establish an Indonesian company, a process that will take at least two months.

Here’s the detailed timeline for PMA registration process:

No. Procedure Duration (working days)
1. Approval of company name at the Ministry of Law and Human Rights 1
2. Approval of Principal License at the Indonesian Investment Coordinating Board (BKPM) 15
3. Preparation of Article of Association by Notary 4
4. Obtain Deed of Establishment at the Ministry of Law and Human Rights 3
5. 0btain Certificate of Domicile at the local government office 3
6. Obtain Tax payer registration number 3
7. Obtain Company Registration Certificate at the local government 10<

One of the initial challenges in establishing a business is the minimum capital requirement for foreign owned company set up in Indonesia. The required minimum for foreign-owned companies in any industry is US$1.2 million as the equivalent 10 billion Indonesian Rupiah.

This does not mean that a company needs to establish a bank account with more than a million US dollars. Rather, it must have an investment plan that spells out how the company will use the capital. The required figure may seem very high, but the investment law is designed to protect small and medium local Indonesian companies.

This allows the government to deny foreign investment plans that are too small. Based on the new regulation from the beginning of 2015, the implementation of this minimum capital investment plans has now become a priority requirement for any PMA to actually spend the USD 1 million investment plan before able to obtain permanent Business Licence.

Since the permanent business licence is very important to further apply other licences such as Export/Import Licences etc. Hence it is important to be able to fulfill this minimum capital plan as soon as possible.

The Indonesian Government does require that a company have at least 25 percent of the investment plan in paid-up capital, which is a minimum of US$300,000. This can be accomplished by simply depositing the funds in an Indonesian bank. The more popular option is to get a notarized letter, signed by all shareholders, that explains that the capital will be paid when the company is registered.

Other requirements to incorporate a PMA in Indonesia to provide minimum 2 shareholders, 1 Director, and 1 Comissioner. Once the company is registered and all legal documents is obtained the PMA company then can applied to make Company Bank Account to be used for depositing the paid-up capital in which the PIC of the company if a foreigner should hold a Working Visa first.

Although PMA Company are allowed to hire foreign employees, there’s still some limitation when submit the application form to BKPM. A PMA will be obliged to have 1 : 3 benchmark between the amount of local employee and foreign employee.

Registering a PMA in Indonesia in 2020: Much Easier & Quicker

When it comes to PMA registration in Indonesia, a lot has changed. The Indonesian government has made it easier, quicker and simpler to register a PMA in Indonesia. The 2020 updates are as follows:

Requirements for Setting up a PMA

A PT PMA requires at least IDR 10 billion (USD 750,000) capital investment, with the paid-up capital amounting to 25% of the total capital.

Except for Jakarta, a domicile letter is still required for company registration in Indonesia. It is important to know that a residential address is strictly prohibited to carry out a business in Indonesia. If you want to avoid a large cost of building up a new office, you can always opt for a virtual office or a serviced office in Indonesia.

PMA Establishment via OSS

The Online Single Submission (OSS) system has been implemented to ensure a seamless company registration process online. Being done online, company registration is streamlined.

In short, the process of registering a PMA is as follows:

  1. Approval of company name: it should consist of three words that are not vulgar or obscene.
  2. Deed of Incorporation: it should include an Article of Association, and a notary must be present.
  3. Approval of legal entity: After submission of Deed of Incorporation by the notary, the Ministry of Law and Human Rights will give approval.
  4. Registration of Tax ID (NPWP): A valid NPWP is required for securing other company’s licenses, banking activities, and fulfilling tax obligations.
  5. Domicile Letter: Required to show the location of your business.
  6. Application of NIB: A unique company profile number that guarantees an immediate operation, provided that no additional licenses are needed. Alongside NIB, Business License(s) and Location Permit will also be granted one day following the registration via OSS. NIB also serves as an import license and customs identification number to be used for the customs clearance process.
  7. Application of other licenses: Depending on the business sector, additional licenses such as commercial license and tourism license may be required before operation.

Cekindo can Assist with Company Formation in Indonesia

As a foreign investor who is unfamiliar with the local regulations in Indonesia, it is always advisable to consult with an expert regarding company formation in Indonesia. Your PMA incorporation in Indonesia will be hassle-free with a step-by-step guide provided by an incorporation specialist.

Fill in the form below to discuss your need.