Indonesia is the largest economy in Southeast Asia and undoubtedly offers extraordinary business opportunities for both foreign investors and local citizens. Expanding your business through international company setup in Indonesia is something that can be done easily as long as you know the process, and seek third-party assistance when necessary.
There are many legalities you need to deal with to incorporate an international company in the country, but ultimately it is all worth it.
In this article, we will take a look at how you can set up an international company in Indonesia in the forms of a foreign-owned company and representative office (RO).
Company Setup: Registering an International Company in Indonesia
For many foreign investors, Indonesia represents a dynamic economy opening to the international marketplace – thanks to its large and young population, rapidly growing middle-class and abundant natural resources.
According to PwC, Indonesia is forecast to reach a GDP of US$5.42 trillion by 2030.
There are several types of legal entities in Indonesia. Foreign investors often wonder which legal entity is the most compatible for their business sector and activities. While each of them has its disadvantages and advantages, a foreign-owned company is the most common type for international company’s business activities in Indonesia.
A foreign-owned company, also known as Perseroan Terbatas Penanaman Modal Asing (PT PMA) or foreign limited liability company, is the only form of legal entity that allows foreign entities or individuals to register as shareholders and to generate income.
How to Set Up a PT PMA
You will need to go through a three-stage process to incorporate a PT PMA. The process includes preparation, pre-operation and commercial operation. Each stage of the process contains several other steps as well, involving multiple authorities and agencies such as the Indonesian Investment Coordinating Board (BKPM).
Before the incorporation of the international company, investors are obliged to review the updated version of the Negative Investment List (NIL) to make sure that their business sectors are open for foreign investment.
Once the particular sector is determined to be available for foreign ownership, you will need the assistance of a public notary to establish your PT PMA through the Ministry of Law in Indonesia.
Once the Deed of Establishment has been signed, you will have to go through the following steps to acquire necessary permits and licenses for your business operation.
- If you are a manufacturing company, an import identification number is necessary and can be obtained from BKPM
- Submission of a quarterly investment activities report to the BKPM
- Obtain licenses and permits such as domicile certificate, building permits, plantation permit, etc. from local government and sectoral ministries
- Through the Ministry of Finance, apply for approval of tax facilities and machinery import duty exemption.
Before you can do anything with your business, you shall obtain a business license for the commercial operation. Other than the business licenses, you should also get a material import duty exemption and a general import identification number via Online Single Submission (OSS) System.
During the operation of your company, you will also have to submit an investment activities report twice a year to BKPM. Once your business is in full operation, you might also need to obtain additional periodical permits such as construction services permit.
On the contrary to a foreign-owned company, representative offices in Indonesia are not permitted to involve in any activities that result in financial income.
While generating profit is not allowed, international companies that establish representative offices can still conduct market research and activities that build their market presence in the country.
How to Set Up a Representative Office
The process of incorporating a representative office in Indonesia is often less cumbersome than of a foreign-owned company.
Even though the procedure and licences are based on a specific type of a representative office, the general process includes a request for approval from BKPM, obtaining a domicile letter, attorney signature and licences issued through Online Single Submission (OSS) System.
Currently, investors can choose one from the following four types of RO:
- KPPA: General Representative Office of a Foreign Company
- KP3A/K3PA: Representative Office of a Foreign Trading Company
- BUJKA: Representative Office of a Foreign Construction Service Company
- KPPA MIGAS: Representative Office of a Foreign Oil and Gas Company
Difference between RO and PT PMA
Contrary to a foreign-owned company, incorporation of RO requires minimum expenses as there is no mandatory investment. The simple company structure (shareholders as well as directors are not necessary) comes at the cost of limited business activities to market research and building the position on the market.
On the flip side, both types of legal entities in Indonesia are entitled to issue work permits and short stay permits (KITAS) for their foreign executives.
Cekindo can Help with Company Setup in Indonesia
Do you have more questions regarding international company setup in Indonesia? Let Cekindo guide you further during your expansion. Contact us now to receive a free quotation. You can also reach our teams located in Jakarta, Semarang or Bali.