Doing business in Indonesia is both lucrative and challenging. In order to take part in Indonesia’s vast and emerging market, you can choose one among these three options: 1) Establishing a Local Company, 2) Establishing a Foreign-Owned Company (PT PMA), and 3) Opening a Representative Office. Each of the options offer their own advantages and disadvantages.
However, many foreign investors choose not to open a foreign-owned company, mainly because they seek the opportunities to deal with some businesses listed in the Negative Investment List or simply want to distribute or market their products in Indonesian. The most practical solution for those kind of foreign investors is by having local partners or establishing local special purpose vehicle. This article will sum up the comparison between selecting local partner(s) and a local professional shareholder/director/commissioner, also known as a local special purpose vehicle.
General Overview: Differentiating Local Partner and Special Purpose Vehicle
Both the local partner selection and the local special purpose vehicle have their strengths and weaknesses. The idea of having a local partner is you will select a native Indonesian as a partner to run the business together with you. With this type of partnership, the ownership of the company will be divided into two: you as the foreign investor and your local partner. With this type of company, you will have shared responsibilities with your local partners in doing the operations of your business.
On the other hand, if the business area is listed forbidden for foreign ownership in the Negative Investment List you will have no other option rather than to establish a local company. In this type of company, you will create the so called special purpose agreement, which gives you more freedom to control your business than the registered shareholder.
Cekindo offers you the services and packages to deal with those two kinds of companies in a safe and lawful practice.
To know more detail on what kind of company you should establish related to your specific needs, do not hesitate to leave your comment and we will assist you personally to get the best solution for your business and investment in Indonesia.
Differentiating Local Partner and Local Special Purpose Vehicle
After you understand the core differences between selecting local partners and engaging in a special purpose agreement, we will specify the two in more details so that you will have better pictures before you decide to move forward. We will classify the differentiation between the two in several sub-chapters as follow:
Local Partner Selection
If you choose to have a local partner, there are some requirements to meet by your local partner. Your local partner must have:
- Import License. Please note that a different license is needed for a different product. We strictly recommend you to consult with the consultancy or legal firm to confirm the appropriateness of your local partner’s import license.
- Warehouse. It is also compulsory for the local partner to own a warehouse in the local area of Indonesia.
- Business license in Retail Commerce in Food and Beverage. According to the Negative investment list number 4722, the local partner for food and beverage products should have a special business license.
Local Special Purpose Vehicle
Company with professional shareholder/director/commissioner service provides professional shareholders and/or directors in Indonesia, depending on your business needs.
The requirements for a special purpose agreement are as follows:
- There are 2 shareholders, consisting of 1 local director and 1 commissioner.
- It must be owned 100% by native Indonesians.
- The minimum amount of capital owned by the company is as follow:
- Small Company: IDR 50 million to IDR 500 million;
- Medium Company: IDR 500 million to IDR 10 billion; and
- Large Company: more than IDR 10 billion
- The company must have an operational office and a warehouse for a distributor company.
Advantages and Disadvantages
Advantages and Disadvantages of Local Partner Selection
The advantages of choosing a local partner are:
- You will need lower amount of investment to establish the company compare to a local special purpose vehicle.
- You will need lower operational cost.
- Your local partner might have better understanding on Indonesian bureaucracy, business climates, and most importantly, local market.
The disadvantages of choosing a local partner are:
- You will have less freedom to control your business activities, especially in the marketing and distribution sectors because your local partner will likely responsible for those activities. Marketing and distribution negotiations, especially with local clients will likely be done by your local partner, and you have to be aware for any personal interests of your business partners. It is better to have a local staff whom you can direct based on your company’s interests.
- It is possible that there is not any local partner who are interested to participate in your business.
- Since the agreement bonds your company for only limited period of time (between 3-5 years) you have lack of flexibility to run and expand your business.
Advantages and Disadvantages of Using Professional Shareholder/Director Service through A Special Purpose Agreement
The advantages of using a special purpose agreement:
- As a foreign investor, you will have full freedom to control the direction of your company, including your distribution and marketing.
- It is relatively easier and quicker to set up your business because it is categorized as PT PMDN (Local Company) which is also owned by native Indonesians.
- Your company will have relatively stronger presence on the market as it is considered as a National Company.
The disadvantages of using a special purpose agreement:
- You will need to invest more, depending on the size of company you want to establish.
- Dividend will be taxed.
- As a foreign investor, you need to pay for the local reliable special purpose agreement.
- Should reporting All of your business activities to the shareholders.
The explanation of the time frame needed to select your local partner and establish a local special purpose vehicle is described as follow:
Local Partner Selection
- Need up to 2 months to find and choose the local partner you want to work with. You may take longer time, especially when there are not many local partners want to collaborate with you.
- You also need another 6 months to register your products.
- In total, you need approximately 8 months to accomplish all the requirements in selecting the local partner.
Engaging a Professional Shareholder and/or Director Services Provider
- You need 2 months to set up your local company.
- You also need another 1 month to create an import license.
- Then, product registration will be 6 months to complete.
- In total, you need approximately 9 months to establish a local special purpose vehicle in Indonesia.
If you choose a special purpose agreement, you should also consider the following things:
- Notary will secure the special purpose vehicle scheme will agreement between our company (Cekindo) and your company to ensure that there is no disclosure. This agreement also assures you that you will have 100% control of the company.
- If you are willing to employ foreign employees, your company’s minimum capital should be IDR 1.1 billion.
Please be aware that selecting a local partner and also establishing a local special purpose vehicle requires you to choose a trustworthy and reliable partner. This is how we can help you. Cekindo will assist you to arrange your local partner selection and also your special purpose vehicle. You can contact us directly to firstname.lastname@example.org or you can submit your questions in the form below so that we can give the best solutions for your needs.