The global economy is gradually recovering from the challenges posed by the COVID-19 pandemic, and Indonesia’s economy is no exception.
According to the latest economic outlook from Oxford Economics, the country’s GDP growth is expected to rebound to 6% in 2021. This has further bolstered the confidence of investors to make investments and leverage untapped opportunities available in the country.
Foreign Investors’ inclination towards Indonesia was quite evident in Q1 of 2021, as Foreign Direct Investment (FDI) rose by 14% to US$$ 7.7 Billion. According to the Ministry of Investment, this was the fastest year-on-year, first-quarter growth in the past five years.
To further boost the foreign investment scenario in Indonesia, the government is eager to enact prudent macroeconomic policies and reforms. For instance, the Positive Investment List has been introduced to allow foreign investors to venture into business sectors which were previously closed for foreign investments. However, in order to commence business operations in Indonesia, an investor needs to understand the step-by-step process for company registration in Indonesia.
Company Registration In Indonesia : Type of Legal Entities
There is no thumb rule for setting up a company in Indonesia. Investors need to thoroughly examine the options available and consciously align them with their business goals. Following are the options that foreign investors need to consider when setting up a business in Indonesia.
Local Company (PT)
A Local Company is a business entity that is owned entirely by locals. It demands less capital and has fewer constraints and standards to meet. As ownership is restricted to locals, foreigners willing to invest in such companies can opt for Special Purpose Vehicle (SPV).
| Advantage | Disadvantage |
|---|---|
| The liability of shareholders is limited to the company’s debt. | Since a Local Company is a legal entity, it is liable to pay corporate income tax. Furthermore, dividends paid to the shareholders are separately taxed under the shareholder’s income. |
| Can easily get additional funds/capital, for example by issuing new shares | Because all activities must be revealed to shareholders, the company’s trade secrets are less protected. |
| The viability of the company is more secure | Incorporation takes more time and money than other entities |
| The company management has a clear responsibility to the owner or shareholders | The dissolution process, changes to articles of association, mergers, and takeovers require time and money, as well as approval by a General Meeting Of Shareholders (RUPS). |
| Set out clearly by law and other regulations, a limited liability company binds and protects the company’s activity | |
| Usually, no limitations apply, and it can use all open government tenders. | The company is 100% owned by local shareholders and foreigners must apply to local shareholders for a reliable special purpose agreement. |
Foreign-Owned Company (PT PMA)
A foreign-owned limited liability company (PT PMA) is a legal entity that can be fully or partially owned by foreign investors. However, maximum foreign ownership is defined by the industry and business activity. The Positive Investment List outlines the sectors that are accessible for foreign ownership.
| Advantage | Disadvantage |
|---|---|
| PT PMA has the same rights and responsibilities as local companies | The company must make monthly tax reports |
| Minimum of two shareholders (can be individuals or legal entities) | The company is required to provide reports on business activities to the Ministry of Investment every 3 months for monitoring the company’s development |
| Minimum organizational structure is one Director and one Commissioner | |
| Easy and quick license permits | |
| The granting of special customs facilities at PMA | |
| On-site tax or import duties are lower | |
| The foreign investor owns 100% or less of the company | |
| Can sponsor many foreign employees | Require minimum of IDR 10 billion (US$696,565) in paid-up capital |
Representative Office (Branch Office)
A Representative Office is an entity established to evaluate the market before actual incorporation. This allows investors to assess how things are going to pan out without investing huge capital and resources. However, the representative office is not allowed to generate revenue or profit.
| Advantage | Disadvantage |
|---|---|
| 100% foreign ownership is allowed | Restricted sales and business activities |
| Minimum expenses, no investment required | Limited supervisory or marketing activities |
| Shareholders and directors are not necessary | Foreign worker sponsor is limited (for each ex-pat to work at your representative office in Indonesia, you will need three local Indonesian employees) |
| Fast incorporation and set up | |
| Establish the market presence in Indonesia very inexpensively | |
| Full compliance with law and regulations in Indonesia | |
| Able to apply limited stay permits (KITAS) for its foreign executives |
Process for Company Registration in Indonesia
Setting up a company in Indonesia used to be a cumbersome process, lasting for at least two months. However, the Indonesian Government has been simplifying this process and the timeline for incorporation in Indonesia has been reduced, now ranging from a month to 1.5 months.
Also, businesses can start operating right away after having secured a Business Identification Number (NIB), now applicable via Online Single Submission (OSS) system.
Nonetheless, It is still vital for foreign investors to understand the various processes involved in setting up a company in Indonesia. Refer to the table below for a proper glance at the steps required for each business entity available:
| STEPS REQUIRED | LOCAL PT | PT PMA | REPRESENTATIVE OFFICE |
|---|---|---|---|
| Submit | Submit your company name to the Ministry of Law & Human Rights | Submit your company name. | |
| Prepare | Prepare the Article of Association and get notarise | Prepare the Deed of Incorporation which include notarised Article of Association | |
| Approval | Deed of Establishment must be approved by the Ministry of Law & Human Rights | The Ministry of Law and Human Rights will give approval for a legal entity. | Obtaining a representative office (KPPA) license. |
| Get Certificate of Domicile | Obtain a Certificate of Domicile Acquisition from local government to show the business location | Domicile Letter Required to show the location of your business. | Obtaining domicile letter from the local subdistrict |
| Apply Taxpayer Registration Number | Apply for a Taxpayer Registration Number (NPWP) to secure other licenses, fulfill tax obligations, and open a bank account | Obtain Taxpayer Registration Number (NPWP). It is required for securing other company’s licenses, banking activities, and fulfilling tax obligations. | Apply for a taxpayer registration number (NPWP). |
| Apply for a Business Identification Number | Apply for a Business Identification Number via the Online Single Submission (OSS) system | NIB, Business License(s) and Location Permit will be granted one day following the registration via OSS | |
| Company Registration Certificate and additional licenses | Obtain a Company Registration Certificate (TDP) Acquisition. Once you have it, you can apply for additional licenses (depending on business sectors) | Depending on the business sector, additional licenses such as commercial license and tourism license may be required to start company operation. | Getting a company registration certificate (TDP). |
Set Up a Company in Indonesia Today
What Are The Next Steps?
Following the successful incorporation in Indonesia, the next step is to open a corporate bank account. It is strongly recommended to have an account of a bank that can legally handle foreign currencies. Additionally, customs registration is mandatory for companies engaged in import and export activities.
Finally, all companies operating in Indonesia are liable to pay Corporate Income Tax at a flat rate of 22% and will be further reduced to 20% by 2022. However, Small businesses with yearly revenues of less than IDR 50 billion are entitled to a 50% reduction in the ordinary corporate income tax rate.
How Incorp can help with company registration in Indonesia
With colossal market potential and considerable support from the government, foreign investment in Indonesia is more favorable than ever. However, breaking into a new market overseas might be intimidating. Incorp offers a comprehensive range of business solutions to ease the process of registration and incorporation. Our consultants have thorough knowledge of the Indonesian Market and can help you create a viable roadmap for your business.
FAQs
A company registration number is a unique number provided to each legally registered corporation in Indonesia. Also, having a company registration number identifies and protects your firm under Indonesian law.
Yes, foreigners can own a business in Indonesia by forming a foreign investment limited liability company (PT PMA). It is a legal corporation through which foreign investors are allowed to conduct business in Indonesia.
It takes about 10 working days for the incorporation documents to be approved, after which you can create your articles of association and apply for company permits.
Travel Consultant – By linking up with several of the local hotels and restaurants, the travel agency can provide a certain discount to lots of tourists every day and go through with starting a business in Indonesia.
Set Up a Company in Indonesia Today
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