To start operating a business in Indonesia, foreign investors and entrepreneurs can choose to set-up a Representative Office (RO). This is one of the three common types of legal entities permitted in the country, along with local limited liability company (PT), and foreign-owned limited liability company Penanaman Modal Asing (PT PMA).
Company Incorporation Options in Indonesia
Representative Office (RO):
RO is commonly considered a branch of an overseas parent company, its first step in the Indonesian market, and a precursor to the establishment of PT PMA. It is set up primarily for marketing, market research, or as buying or selling agents. It can be established when the necessary licenses are obtained by the related government department. This entity has a very lenient corporate structure, with no requirement of a shareholder or a director; just a chief executive is sufficient. The limitations of a RO include no direct sales, or the ability to issue Bills of Lading.
Local Company (PT):
This is the most common type of legal entity in Indonesia. Even though a local company is intended for Indonesian citizens only, a foreign company or an entrepreneur can also incorporate a local company, under a local nominee arrangement, as this kind of company allows only 100% local ownership. In comparison with a foreign-owned company, the paid-in capital of a local company is much lower. In general, it ranges from IDR (Indonesian Rupiah) 50,000,000 up to more than IDR 10,000,000,000.
Foreign Owned Company (PT PMA):
This is a legal entity that can be fully owned by foreigners. However, the maximum foreign ownership is determined by the business sector and business activities. The restrictions are listed in a regulation called the Indonesian Negative Investment List (DNI), which regulates foreign ownership of businesses based on business sectors they operate in. Some business activities are fully closed to non-domestic investors, and some are partially limited. 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. It usually takes 2-6 months to establish a PT PMA, which are required to have an office during the process of incorporation. It can sponsor and issue work permits as well as stay visas (Working ITAS) for its international employees. In general, the minimum capital requirement for 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.
