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Setting up a Foreign Company in Indonesia

Setting up a Foreign Company in Indonesia

A PT PMA (Perseroan Terbatas Penanaman Modal Asing), or a foreign-owned limited liability company, is the most common form of business entity for foreign investors who want to operate in Indonesia.

The Indonesian government has put in place regulations that make it easy for foreigners to invest in Indonesia, but it is important to comply with the legal requirements to avoid any legal issues in the future.

Requirements for Foreigners to Open a Company in Indonesia

Foreigners can own up to 100 percent of a PT PMA in Indonesia, but there are certain requirements set by The Investment Coordinating Board of Indonesia (BKPM), the agency that is responsible for issuing licenses and regulating foreign investment in Indonesia, that must be met. Here’s what you need in a nutshell.

1. Business Plan

First things first: You’ll need a business plan, which must outline the proposed activities of the company and the expected financial performance must be submitted to BKPM. Based on the regulation, Badan Pusat Statistik No 2 the Year 2020 about standard Classifications of Indonesian Business Fields, called KBLI, all foreign-owned companies must submit their business plan. This makes sense as it’s the perfect tool to clarify your company’s vision.

2. Investment Plan

An investment plan that details the amount of investment and the source of funds must also be submitted to BKPM and all PT PMAs need one. It’s part of the responsibilities when reporting investments called Laporan Kegiatan Penanaman Modal (LKPM). This report needs to be submitted every three months.

3. Minimum Capital Requirement

Based on Peraturan Badan Koordinasi Penanaman Modal (BPKM) number 4/2021, the government regulates that the minimum capital requirement for a foreign-owned company is Rp10 billion (approx. USD 700,000) for large-sized business in most industries. Certain industries, however, have a higher minimum capital requirement.

4. Legal Documents

The legal documents required for registering a foreign-owned company include a notarised deed of establishment which include shareholders’ details, called AKTA, and a statement of approval from the Ministry of Law and Human Rights, called SK.

5. Choosing a Director and a Commissioner

A foreign-owned company must have at least one director and one commissioner. Foreigners can be both the director and the commissioner without having to stay in the country. However, if you choose to be a director of your company, you’ll need to apply for a Taxpayer Identification Number, called an NPWP, and become a taxpayer in Indonesia.

6. Obtaining a Business License

After your company is registered, you’ll need a business license, which gives your business an identification number, called an NIB. You’ll need to register through the Online Single Submissions Risk Based Approach (OSS-RBA) to comply with your business activities and plan. Through OSS-RBA, companies can carry out the licensing process for their business, each of which has obligations to fulfil.

The process of registering a foreign-owned company can take several months, so patience and persistence are important. Additionally, once your business is up and running, there are ongoing compliance requirements that you’ll also need to meet, such as filing the company’s annual tax and investment reporting every quarter.

Working with a professional consultant who has experience in the Indonesian market can help you navigate these requirements and ensure that your business remains in good standing with the authorities.

Overview of Different Types of PT PMA Foreign-Owned Company Structures

There are different types of foreign-owned company structures that foreign investors can choose from, each with its own advantages and disadvantages. The following are the most common types of foreign company structures:

1. Foreign-Owned PT PMA

This structure allows foreign investors to own 100 percent of the PT PMA, giving them complete control over the company. The main advantage of this structure is that it allows foreign investors to have full ownership and control of the company. The disadvantage is that it requires a higher minimum capital requirement based on the kind and type of business sector the company chooses to run in Indonesia.

2. Joint Venture PT PMA

This structure involves a partnership between foreign investors and local partners. The main advantage of this structure is that it allows foreign investors to benefit from the local partner’s knowledge and experience in the Indonesian market, minimise the risk of doing business, and transfer the professional or expert for the business.

3. Representative Office

This structure is suitable for foreign investors who want to explore the Indonesian market without committing to a full-scale operation. The main advantage of this structure is that it allows foreign investors to establish a presence in Indonesia without the need for a large investment. The disadvantage is that it does not allow the company to engage in commercial activities and profit in Indonesia.

Common Challenges and Solutions When Registering a Company in Indonesia

Registering a foreign company in Indonesia can be challenging due to the complex regulations and bureaucratic procedures involved. Some of the common challenges faced by foreign investors when registering a company in Indonesia include:

1. Language Barrier

Most of the registration documents are in Indonesian, and foreign investors may need the help of a translator or legal advisor.

2. Lack of Transparency

The registration process can be opaque, and it may be difficult to obtain clear information about the requirements and procedures for business licenses.

3. Delayed Processing Time

The processing time for registration can be lengthy, and there may be delays due to bureaucratic procedures or issues with the online submission system.

4. Limited Access to Financing

Foreign investors may need help accessing financing from Indonesian banks due to the lack of credit history and collateral requirements.

To overcome these challenges, it is important to engage a professional service provider with expertise in registering a foreign company in Indonesia. These service providers can help navigate bureaucratic procedures, provide legal advice, and assist in obtaining the necessary approvals and licenses.

That being said, Indonesia is a promising market for foreign investors, and a PT PMA is the most common way to tap into it. While the registration process can be complex, engaging a professional service provider can help foreign investors navigate the process successfully.

Kick-Start Your Business and Open Your Company with Seven Stones Indonesia

Seven Stones Indonesia’s team of experts can provide professional guidance on the legal requirements, assist in obtaining the necessary approvals and licenses, and provide ongoing support for the company’s operations in Indonesia. Contact our team today at [email protected] to book your free first 30-minute consultation to kick-start your journey in Indonesia!

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