With a large population, stable economic growth and regulations continually being eased, Indonesia is increasingly becoming more attractive for foreign businesses. Indonesia has seen an increase in foreign investment over the past 10 years, and with this continued growth comes continued opportunity for businesses to expand in the area. Let us explore the different entities available for an Indonesia company incorporation wishing to do business in this country.
How to start an Indonesia company incorporation
Limited Liability Company Indonesia (Perseroan Terbatas)
In Indonesia a limited liability company (LLC) is known as a Perseroan Terbatas (PT). This type of entity is only available to local entrepreneurs and it is one of the most common types of business entities available in terms of Indonesia company incorporation. The characteristics of this type of entity are as follows:
- 2 Shareholder Minimum – There needs to be at least 2 shareholders, which can be natural persons or companies;
- Director and Commissioner – a minimum of 1 director and 1 commissioner. The role of the commissioner is to supervise the enterprise, examine the annual report and to approve the budget put forward by the Board of Directors.
- Licenses – some businesses, in specific industries may require specific licenses e.g. restaurants.
- In order to sponsor foreign employees, the company must be medium or large size (size is dependent on the share capital).
- Share capital – the amount of share capital to be paid is dependent on the size of the company. The 3 different options are:
- Small company: paid up capital is between IDR 50,000,000 – 500,000,000 ($3,500 – $35,000).
- Medium company: paid up capital is between IDR 500,000,000 – 10,000,000,000 ($35,000– $700,000).
- Large company: paid up capital is above IDR 10,000,000,000 ($700,000).
Foreign owned LLC’s in Indonesia (Penanaman Modal Asing)
Wholly or partially foreign owned limited liability companies are called Penanaman Modal Asing (PMA). These entities are governed by the Foreign Capital Investment Law and they are required to get approval from the Capital Investment Coordinating Board before it is permitted to conduct business in the country. A PMA has the following characteristics:
- Foreign ownership – depending on the type of business it is; it can be majority foreign owned, however the percentage of foreign ownership is dependent on the industry which the Indonesia company incorporation is in.
- Company Structure – The Indonesia company incorporation must have a minimum of 1 director, at least 2 shareholders and a commissioner.
- Fully Foreign Owned PMA’s – If a PMA is wholly foreign owned, the owners are required to sell at least 5% of the shares of the company to an Indonesian entity or person, within 15 years of the enterprise being established.
- Licenses – Dependent on the scope of activity of the Indonesia company incorporation, certain licenses may be need to be obtained from local authorities.
- Work Permits – A foreign owned company is eligible to sponsor work permits and stay visas (working visas) for foreign employees.
- Restrictions – There are certain industries and sectors that foreigners are restricted from entering or they may have to meet certain requirements to participate in.
Representative office in Indonesia
A representative office (rep office) is a suitable way for foreign enterprises to enter the market in Indonesia without the long term commitment and administrative hurdles that come with establishing an Indonesia company incorporation like a LLC. However, the powers of a representative office are limited, as rep offices are not permitted to conduct commercial activities. Rep offices are only permitted to conduct the following activities:
- Market research;
- Promotional activities; and
- Act as an agent for an overseas enterprise.
A rep office is only permitted to operate for a period of 2 years and additional requirements may be imposed, dependent on the nature of the activities, additional requirements may be imposed.
Although there are various options available, choosing the right entity that fits your Indonesia company incorporation needs may be a challenging task. Aside from the administrative challenges, there is also adequate costs involved. Companies looking to enter the Indonesian market should carefully consider each of the abovementioned entities, as well as other more flexible options like a Professional Employer Organization (PEO).
How INS Global can help you
Taking your Indonesia company incorporation business to the market does not have to be met with an endless array of unexpected challenges. As one of the most well established Professional Employer Organizations in Asia, INS Global has the capacity to assist your enterprise in selecting the most appropriate entity, that is able to meet your business needs. Our experts have experience across a multitude of HR disciplines, such as employment solutions, recruitment, payroll and tax administration. Contact us today and let us help your enterprise get started in Indonesia today.