Business Set up in Indonesia
Type of business organisations in Indonesia available for foreign investment are Limited Liability Companies, Representative Offices, Joint Ventures and Foreign Branches.
Setting up Business
Generally, to start up a business in Indonesia it requires several steps as stated below. These steps may take approximately up to 60 days.
The incorporation of a PT PMA (foreign investment company) in Indonesia is subject to “The Negative List” which referred to the latest Presidential Regulation of The Republic of Indonesia Number 44 of 2016. The Negative List contains the possibility of the area of business for foreigners to invest in Indonesia.
Some areas are closed for foreigners to participate while some areas are possible for foreigners to participate with the condition of joint venture with domestic investors with reference to the Indonesia Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia – KBLI).
Moreover according to the latest Head of Investment Coordinating Board Regulation no 5 year 2013, regarding capital, a PMA in Indonesia must meet some requirements (please contact us to discuss more details).
The Investment Approval issued by BKPM serves as the basis for the Deed of Articles of Association to be drawn up by a Notary in the Indonesian language.
The PMA Company is considered to be legally established as of the date of the signing of the Deed of Article of Association by the shareholders before the Notary, even though formal approval from the Ministry of Law and Human Rights Approval has yet to be sought. However, until the Ministry of Law and Human Rights Approval is obtained, all risks raised as results of the company’s transactions will be personally and severally held by the shareholders.
Types of Business Structure
Limited Liability Companies (PT) can include, and are classified as private and public companies. They are governed by the 1996 Corporation Law. PTs are managed by a Board of Directors. This is also known as PT PMA.
Foreign representative offices are typically formed to facilitate transactions between local and foreign buyers and suppliers. According to BKPM Regulation No. 5 Year 2013, there are 2 (two) types of representative office in Indonesia i.e. KPPA (Kantor Perwakilan Perusahaan Asing) and KP3A (Kantor Perwakilan Perusahaan Perdagangan Asing). The process of the establishment of representative office takes approximately 1-2 months.
The investment law requires that a foreign owned enterprise operating wholly or mostly in Indonesia as a separate business unit must be organized under Indonesia law and domiciled in Indonesia. Branches are not normally permitted, except for foreign banks and oil and gas companies.
Negative List of Investment
Generally with respect to establishing a foreign direct investment company (PT PMA) in Indonesia, there are two approaches that can be done:
1. Establishing a 100% fully owned by the foreigner; or
2. Having a joint venture with a domestic shareholder.
Nevertheless both approaches are subject to “The Negative List” which referred to the Presidential Regulation of The Republic of Indonesia Number 44 of 2016.
Corporate Law No. 40/2017
In general there are certain procedures to be accomplished to establish a PMA Company under Indonesian Company Law No. 40/2007. Those are:
– The Corporate Law requires that there are at least two shareholders in a PMA company, or any limited liability company;
– In Indonesia in incorporating a company need at least 1 (one) director and 1 (one) independent commissioner altogether are 2 (two) persons;
– The director will be the person who is authorized to run the day to day activities of the Company and responsible for it;
– The commissioner gave its authority in running the day to day activities to the director and will not involve in the day to day activities of the Company but will be the person who is responsible to ensure the Director runs the Company in a good manner by asking for accountability report from the Director for at least once a year;
– Compare to Commissioner the Director role has the bigger need to be a local residence.
The Mandatory Use of the Rupiah in the Territory of Republic of Indonesia
According to the regulation of Bank Indonesia No. 17/3/2015 concerning of The Mandatory use of the rupiah in the Territory of Republic of Indonesia as stated in the article 2 explain as follows:
1) Any party must use the Rupiah in any transaction made in the territory of the Republic of Indonesia.
2) A transaction as referred to in section (1) shall include:
a. Payment transactions;
b. Other money-based settlement of obligations; and/or
c. Other financial transactions.
Based on the regulation above as of July 2015, all of parties must using rupiah (IDR) for any transactions which made in Indonesia.
Submission of Salary Structure
According to Regulation of the Ministry of Manpower Number 1 Year 2017 concerning the Structure and Scale of the Salary, the Salary Structure shall be arranged by the Company with regards to the grouping of positions, duration of employment, educations, and competence. The Salary Structure shall be appointed by the management of the Company in the form of Decision Letter.
Company shall receive the Administration Sanction if fails to submit the salary structure before the deadlines such as:
b. Business Activity Limitation
c. Temporary Termination of Parts or Entire Production Equipment or
d. Suspension of business.
Governing Mandatory Report
Based on Law Number 7 of 1981 concerning Mandatory Manpower Report in the Company, require every entrepreneurs or company management to submit manpower report in writing any establishment, termination, reestablishment, transfer or dissolution of the company to the Ministry of Manpower.
Every investment activity shall make a report of the investment regarding to the Law Number 25 Year 2007. Investment activity report (LKPM) is a periodic report considering the progress of the company’s activity and the obstacles that is facing the investor.
1. Law Number 03 Year 1992 concerning Company’s Registration Liability;
2. Government Regulation Number 24 Year 1998 concerning Company’s Financial Information as amended by Government Regulation Number 64 Year 1999 concerning amendment of Government Regulation Number 24 Year 1998 concerning Company’s Financial Information.
But, there are some company’s requirements to enforce these regulation. Kindly contact us!
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