FAQs on Company Incorporation in Indonesia
The concise guide to the key aspects of company incorporation in Indonesia
Indonesia Company Incorporation (Frequently Asked Questions)
There are generally two ways for investors to set up a business presence within the framework of a foreign direct investment in Indonesia:
(a) establish a local subsidiary in the form of a limited liability company for foreign investment purposes (Perusahaan Penanaman modal asing or PMA company);
(b) Establish a Representative office (RO).
It is required under Indonesian Investment Law for foreign investors that wish to engage in commercial and business activity (i.e., provide services
or sell goods) in Indonesia to set up a PMA company. A PMA company is a fully-fledged incorporated company with legal entity status that can
carry out a full range of commercial and business activities as permitted by the prevailing rules and regulations in Indonesia.
Another option is to establish a RO. A RO is a licensed office set up in Indonesia by a foreign company. It has no legal status and its permitted activities are limited in scope, which generally includes carrying out market feasibility studies and liaison activities (i.e., acts as a local contact office to connect its overseas head office with parties in Indonesia).
Indonesia adopts a Negative Investment List (DNI) which contains a list of businesses which are (i) closed for foreign investment, and (ii) open for foreign investment with certain requirements. With respect to businesses that are opened for foreign investment, the DNI reserves a maximum percentage of foreign shareholding ranging from 49% up to 95%.
Lines of business which are not listed in the DNI are generally construed as 100% open for foreign investment. Please note, however, that as a matter of customary practice, it is advisable to have further discussion with the BKPM to ascertain and ensure that the proposed line of business is indeed wholly open for foreign investors or if there are any additional requirements for the investment. It is possible that even though certain lines of business are not expressly listed in the Investment Negative List, the BKPM may view that the line of business is classified as a line of business that is closed or limited for foreign investment.
Indonesian Company Law requires a limited liability company to have at least two shareholders, which can be an individual or a legal entity. For investments that are 100% open, the foreign investor needs to identify a second shareholder (which can be its affiliated party) to hold shares in the PMA company.
Generally, it takes two to six months to establish a PMA company until it is ready to operate commercially.
For investment with certain criteria, BKPM provides 3-hour licensing service which significantly reduce the timing.
In order for a PMA company to operate commercially or start its production activity, it will need to obtain a business license (izin usaha) prior to carrying out its commercial operation.
Depending on the business activity, a PMA company may start its commercial operation as soon as possible following its establishment. For example, a PMA company engaging in trading business activity or management consultancy can apply for a business license and start its commercial operation within approximately two or three months after it is legally established (i.e., after obtaining approval from the Ministry of Law and Human Rights on the deeds of establishment).
The requirements pertaining to minimum amount of investment in accordance with the investment regulations are as follows:
(i) Total investment must be more than Rp.10,000,000,000 (or its equivalent in USD), comprising equity and loans but excluding land and buildings;
(ii) Paid up capital must be equal to the subscribed capital with an amount of at least Rp. 2,500,000,000 (or its equivalent in USD); and
(iii) Share participation of each shareholder must be at least Rp. 10,000,000 (or its equivalent in USD) and the share percentage shall be calculated based on the nominal value of the shares.
The total investment amount can be a combination of equity and debt. As a rule of thumb from The Investment Coordinating Board (BKPM), the debt to equity ratio should not be greater than 3 to 1. The BKPM however can accept a higher ratio depending on the justification of the business and investment plan. The term ‘debt’ in this context includes loans from shareholders.
Please note that BKPM or the relevant technical authority may require higher investment for certain types of business (e.g., manufacturing, construction).
From an investment regulatory perspective, investors may take into consideration existing International Investment Agreements between Indonesia and
another country. If investors do have a business presence (in the form of an affiliated company within the group) in certain countries that have an International Investment Agreement with Indonesia, investors may enjoy certain incentives for investment in Indonesia (e.g., higher investment protection,
higher foreign shareholding).
Shareholders can hold shares with certain preferential rights. The Indonesian Company Law recognizes classifications of shares, e.g., shares with the right to nominate members of the Board of Directors/Commissioners, shares with priority rights to receive dividends or liquidation proceeds.
Shareholders do have a limited liability status in a PMA company. This means that shareholder’s liability is limited to the value of their investment within the PMA company unless certain legal requirements are not met.
Yes, A PMA company may employ expatriates. There is, however, a list of positions issued by the Ministry of Manpower that cannot be assumed by expatriates. As a general rule, an expatriate cannot assume a position that handles a human resources matter.
Expatriates working in Indonesia must obtain a working and stay permit.
Indonesian Manpower Law also requires the employer to employ Indonesian employees to act as a counterpart for each expatriate employee as a prerequisite to grant a work permit for an expatriate employee. In general, the Ministry of Manpower and Transmigration will require a minimum one to three Indonesian counterparts for each expatriate.
Shareholders are owners of a PMA company as evidenced by share ownership. A shareholder shall have a say in running the PMA company, i.e., by way of exercising his/her voting rights in the general meeting of shareholders on corporate matters.
The Indonesian Company Law recognizes the two tier governance system, consisting of the Directors and the Board of Commissioners.
The Directors are the executive/management of the company which have the general role and responsibilities managing the day-to-day operations of the company and represent the company with any third party.
The Board of Commissioners is a supervisory board which has the general role and responsibilities of supervising and providing advice to the Board of Directors in management of the company.
The following companies must have audited financial statements:
(a) Publicly-listed companies;
(b) Companies involved in accumulating funds from the public (such as banks and insurance companies);
(c) Companies issuing debt instruments;
(d) Companies with assets of IDR 25 billion or more;
(e) Bank debtors whose financial statements are required by the bank to be audited;
(f) Certain types of foreign entities engaged in business in Indonesia that are authorized to enter into agreements – which shall include a PMA company; or
(g) Certain types of state-owned enterprises.
For tax purposes, a company’s books must be maintained in Rupiah, composed in Indonesian and stored in Indonesia. Certain taxpayers can use USD and English bookkeeping through an application or notification, which must be submitted at the latest three months prior to the start of the fiscal year.
In terms of language, all accounting books, records and financial statements should be prepared using the Indonesian language. A company is allowed to use other languages only after obtaining permission from the Ministry of Finance.
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