Company Incorporation in Indonesia: A step-by-step guide
May 6, 2024
Indonesia, the world's fourth most populous nation and a rising economic powerhouse, has incredible potential for businesses looking to expand internationally. If you're considering setting sail and incorporating your business in Indonesia, this blog is a great first stop to navigate the process smoothly.
What is incorporation?
Company incorporation is the legal process of establishing a separate legal entity, distinct from its shareholders, to conduct business operations. This entity, known as a corporation or limited liability company, holds unique legal rights, obligations, and responsibilities.
What are the company types in Indonesia?
Perseroan Terbatas (PT) - Limited Liability Company
PT is Indonesia's most common type of company, offering limited liability protection to its shareholders. It can be established as a local (PT) or foreign-owned (PT PMA) entity.
Only Indonesian citizens can fully own a PT, complicating foreign ownership.
However, non-Indonesian residents can partner with a PT owner through a Nominee Company Agreement. Through this agreement, a local nominee will allow a foreign investor to run the PT, while still being compliant with the laws of Indonesia.
Penanaman Modal Asing (PMA)
Foreign Investment Company: A PT PMA is a foreign-owned limited liability company, with foreign investors holding most shares.
While the process of setting up a PT PMA (foreign-owned limited liability company) in Indonesia may initially seem time-consuming and costly, the long-term benefits make it a worthwhile endeavor for foreign investors.
Here are some key advantages of establishing a PT PMA:
Relaxed Foreign Ownership Laws: PT PMAs enjoy more flexible foreign ownership regulations, allowing foreign entrepreneurs to operate without local partnerships.
Equal Rights and Responsibilities: PT PMAs have the same rights and obligations as local companies, ensuring a level playing field in the Indonesian market.
Simplified Permit Acquisition: Compared to local PTs, PT PMAs typically have an easier time obtaining necessary permits and licenses for foreign owners.
Lower Import Taxation: PT PMAs benefit from reduced import tax rates compared to standard rates, creating a financial advantage for businesses engaged in international trade.
100% Foreign Ownership: Foreign investors can own PT PMAs entirely, in contrast to local PTs, which require some degree of local ownership.
Kantor Perwakilan Perusahaan Asing (KPPA) Representative Office:
For those seeking to explore the Indonesian market without committing to a significant upfront investment, establishing a Representative Office (RO) can be an ideal choice.
Here’s what to consider when thinking about a Resident Office:
Low Incorporation Costs: With minimal setup expenses, ROs offer an accessible entry point for foreign companies to explore the Indonesian market.
No Profit Generation: As ROs are designed for representative purposes, they are prohibited from engaging in revenue-generating activities, focusing instead on promoting foreign business and gathering market intelligence.
Limited Scope: The primary disadvantage of ROs is their restricted nature, as they cannot engage in direct business activities in Indonesia. However, they are an excellent stepping stone for companies considering future investments in the region.
Simplified Process: Establishing an RO in Indonesia is relatively straightforward, involving a few essential steps, such as obtaining a Representative Office License (KPPA), Certificate of Domicile, Taxpayer Registration Number (NPWP), and Company Registration Certificate (TDP).
Sponsorship Privileges: RO owners can sponsor work or stay permits for foreign employees, as well as business visas for foreign partners relocating to Indonesia.
Single Ownership: Unlike other business structures, ROs do not require shareholders or directors and can be solely managed by one chief executive.
Step-by-step incorporation process in Indonesia
Setting up a PT PMA (foreign-owned limited liability company) in Indonesia involves several essential steps, from obtaining approvals to registration. Here's a detailed breakdown of the process:
Step 1: Company Name Approval
Start by securing approval for your company name from the Ministry of Law and Human Rights. The name must be unique, avoiding similarities with existing Indonesian businesses.
Language Requirements: For PT PMA: Company names can be in English or other languages. For PT: Company names must be in Indonesian.
Other Naming Requirements:
Avoid meaningless combinations of letters and numbers.
Refrain from using words that are against morality or public order.
Ensure the name is not similar to existing companies or government institutions.
Choose a name that is relevant to the business activities and objectives, avoiding any misleading terms.
For PTs, the name must consist of at least three Indonesian words.
Step 2: Notarize the Deed of Establishment
Create and notarize the deed of establishment, which includes the company's articles of association. Obtain approval for this document from the Ministry of Law and Human Rights.
The articles of association should include the following details:
Authorized, issued, and paid-up capital amounts
Company name and location
Company objectives and business activities
Capital structure details
Board of directors and commissioners' appointments, discharge procedures, and membership numbers
Shareholder meeting methods and locations
Profit distribution and dividend procedures
Incorporation period
Number of shares, classification (if applicable), rights, and nominal value per share.
Once drafted, all shareholders must sign the Deed of Establishment.
The document is then submitted to the Ministry of Law and Human Rights for approval. Upon approval, the Ministry issues the deed of establishment which includes:
Company founders' information
Board of Directors and commissioners' details
Shareholder information
The deed of establishment signifies that your company is officially registered as a legal entity in Indonesia, enabling you to proceed with other necessary permits and licenses for your business operations.
Step 3: Domicile Letter
Acquire a domicile letter from the local government where your company will be located. This letter serves as proof of your business address.
The information to be included in a domicile letter are:
Name Place and date of birth
Gender
Religion
Job
Nationality
Passport number
Address
The documents to prepare are:
A copy of the deed of establishment
A copy of the director’s identification card
A copy of the passport
A copy of the rental agreement or lease of the business office
A reference letter from the neighborhood head if your office is in the residential area
A reference letter from the building owner or landlord
A copy of the latest proof of property tax from the landlord
A photograph of the director with a red background
A photo showing the workstation and the company name in front of the entry door
A ratification letter from the Ministry of Law and Human Rights
Step 4: Tax Registration
Register for a Tax Identification Number (NPWP) with the Indonesian Tax Office. This number is mandatory for handling tax matters.
Online registration can be done through the Directorate General of Taxes website. The steps for e-registration are:
Follow these steps to complete the e-registration process:
Account Creation: Start by setting up an account using your email address. You'll receive a verification email with instructions to activate your account and complete your profile.
Registration Form: Once your account is active, fill out the online registration form with the necessary details.
Document Submission: Upload the required documents through the e-registration application or send them via mail to your local tax office. Ensure that mailed documents arrive within 14 working days of your online registration.
Receipt and Issuance: The tax office will send an electronic receipt, and one day later, your taxpayer identification card and tax registration certificate will be issued and sent to you via mail.
Step 5: Business Identification Number (NIB)
Apply for a Business Identification Number (NIB) through the Online Single Submission (OSS) system. The NIB functions as your company registration certificate, and import license, and enrolls your business in the Health and Social Security system.
Business identification numbers (NIB) can be applied through the Online Single Submission (OSS) system.
Step 6: Additional Licenses
Depending on your business sector, you may need to acquire additional licenses or permits.
Ensure you obtain all necessary approvals before commencing operations. Capital Requirements and Investment Plan A PT PMA is subject to minimum capital investment requirements, which vary by sector.
Develop a comprehensive investment plan outlining your business activities and investment timeline.
Minimum Capital Investment: The minimum capital investment for a PT PMA is generally IDR 10 billion (approximately USD 700,000). This amount may differ based on your business sector and other considerations.
Investment Plan: Your investment plan should detail how you'll utilize your capital investment. This plan is essential for obtaining necessary permits and approvals.
Important Considerations for Indonesia Incorporation
Minimum Investment: The minimum capital requirement for a PT PMA is currently IDR 10 billion (approximately USD $700,000).
Local Partner: While not mandatory for PT PMA companies, some sectors might require a local partner to navigate regulations.
Visa and Work Permits: Foreign directors and employees may need visas and work permits to operate legally in Indonesia.
Getting Help with Incorporation
The process of incorporating a business in Indonesia can involve complexities. Partnering with a reputable legal or consulting firm can streamline the process, ensure compliance, and provide valuable guidance.
Ready to Set Sail? Contact Commenda today and let us help you navigate the exciting journey of incorporating your business in Indonesia:
