Setting Up a Subsidiary Company in Indonesia

Expanding into Southeast Asia’s largest economy is a strategic move for any business eyeing long-term growth in the region. A subsidiary in Indonesia allows foreign companies to operate flexibly and tap into the country’s consumer base and industrial sectors. With a growing middle class, a young workforce, and government support for foreign investment, Indonesia presents both scale and opportunity.

A subsidiary (commonly established as a foreign investment limited liability company) enables you to carry out full commercial activities and enjoy legal separation from the parent company. However, local regulations, foreign ownership limits, and compliance requirements require careful planning when setting up a subsidiary company in Indonesia.

Key Takeaways

• Foreign-owned subsidiaries are permitted in most sectors
• Access to over 270 million consumers
• Strategic location for regional logistics
• Investment incentives in priority sectors and SEZs
• Stable GDP growth and pro-investment reforms

In this guide, we’ll walk you through everything you need to know about how to establish a subsidiary company in Indonesia. Whether you’re a small business or a multinational corporation, you’ll find actionable insights here about how to form a subsidiary in Indonesia.

What are the Types of Subsidiaries in Indonesia?

Foreign companies can choose from several structures when setting up a subsidiary company in Indonesia, depending on their investment goals and the regulatory environment. Each type offers different degrees of ownership, control, and risk:

1. Wholly-Owned Subsidiary (PMA – Penanaman Modal Asing)

A PMA company is the primary legal vehicle for foreign direct investment in Indonesia. It is a distinct legal entity fully owned by a foreign parent company, provided that the business activity is open to full foreign ownership under Indonesia’s Positive Investment List (which replaced the Negative Investment List).

• Ownership: 100% foreign ownership permitted in most sectors, subject to government restrictions.
• Legal Entity: Usually established as a Perseroan Terbatas (PT), or limited liability company.
• Advantages: Complete operational control, ability to repatriate profits, and eligibility for investment incentives.
• Limitations: Requires compliance with higher capital requirements (minimum IDR 10 billion for PMA entities, with IDR 2.5 billion paid-up).

2. Joint Venture Subsidiary

This structure involves a partnership between a foreign investor and an Indonesian partner. It is suitable for sectors where foreign ownership is restricted or where local market knowledge and networks are essential.

• Ownership: Shared ownership structure, which can vary depending on sectoral regulations.
• Legal Entity: Established as a PT company under PMA status.
• Advantages: Access to restricted sectors and support in local regulations and culture.
• Limitations: Shared decision-making and the need for clear joint venture agreements to avoid conflicts.

3. Local Nominee Company (Informal and Risky)

Some foreign investors consider using a local nominee arrangement to bypass sectoral ownership restrictions. Under this structure, an Indonesian national or entity holds shares on behalf of the foreign investor.

• Legality: Not recognised by Indonesian law and considered a grey area.
• Risks: Lack of legal protection and potential for disputes or government action.
• Recommendation: Not advisable due to the legal uncertainty and lack of enforceability.

Step-by-Step Guide to Setting Up a Subsidiary in Indonesia

Understanding how to create a subsidiary in Indonesia requires careful attention to regulatory and compliance steps. Below is a streamlined guide to help businesses navigate the process:

Step 1: Determine Eligibility and Ownership Limits

Review the Positive Investment List issued by the Investment Coordinating Board (BKPM) to verify whether your business sector allows full or partial foreign ownership.

Step 2: Reserve and Approve the Company Name

• Submit a name application to the Ministry of Law and Human Rights (MOLHR).
• The name must be unique and comply with Indonesian naming conventions (no resemblance to existing names, must reflect the business activity).
• You can register the business at the Online Single Submission portal

Step 3: Draft and Notarize the Deed of Establishment

• Engage a local notary to prepare and notarise the Deed of Establishment.
• This includes the Articles of Association and identification of shareholders, directors, and commissioners.
• Submit the deed to the MOLHR for approval and obtain legal entity status.

Step 4: Obtain Tax Identification Number (NPWP)

Register the new company with the local tax office to obtain a Taxpayer Identification Number (NPWP), which is required for all tax filings and compliance.

Step 5: Register for a Business Identification Number (NIB)

• Use the Online Single Submission (OSS) system to apply for an NIB.
• The NIB functions as a general business license, an import-export license, and registration for various administrative functions.

Step 6: Secure Sector-Specific Business Licenses

Depending on your business activity, additional permits may be required from the relevant ministries or authorities (e.g., trade, industry, health, tourism).

Step 7: Register for Manpower and Social Security

• Register employees with BPJS Ketenagakerjaan (employment insurance) and BPJS Kesehatan (health insurance).
• Comply with Indonesian labour regulations, including minimum wage, contracts, and working conditions.

Key Benefits of Establishing a Subsidiary in Indonesia

Want to learn how to set up a parent company with subsidiaries in Indonesia? Indonesia presents significant opportunities for foreign businesses looking to expand their presence in Southeast Asia. The main advantages of setting up a subsidiary company in Indonesia include:

Market Access

With a population of over 270 million, Indonesia is the largest consumer market in Southeast Asia. It offers strong demand across multiple sectors such as consumer goods, technology, infrastructure, and finance.

Investment Incentives

The government provides various incentives to foreign investors, including tax holidays, import duty exemptions, and simplified licensing procedures for businesses in strategic sectors and special economic zones.

Legal Separation and Liability Protection

A subsidiary is a separate legal entity from the parent company, which limits the parent’s liability for any obligations incurred by the subsidiary. This legal protection is beneficial for managing financial and operational risks.

Regulatory Reforms and Streamlining

Indonesia’s OSS system and Positive Investment List represent significant efforts to improve the ease of doing business by simplifying investment procedures and allowing broader foreign participation.

Regional Strategic Location

Indonesia’s location offers convenient access to other ASEAN markets, China, and Australia. Establishing a subsidiary here can serve as a strategic hub for regional operations.

Essential Documents for Registering a Subsidiary in Indonesia

When setting up a subsidiary company in Indonesia, businesses must prepare and submit a range of documents, many of which must be translated into Bahasa Indonesia and legalised if issued abroad.

Documents from the Parent Company

• Certificate of Incorporation of the parent entity.
• Articles of Association of the parent company.
• Board resolution approving the establishment of the Indonesian subsidiary.
• Power of attorney for the appointed representatives in Indonesia.
• All documents must be notarised, legalised (or apostilled), and translated into Bahasa Indonesia.

Documents for the Indonesian Subsidiary

• Draft Deed of Establishment (including Articles of Association).
• Identity documents (passports or IDs) and tax numbers (NPWP, if applicable) of all shareholders, directors, and commissioners.
• Capital statement showing minimum paid-up capital (IDR 2.5 billion for foreign-owned companies).
• Office lease agreement or statement of domicile from a commercial property.

Regulatory and Compliance Registrations

• Registration for NPWP (Tax ID).
• OSS registration for Business Identification Number (NIB).
• Sector-specific business licenses, if applicable.
• BPJS Kesehatan and BPJS Ketenagakerjaan registration for employee social security and health coverage.

Legal Structures Available for Subsidiaries in Indonesia

Foreign and domestic companies setting up a subsidiary company in Indonesia typically do so by incorporating a limited liability company, known locally as a Perseroan Terbatas (PT). There are two main legal structures applicable:

1. PT PMA (Foreign Investment Limited Liability Company)

This is the most common legal structure used by foreign entities.

• Eligibility: Foreign individuals or corporations.
• Ownership: Can be wholly foreign-owned or set up as a joint venture (subject to sectoral restrictions listed in the Positive Investment List).
• Minimum Capital: IDR 10 billion (approx. USD 650,000), with at least 25% paid-up at incorporation.
• Use Case: Suitable for long-term operations and full local business activities.

2. PT (Local Limited Liability Company)

This structure is available only to Indonesian nationals or entities and cannot be legally owned or controlled by a foreign entity unless through nominee arrangements (which are not legally recognised).

• Use Case: Sometimes used informally by foreign investors via nominee agreements, though this is discouraged due to a lack of legal protection.
• Legal Risks: Since foreign ownership is not allowed, the foreign investor has no official rights in the company under Indonesian law.

Note: All subsidiaries in Indonesia, regardless of ownership structure, must be incorporated as a PT entity. Other business forms, like sole proprietorships or representative offices, do not qualify as subsidiaries.

Taxation Rules and Incentives for Subsidiaries in Indonesia

Corporate Taxation in Israel is not very complex and makes the process of setting up a subsidiary company in Indonesia fairly simple. Here is a detailed look:

• Standard Rate: 22% (as of 2024).
• Reduced Rate: 19% for companies with annual gross turnover below IDR 50 billion and at least 40% publicly listed shares.
• Small Business Incentive: Businesses with a turnover under IDR 4.8 billion may qualify for a final tax of 0.5% on revenue for a limited period.

Withholding Taxes

• Dividends, Interest, Royalties: Subject to withholding tax, generally at 20% unless reduced under a tax treaty.
• Payments to Foreign Parent Companies: Subject to Double Tax Avoidance Agreement (DTA) rates if applicable.

Value-Added Tax (VAT)

• Standard VAT Rate: 11% on goods and services.
• Mandatory Registration: Required if annual revenue exceeds IDR 4.8 billion.

Incentives for New Businesses

• Tax Holidays: Up to 100% tax exemption for 5–20 years for capital-intensive projects in priority sectors such as infrastructure, manufacturing, and technology.
• Tax Allowances: Reduced taxable income and accelerated depreciation for companies in specific industries.
• Special Economic Zones (SEZs): Additional incentives like duty exemptions, reduced corporate tax, and simplified import procedures.

These tax rules are essential to understand whether you want to understand how to start a parent company in Indonesia or a subsidiary.

Regulatory and Compliance Requirements

Subsidiaries in Indonesia must meet various legal and administrative obligations, both at business incorporation and on an ongoing basis.

Company Law Compliance:

• Articles of Association: Must be submitted and approved by the Ministry of Law and Human Rights.
• Company Organs: Must appoint at least one director and one commissioner.
• Annual General Meeting (AGM): Required to approve financial statements and other key decisions.

Tax Compliance:

• Monthly and Annual Tax Filings: Includes income tax, VAT, and employee withholding tax filings.
• Audit Requirements: Mandatory for companies meeting thresholds for assets, revenue, or employee count.

Labour Compliance:

• Employment Contracts: Must be written and registered in accordance with Manpower Law.
• Social Security (BPJS): Mandatory registration for BPJS Ketenagakerjaan and BPJS Kesehatan.

Reporting Obligations:

• OSS Reporting: Regular reporting through the Online Single Submission system regarding business operations and changes.
• Investment Reporting: For PT PMA companies, quarterly and annual reports to BKPM are required.

Do You Need a Physical Address for a Subsidiary in Indonesia?

Yes, all subsidiaries in Indonesia are required to have a registered physical address for setting up a subsidiary company in Indonesia. Below are the registered office requirements and alternative options:

Registered Office Requirements:

• The address must be located in a commercial zone.
• Proof of occupancy (such as a lease agreement) is mandatory.
• The address will be used for tax registration, OSS licensing, and legal correspondence.

Alternative Options:

• Virtual Offices: Permitted in certain areas, such as Jakarta and Bali, particularly for businesses in services or digital sectors. However, some business licenses and operational permits may not be issued if the company is registered at a virtual address.
• Shared Office Spaces: Coworking spaces with legal commercial zoning can be used for early-stage subsidiaries.

Operational Setup for a Subsidiary in Indonesia

Setting up a subsidiary company in Indonesia requires thoughtful planning around infrastructure and workforce, and compliance with local employment laws. Here are some actionable strategies for setting up your business operation in Indonesia:

Staffing:

• Local Hiring: There are no legal restrictions on hiring local staff. However, some positions (e.g. HRD, legal, administration) are reserved for Indonesian nationals.
• Expatriate Hiring: Allowed for key positions, but requires a work permit (IMTA) and expatriate placement plan (RPTKA).
• Minimum Wage: Varies by province. For example, the 2024 minimum monthly wage in Jakarta is around IDR 5 million.

Office Setup:

• Lease Agreements: Standard commercial leases usually require a 12–36-month commitment.
• Utilities and Internet: Readily available in major urban areas; costs are moderate compared to other ASEAN markets.
• IT Infrastructure: Local data centres and cloud providers are available, but some data localisation rules apply in sectors like finance and telecom.

Banking and Finance:

• Corporate Bank Account: Must be opened in a licensed Indonesian bank. Required for paid-up capital deposit and day-to-day operations.
• Accounting Standards: Must follow Indonesian Financial Accounting Standards (SAK), which are aligned with IFRS.

HR and Payroll:

• Standard Working Hours: 40 hours/week (7 hours for 6 days, or 8 hours for 5 days).
• Leave and Benefits: Employees are entitled to annual leave, sick leave, and maternity/paternity benefits.
• Payroll Compliance: Requires monthly tax and BPJS deductions, and reporting through the Directorate General of Taxes (DGT).

How to Open a Business Bank Account for a Subsidiary in Indonesia?

Opening a corporate bank account is mandatory after incorporation and must be completed before beginning business operations, such as paying employees, receiving payments, or filing taxes. Here are the steps to open a Business Bank Account in Indonesia:

1. Complete Company Registration: Ensure your subsidiary is fully registered with a Business Identification Number (NIB) and has obtained its Taxpayer Identification Number (NPWP).
2. Choose a Bank: Select a reputable bank that suits your business needs (e.g., Bank Mandiri, BCA, HSBC, CIMB Niaga).
3. Visit the Bank and Submit Documentation: The company director or authorised representative must submit the required documents in person at the bank branch.
4. Verification and Account Opening: The bank will verify your company’s legality, identity of directors, and compliance documentation before opening the account.

Required Documents:

• Deed of Establishment and its approval by the Ministry of Law and Human Rights
• Business Identification Number (NIB)
• Taxpayer Identification Number (NPWP)
• Company domicile letter or lease agreement
• KTP (for Indonesians) or passport/KITAS (for foreigners) of directors
• Company stamp
• Board resolution authorising the opening of the account (if needed)

Is an Operating Agreement Necessary for a Subsidiary in Indonesia?

While not legally mandatory, an Operating Agreement (commonly referred to as a Shareholders’ Agreement) is strongly recommended, especially for joint venture subsidiaries. Here’s why it is important:

• Defines Roles and Responsibilities: Clarifies the duties of directors, commissioners, and shareholders.
• Outlines Profit Distribution: Sets clear terms for dividends and reinvestment.
• Resolves Disputes: Prevents or simplifies conflict resolution among shareholders.
• Ensures Business Continuity: Helps manage buy-sell clauses, exit plans, and succession.

The operating agreement may be simpler in wholly-owned subsidiaries, but it still helps the parent company define internal controls and reporting lines.

Opening a Branch vs. a Subsidiary: What’s the Difference?

Understanding the distinction between a branch office and a subsidiary in Indonesia is crucial for determining your ideal market entry strategy. Below is a comparison of the two:

Aspect	Subsidiary (PT PMA)	Branch Office
Legal Entity	Separate legal entity	Extension of the foreign parent
Ownership	Can be wholly foreign-owned (sector-dependent)	Fully owned by a foreign parent
Activities	Can engage in full commercial activities	Limited to non-commercial activities (e.g., marketing, liaison)
Liability	Liability limited to the subsidiary	The parent company is fully liable
Taxation	Taxed as a local company	Parent is taxed on local income; limited business scope
Registration	Requires full incorporation	Simpler setup but restricted operations
Ideal For	Long-term operations with full market participation	Market research or representation without direct sales

How Commenda Can Help You Expand in Indonesia

Expanding into a new country like Indonesia can be overwhelming, as unfamiliar regulations and aligning with local compliance standards often slow down market entry and drain internal resources. Commenda simplifies the complex process of international expansion by offering expert-led, end-to-end support for setting up subsidiaries in Indonesia.

Our Key Services Include:

• Entity Structuring Advice: We help you choose between PT PMA, joint venture, or alternative structures based on your goals.
• Incorporation and Licensing: From reserving your company name to securing your NIB and tax ID.
• Document Preparation: We handle legal translations, notarizations, and regulatory filings.
• Bank Account Setup: We coordinate with local banks to streamline corporate account opening.
• Ongoing Compliance: From tax filing to payroll and local reporting, we keep your operations fully compliant.
• HR and Staffing Support: We assist with employee hiring, work permits, and BPJS registrations.

With deep local insight and international experience, Commenda ensures your Indonesia expansion is smooth, compliant, and strategically sound. Book a free demo today to see how Commenda can simplify your subsidiary setup!

FAQs

Q. How much does it cost to set up a subsidiary in Indonesia?

Costs vary depending on business sector and services used, but typically range from:

• Small company: USD 3,745-37,435
• Medium-sized company: USD 37,435-748,740
• Large company: Above USD 748,740

Q. How long does it take to register a subsidiary in Indonesia?

On average, the full process takes 2 to 3 months, depending on document readiness and regulatory complexity. The process involves several stages, including company name reservation, deed of establishment notarisation, and registration with tax and licensing authorities like the OSS system.

Q. Can a foreigner fully own a subsidiary in Indonesia?

Yes, a foreigner can fully own a subsidiary in Indonesia, but ownership is subject to certain sectoral restrictions. Foreign ownership is regulated by the Positive Investment List, which outlines which sectors are open, conditionally open, or closed to foreign investment.

Q. What are the common challenges when opening a subsidiary in Indonesia?

• Language barriers and document translation requirements
• Understanding and complying with local tax and employment rules
• Managing delays in licensing or bank account setup

Q. Do subsidiaries in Indonesia need a local director or representative?

No legal requirement for a local director exists, but having one may ease communication with authorities. However, a local commissioner is often required and must be an Indonesian national.

Q. What are the annual compliance requirements for subsidiaries in Indonesia?

• Monthly tax reporting (income tax, VAT, employee taxes)
• Annual tax filing and audit (if thresholds are met)
• BKPM investment reporting for PT PMA entities
• BPJS (social security) reporting
• AGM to approve financials and corporate decisions

Q. Can a subsidiary hire employees directly in Indonesia?

Yes, subsidiaries can directly hire both local and foreign employees. Expatriate hiring requires a work permit (IMTA)and RPTKA approval from the Ministry of Manpower.

Q. What happens if a subsidiary fails to meet compliance rules in Indonesia?

Penalties may include fines, business license suspension, or deregistration. Non-compliance with tax or employment rules may result in sanctions, audits, or reputational harm. Repeated violations can lead to legal action or loss of operating permits.