As part of the growth in global economic activity, a great number of companies have expanded their business operations to include operations and offices in foreign countries. For the purpose of maintaining close supervision of the management of foreign business activities, many companies open a representative office in other countries even if they do not have production facilities located in those countries.
In Indonesia, a representative office may not own or maintain production facilities or operational activities, and therefore, cannot accept orders, participate in tenders, sign contracts or engage in the importation of goods.
A representative office in Indonesia may be an Indonesian company, an Indonesian individual, or an expatriate individual. If the representative office is to be headed by an expatriate, a work permit for the representative must be applied for together with the application for the representative office license.
Representative Offices Licensed by BKPM
A foreign corporation can open a representative office in Indonesia licensed by the BKPM by first submitting the application form to obtain the business permit of representative of foreign trading company in Indonesia
Representative offices which require a BKPM license are involved in at least one of the following activities:
· a representative office that manages the interests of the affiliated foreign corporation in Indonesia or other countries; or
· a representative office that is established to explore or prepare for the establishment or development of investment activities in Indonesia or other countries.
Representative Offices Licensed by the Department of Industry and Trade
A representative office under the Department of Industry and Trade (which is currently being reorganized into two separate departments, of Industry and of Trade, respectively) is intended to promote the exportation of goods from or the importation of goods into Indonesia. As such, there are two types of representative office which are as follows:
· representative office as buying agent; and
· representative office as selling agent.
A representative office that acts as a buying agent is usually appointed by its principal outside Indonesia to survey the Indonesian market for products or raw materials produced in Indonesia. Under recent reforms, such a buying agent may participate directly in the export of goods from Indonesia. A representative office that acts as a selling agent, on the other hand, undertakes promotional activities for the goods sold in Indonesia and also provides support for the utilization or importation of the goods. The selling agent may not, however, participate directly in the importation of goods into Indonesia, which must be done by an Indonesian entity or a PMA company holding the requisite importer license.
The Department of Industry and Trade will only grant representative office licenses to companies trading in tangible goods, not to companies engaged in the provision of services.
Foreign Bank Representative Offices
A foreign bank can open a representative office in Indonesia to act as a liaison office between the foreign bank and its customers in Indonesia. This type of representative office is regulated and monitored by Bank Indonesia, the Indonesian central bank. As a liaison office, the representative office cannot conduct banking activities in Indonesia, and is only allowed to:
· provide information to third parties within Indonesia on requirements and procedures for establishing relations with its principal office/branch offices outside Indonesia;
· assist its head office/branch offices outside Indonesia in supervising credit collateral in Indonesia;
· act as proxies in making contact with institutions/agencies to represent the interests of its head office/branch offices outside Indonesia;
· act as supervisors of projects within Indonesia which are partially or wholly financed by its head office/branch offices outside Indonesia;
· undertake promotional activities;
· provide information on Indonesian trade, economic matters, and finance for foreign parties or vice-versa; and
· assist Indonesian exporters in obtaining market access outside Indonesia through international network of banks affiliated with the representative office or vice-versa.
Not all foreign banks can open a representative office in Indonesia as Bank Indonesia will only give the approval to the foreign banks with sufficient assets to be listed in the world’s top 300 banks by asset size.
As a follow up to the amendment on the Law on the Central Bank (Law Number 23 of 1999 concerning Bank Indonesia) and the soon-to-be-issued Law on the Financial Services Authority, it is anticipated that there will be changes in the nature and permitted activities of bank representative offices.
Representative Offices in the Field of Construction Services
Foreign construction companies that intend to engage in construction activities in Indonesia can open a representative office in Indonesia to scout for potential projects.
The services to be provided by the foreign construction company include consulting services in construction, or construction activities. This representative office can conduct the following activities:
· explore market for possible consulting or construction services;
· participate in tenders;
· submit proposals; and
· conduct construction services to its completion.
The Department of Public Works issues the license for this representative office for a period of 3 years which can be extended.
If the representative office of the foreign construction company is successful in obtaining a construction project in Indonesia, it must form a joint operation with an Indonesian company to undertake the project. In most cases, only foreign construction companies that have a licensed representative office in Indonesia will be eligible to participate in public sector tenders.