Setting up a Business

Legal Entities

There is a collection of recognised legal entities for setting up a business in Indonesia:

Persekutuan Perdata (PP) is a partnership between two or more people in one agreement to make a profit.

Firma (Fa) is a partnership between two or more people in one agreement to make a collective name to deal with third parties in making a profit.

Persekutuan Komanditer (Commanditaire Vennootschap ‐ CV) is a partnership between two or more people in one agreement to make a profit. One partner is allowed to invest money into the partnership without having to manage the company.

However, the above business types apply only to local citizens. The types of legal entities that apply to foreign investors are:

Representative Office

A Representative Office can be established depending upon the line of business and the necessary licenses issued by the related government department. The limitation of a Representative Office is that they are not allowed to conduct direct sales and cannot issue Bills of Lading.

Representative offices are set up primarily for marketing, market research, or as buying or selling agents. The related government ministries are:

  • Representative Office from Ministry of Industry & Trade ‐ for bilateral trade;
  • Representative Office from Ministry of Public Work ‐ for consultant or contractor;
  • Representative Office from Ministry of Mining ‐ for mining activities;
  • Representative Office from Ministry of Finance ‐ for banking;
  • Representative Office from Investment Board (BKPM) ‐ regional representative.

To establish a Representative Office with permission from the Ministry of Industry and Trade, the companyʹs head office needs to issue three letters:

  • Letter of Intent ‐ stating the intention of the company to establish a representative office
  • Letter of Appointment ‐ stating the appointment of the chief representative
  • Letter of Statement ‐ stating that the Chief Representative will follow Indonesian regulations.

The three letters must be stamped by a notary public and approved by the Indonesian Embassy in the home country of the firm. Upon approval, the Indonesian Embassy will issue a Letter of Notification (Surat Keterangan). Upon completion of the four letters the process can continue to the related government ministry in Jakarta, to incorporate a fixed license for 2 years.

Other ministries require different types of letters.

Limited Liability Co or Perusahaan Terbatas (PT)

Foreign Direct Investment, most often referred to by its Indonesian abbreviation ‐ PMA, is governed primarily by the Foreign Capital Investment Law No. 1 of 1967, and amended by Law No. 25 of 2007. As a legal basis, the law is fairly accommodative to various deregulatory policies and measures to date, and those that will be taken by the government in the foreseeable future.

In addition to Investment Law No. 1/1967, PMA companies as well as other companies, in their business operations are still subject to sector/industrial policies as required by corresponding ministries.

Establishing a Company

Investment Approval Process

The life of foreign investment companies has been extended by allowing the renewal of the fixed operating license (IUT) for an additional 30 years. In other words, the initial licenses are valid for 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.

The process of incorporation of a new foreign direct investment company:

Initial License (valid for 3 years)

Step 1. Prepare and send the application with required documentation, compiled according to the investment plan.

Set up a joint venture agreement if investors plan to make the investment with Indonesian partners.

Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.
Step 3. Incorporation of SPPP BKPM

  • a. Establish Articles of Association with a Public Notary detailing proof of capital investment, and send it to the Ministry of Justice for approval and issuance of State Gazette.
  • b. Registration of company address with local council (domicile).
  • c. IRD registration (NPWP + PKP)

Registration with the Department of Industry and Trade (TDP)

Step 4. Key expatriate positions (work permits). Fixed Operating License (30 years)

Step 5. Prepare and send the 6‐month report (LKPM) to the provincial BKPM office as well as UUG (HO) nuisance act to the regional office of BKPM.

Step 6. Incorporate facilities ‐ Master list/APIT or property ownership.
Step 7. Provincial approval for Fixed Licenses (BAP).

Step 8. Fixed License (IUT) for 30 years is issued. A Limited Liability company is established either under foreign shareholders or through a joint venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by the Ministry of Justice. It doesnʹt matter who is the owner of an Indonesian Limited Liability company, they must comply with Indonesian law and are considered an Indonesian company and the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.

To get license of Change of Capital and Change of Owner the applications should be submitted to BKPM. According to BKPM, thereʹs no charge to arrange licences.

Offshore Incorporation

In some situations, it may be to an investorʹs advantage to incorporate their firm offshore, while operations are carried out in Indonesia.

The advantages and disadvantages of offshore usually focus on the facilities offered by tax havens in nations like Mauritius and the Cayman Islands. Your management consultant can assist you in making this important decision.

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