Business organizations available to foreigners

Under various ministerial regulations a foreign company may set up a representative office. (“Rep. Office”). As a rule, a Rep. Office may only perform auxiliary services: acting as an intermediary, handling promotional activities and gathering information for a head office abroad. Generally it is not permitted to perform operational business or trading activities including entering into contacts.

Rep. Office licensed by the Ministry of Trade (MoT)
Applications for most Rep. Offices licenses are made to the MoT. MoT regulations differentiate between a buying, selling or manufacturing Rep. Office. Only a buying Rep. Office may conclude contracts with Indonesian sellers.

Rep. Office licensed by the Ministry of Public Works (MoPW)
MoPW regulations allow foreign construction and construction consulting companies to set up a Rep. Office. In cooperation with Indonesian companies they may:

  • explore possible markets for construction consulting services and construction works,
  • participate in tenders,
  • submit proposals, and
  • carry out projects to completion

Rep. Office licensed by BKPM
A regional Rep. Office may be set up under BKPM regulations. It is limited to a monitoring and coordination role. Expatriates employed by a regional Rep. Office are exempted from fiscal exit tax.

Limited Liability Company (PT)
The PT is commonly the company established for larger enterprises. Laws and administrative practices (i.e. tender procedures) in many economic sectors require the PT be established.

A PT is a corporate entity though this is not expressly stated in the Commercial Code, but firmly established by jurisprudence. It is stated in the Commercial Code. Now the Commercial Code has been replaced by the Law No 40 year 2007 concerning Limited Liability Companies.

The Deed of Establishment comprising the Memorandum and Articles of Association must be in notarial form approved by the Minister of Law and Human Right.

The Law No 40 year 2007 provides only basic provisions with respect to the most important aspects, from incorporation through to dissolution. The notarial Deed of Establishment usually provides for greater details on all matters pertaining to the existence of the PT and the rights and duties of its shareholders, the name of the company, its purpose, duration, domicile, amount of authorized capital and amount of each share, number of shares taken by founders, management, the financial year end and other important matters.

The Law No. 40 year 2007 differentiates between private and public limited companies. Public Listed Company must have a minimum of two Directors, while non-public listed company must have a minimum of one Director.

Basic Features of Limited Liability Company

  • A PT company is a Limited Liability Company or a Legal Entity having shares with limited liability of shareholders.
  • A PT is managed by a Board of Directors (mandatory) that is supervised by a Board of Commissioners (also mandatory). The Board of Directors and the Board of Commissioner are responsible to the General Meeting of Shareholders.
  • Minimum of two Shareholders are required.
  • Joint and several liabilities of shareholders exist until the Deed of Establishment has been approved by the Minister of Law and Human Rights.
  • Joint and several liabilities of Directors exist until the approved Deed of Establishment is registered with the relevant local court and published in the State Gazette, but this only relates to the administrative process. The BoD will still jointly and severally be liable if they fail to run the Company in accordance with the AoA of the Company.
  • The minimum authorized capital of the PT is 50 million Rupiah.

Foreign-investment corporation or PMA company

The Foreign Capital Investment Law regulates the foreign capital investment and operation of foreign companies in Indonesia. In general, the stipulated form for foreign investors known as a PMA company is a joint venture with an Indonesian partner in the form of a PT company. Foreign capital investment is governed primarily by the Capital Investment Coordinating Board (“BKPM”), which administers and approves foreign capital investment in the majority of economic sectors, excluding oil and gas and other mining, banking, finance and insurance industries. BKPM is the one-stop government agency for a foreign investor regarding all approvals, licences and permits required to establish or expand a PMA Company and to receive fiscal facilities, grants and other incentives.

Basic Features of a PMA company

  • Only approved activities may be undertaken.
  • Generally not permitted to be involved in retail business.
  • The maximum initial foreign shareholding can be up to 100% for certain business lines.
  • Though there is no written regulation stipulating the minimum investment, usually the minimum investment required by BKPM is US$ 250,000 comprising loan and equity capital, and the same for consultancy services, which requires US$ 250,000 for equity only. Often at least US$ 1 million will be required in manufacturing.
  • Facilities are available for import duties, VAT on the purchase of capital goods and repatriation of funds, but not for service line of business.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s