For over a decade, Healy Consultants efficiently and effectively assists our Clients complete Indonesia company registration.
Advantages of Indonesia company registration
- Indonesia is the fourth most populous country in the world and GDP is growing at a rate 6 per cent per annum. Consequently, Indonesians per capita income and purchasing power is increasing. Consequently, local residents are hungry for international products and services and willing to spend on quality. After China and India, Indonesia boasts the largest domestic market in the Asian continent. This potential makes Indonesia business setup attractive for foreign entrepreneurs;
- Historically, foreign investment in Indonesia was in the manufacturing and mining sector. Healy Consultants encourages international investors to focus on Indonesia’s vast services sector. The services sector in Indonesia is going through a massive transformation and there is massive demand for quality, innovative service providers. It is expected demand for services will outweigh supply in the near future, making Indonesia company formation ideal for your company’s expansion goals;
- Because of the abundance of labour and raw materials, Indonesia’s reputation as a manufacturing hub is growing considerably. The country is rich in several minerals and is one of the leaders in agricultural products, which is advantageous for entrepreneurs interested in Indonesia company formation;
- Compared to countries of the western world, the cost of living in Indonesia is very cheap including food, transport, utilities, rent, wages etc;
- Currently, Indonesia has 59 Double Taxation Avoidance Agreements (DTAA) different countries, click here to view details of the same;
- Batam is the first Special Economic Zone (SEZ) opened in Indonesia, offering several tax incentives to businesses that use the area for manufacturing products for export purpose and most of the transaction to enter goods or services into the area are free from VAT, import duty and Local Service Tax.
Disadvantages of Indonesia company registration
- Indonesia company formation, if the form of a PMA, requires a minimum of US$100,000 paid up share capital;
- Indonesia company formation is hampered by restrictions on foreign investment in Indonesia, uncertain government costs and a lack of regulatory transparency. Consequently, it takes about three months to fully complete Indonesia company formationof an Indonesian PMA. Foreign investors interested in Indonesia business setup should only sign business contracts after the PMA is fully registered;
- One of the biggest business challenges in Indonesia is government red tape, bureaucracy and corruption. When there is ambiguity about Indonesia law, it gives rise to corruption and unnecessary delays in executing deals in the country;
- An Indonesian PMA requires a minimum issued share capital of US$257,000 to obtain approval by the BKPM – Indonesia’s Capital Investment Coordination Board. This amount must be deposit in a bank before incorporation;
- Indonesia company formation is hampered by restrictions on foreign investment in Indonesia, uncertain government costs and a lack of regulatory transparency. Consequently, it takes about three months to fully complete Indonesian LLC set up;
- An Indonesian company is liable to pay a corporation tax of 30% on income sourced in Indonesia and internationally. Capital gains are taxed at up to 30%.
Wholly foreign owned entities
- For the first 15 years of its life, an Indonesian PMA (Penanaman Modal Asing) limited liability company is 100% foreign-owned and controlled. In year 16, a 5% Indonesian shareholder must be appointed. An Indonesian PMA gives greater control to a foreign entrepreneur and is similar in nature to a standard private limited company in other countries;
- An Indonesian PMA (Penanaman Modal Asing), must appoint i) a minimum of one director and two shareholders ii) one commissioner (equivalent of a COO) and iii) a minimum issued share capital of US$100,000. Furthermore, business owners have the option to appoint a 5% Indonesia shareholder anytime within the first 15 years of its life;
- A PMA in the mining sector must appoint a 20% Indonesian shareholder within 5 years of commencement of its production operation;
- Indonesia Investment Coordinating Board (BKPM) requires foreign investor interested in Indonesia business setup to present an investment plan for minimum us$1.2 million, 25% (us$300,000) needs to be paid up as capital.
Different Indonesia entities
Comparison of different types of corporate structures:
Limited liability company
This is the most common Indonesia business setup used to do business in the country. An Indonesian limited liability company is also known as Perseroan Terbatas (PT). a PMA (Penanaman Modal Asing). If a company has a foreign party as a shareholder, then the company will be classified as a foreign investment company called Penanaman Modal Asing (PMA). Under company law, a PMA company must obtain approval from the Capital Investment Coordinating Board (BKPM) before conducting business in the country.
As always, the company is a separate legal entity or ‘person’. In particular, a company is separate from its owners, shareholders and the persons who run it, the directors. The minimum paid up share capital for an Indonesian PMA is US$100,000.
The establishment of an Indonesian branch for Indonesia company formation may be preferable to incorporating a subsidiary if one of the objectives is to consolidate the financial results of the parent company.
According to company law, an Indonesia Representative Office can also be 100% foreign-owned and controlled, but is not permitted to make direct sales in the country. As a result, such an office must however only engage in activities which will not amount to carrying on business, for example market research.
The Indonesian government prefers foreign companies to form a joint venture with an Indonesian partner. Joint ventures in the country must be established in the form of a PMA, a foreign investment limited liability company.
If shares in a company are offered to the public through an initial public offering (IPO) or a company has 300 shareholders and has paid-up capital of at least IDR3 billion, it will be a public company. A public company’s shares may be listed on the Indonesia Stock Exchange (PT Bursa Efek Indonesia) (IDX) and subject to more stringent regulatory provisions.
Industrial free zones
- Indonesia currently boasts only one free trade zone (FTZ) which is Batam Free Trade Zone;
- Unfortunately, companies incorporated within Batam FTZ still suffer a corporate tax rate of 30%;
- However, Batam FTZ companies enjoy exemption from import and export duty on machine, spare parts, and raw materials for production purposes. Imported goods are also exempted from VAT;
- Batam FTZ offers double taxation avoidance for 51 countries including Australia, USA, United Kingdom, Germany, Vietnam, Philippines, Mauritius, Singapore, and Malaysia;
- Batam FTZ is located within the Indonesia – Malaysia – Singapore growth triangle and can be accessed by all modes of transportation including air, land, and sea; consequently, this location enables more efficient logistics for investors;
- Companies operating in Batam FTZ enjoy an ample supply of cheap labor and land compared to its neighbors. The average monthly labor cost is US$100-145 while average land rent is around US$2 per square meter per month;
- These FTZs invites multinationals from the business sectors of electronics, manufacturing, shipping industry, and oil and gas production.
Summary at a glance
Batam Free Trade Zone
|Average annual Industrial space rent per 1000 sqm||US$24,400|
|How long to set the company up?||3 months|
|How long to open company bank account?||3 – 4 weeks|
|Allowed to sign sales contracts with Indonesian clients?||Yes|
|Allowed to invoice Indonesian clients?||Yes|
|Corporate tax payable in Indonesia||Yes|
|Corporate bank account||Yes|
|Physical office space required||Yes|
|Industrial space availability||Many|
|Allowed to import raw materials?||Yes|
|Allowed to export goods?||Yes|
|Wholly foreign owned||Yes|
|Can the entity hire expatriate staff in Indonesia?||Yes|
|Do you visit Indonesia for company incorporation?||No|
|Minimum number of directors||1|
|Minimum number of shareholders||2|
|Tax registration certificate required||Yes|
|Individual shareholders allowed||No|
|Corporate shareholders allowed||Yes|
|Corporate director(s) allowed||Yes|
|LLC company allowed||Yes|
|Can apply for immigration visas||Yes|
|Annual audited financial statements||Yes|
Accounting and tax considerations
- Indonesian companies are taxed at a flat company tax rate of 25% for both domestic and international income streams. In contrast, individuals are taxed at the normal marginal rates of tax – with the top Indonesia tax rate being 46.5%;
- Annual audited financial statements and corporate tax return is submitted to the Indonesian Taxation Office following Indonesia business setup. It is usually possible to obtain an audit exemption;
- Following Indonesia company formation, resident companies and individuals settle their tax liabilities either by monthly payments, third party withholdings, or a combination of both;
- Resident Indonesian companies are required to withhold tax at a rate of 20% from the payments to foreign companies. However, Indonesia boasts 47 double tax treaties which minimize withholding tax for service fees, dividends, interest, royalties, and branch profits. To claim the reduced rates, the foreign party must present its certificate Certificate of Domicile (CoD) to the DGT;
- An individual is considered tax resident if he is present in Indonesia for at least 183 days per year;
- Annually, medium sized business pay corporate income tax, health insurance contributions, social security contributions, tax on interest, property tax, stamp duty, and also value added tax;
- The Indonesian investment law allows investors interested in Indonesia business setup to repatriate their capital while their corporation is still in operation. The repatriation may be in the form of after-tax profits, reimbursement of expatriate manpower expenses.
Indonesia company incorporation costs in Year 1 amount to US$8,650 and annual company costs in Year 2 and thereafter amount to US$1,500. The average total fees per Indonesia company formation engagement amounts to US$16,650, including company incorporation, resident director, corporate bank account, and virtual office address. Refer to draft invoice embedded here.
|1.||Average engagement costs||US$16,650||US$17,750|
The average Indonesia business setup engagement period is 16 weeks as outlined below:
Healy Consultants Compliance Department guides our Client through the legal and tax obligations outlined under Indonesia company law to support company formation.
- The minimum amount of paid up capital to be invested in a foreign-owned company (PMA) is US$100,000 for company registration. A PMA must have at least two shareholders and one director;
- The company directors are appointed, replaced, and dismissed by the shareholders. Within 30 days, shareholders should notify the Ministry Of Labor And Human Resources of any changes to the company structure. The identities of shareholders and directors are on the public register;
- A PMA must also appoint at least one commissioner, who is the supervisory body over the directors. Under the Company Law, a PMA comprises a two-tier management structure including the Board of Directors (“BOD”) and the Board of Commissioners (“BOC”) as the supervisory board;
- After setting up a company in Indonesia, an annual return must be lodged. A director or secretary of the company must confirm relevant details of the company for the public register including names and addresses of all directors, address of principal place of business, and details of shareholders and their shareholdings;
- A local company secretary is not required to register up a company in Indonesia, however we recommend one be appointed to ensure compliance with the Indonesian corporation act;
- All business activities conducted in Indonesia receive government approvals and permits and licenses for establishing a company in Indonesia. For instance, general trading and services activities need a Trading Business License (Surat Izin Usaha Perdagangan – SIUP). Mining companies require a Mining Business License (Izin Usaha Pertambangan – IUP);
- There is an obligation to register particular products with the government, including food, medical equipment, cosmetics, medicine. For food, cosmetic and medicine products, the registration is with the Food and Drugs Supervisory Agency; medical equipment with the Ministry of Health. The registration process takes approximately 6 weeks to complete;
Indonesia employment visas
- Following setup of Indonesia business setup, the entrepreneur visa will be approved if i) the foreign entrepreneur has a successful track record of managing companies ii) the business in Indonesia will benefit the country’s economy;
- A foreign entrepreneur who wishes to relocate to Indonesia to run his company must first submit a Foreign Manpower Utilization Plan to the Indonesian authorities. The Plan outlines his position in the company, the duration of his term, details of other foreign employees etc. Thereafter the entrepreneur obtains an Visa for Limited Stay from the Indonesian embassy or Consulate in his country of residence. Upon arrival at Indonesia, he applies for the Limited Stay Permit and a Work Permit in order to stay in Indonesia.
- Employees receive Indonesian work permits known as KITAS. All work permit applications are processed in Jakarta and usually take 1 month for the authorities to approve or reject an application;
- The applicant provides a considerable number of documents to the authorities including i) the company’s business license letter ii) locality letter iii) tax number iv) company structure v) bank account statements vi) character and professional references vii) and employment contract and viii) resume. The foreign employee visits the Indonesian embassy or consulate in their home country to obtain the final valid Indonesia visa. Once the foreign professional arrives in Indonesia, they must report to the immigration department within 7 days from arrival and complete the necessary paperwork and formalities.
Short term visit visas
Entrepreneurs frequently visiting Indonesia need a Multiple Entry Business Visa (MEBV). The MEBV is valid for 12 months and you can stay for 2 months at a time. A MEBV does not entitle you to work in Indonesia.
Corporate banking options
- To receive the best internet banking and customer service, Healy Consultants recommends banking with HSBC, Standard Chartered, and Citibank for Indonesia banking to support incorporating in Indonesia;
- In general, there is no foreign exchange control in Indonesia. A person may freely hold, use and transfer funds in foreign currencies. However, the transfer of funds in foreign currencies to and from abroad is subject to a reporting obligation to Indonesia’s central bank, Bank of Indonesia. The reporting obligation is on the side of the Indonesian party;
- After completing the Indonesia company incorporation Healy Consultants assists our Client open a corporate bank account with HSBC or SCB Jakarta. Our Client deposits the paid up share capital of US$100,000 and supplies Healy Consultants with a certificate of deposit and bank statement;
- Where possible, Healy Consultants bank account opening team will liaise with the bank to prevent our Client having to travel for an account opening interview during Indonesia business setup engagement.
Grants and funding programs
Healy Consultants assists our Clients successfully obtain government assistance for Indonesia company formation. Incentives to attract Indonesia business setup include:
Regional Tax Incentives for Foreign Investors Interested in Indonesia Business Setup
On September 23, 2008, the government issued government Regulation (“GR”) No. 62 of 2008 allowing a reduction of corporate tax by 30% of the total investment amount, deducted for 6 years. The business sectors to benefit from this incentive includes coal mining, textile and clothing, oil and natural gas, milk and dairy food, paper, chemical, rubber industries, iron and steel industries, machinery and equipment, land transportation industries, ship and boat building, horticulture development, plastic goods, cement, lime and gypsum industries, Furniture industries.
Integrated Economic Development Zone (KAPET)
Companies doing business in Indonesia’s Integrated Economic Development Zones are also eligible a reduction of corporate tax by 30% of the total investment amount, deducted for 6 years. The application for the facilities is to be submitted to the Directorate General of Taxation. Currently, around 25 areas are designated as KAPETs.
A postponement of import duty and excise and non-collection of VAT for those companies importing goods that will be processed further for further exportation.
Success tips when doing business in Indonesia
- Government agencies play an important role in doing business in Indonesia. All businesses deal with government agencies on a regular basis. This is where foreign companies would also need to exercise restraint and be patient as much as possible as government authorities would always have the final say in any matter;
- Because Indonesian companies are not as well-versed with international trade, we encourage our Clients to consistently use and sign contracts of service;
- Your joint venture partner or Indonesia shareholder must not merely be a nominee for the sake of meeting the rules of foreign company incorporation. You should choose a partner that actually brings a lot to the table, including local knowledge your business would need in Indonesia;
- In 2009, the government passed a law making it mandatory to only communicate in Bahasa in the workplace. Bahasa is the official working language of the country. However, English is the most commonly spoken second language in the country and most of the nation’s population would be able to converse in basic English with their foreign managers. Hence if required, the managers can speak in English until they pick up the local language. Of course learning the local language will not only help in meeting official guidelines for offices, it will help attract the best out of the local staff and allow the company to work more efficiently;
- When starting a business in Indonesia, it’s important to find out what regulations and licenses apply to your firm. This can be complex area; as local, provincial, and national governments handle registration and licensing for various aspects of your business.
Did you know about Indonesia?
- Indonesia, part of the Pacific ‘Ring of fire’, has 400 active volcanoes, the largest number in the world. Indonesia is home to thousands of different plant and animal species. It has the second highest level of bio diversity (a measure of the number of species) in the world. Brazil is number one;
- Indonesia poorly ranks as the 100th least corrupt country in the world, according to the 2011 Corruption Perceptions Index by Transparency International, a global measure of corruption amongst public officials and politicians;
- Additionally, Indonesia is negatively ranked as the world’s 115th freest economy in the Heritage Organisation’s 2012 Index of Economic Freedom, a measure of freedom enjoyed in business, trade, monetary, financial, investment and labour markets;
- The Indonesian economy is ranked as the 50th most competitive economy in the world, according to the World Economic Forum’s Global Competitiveness Report 2012-2013;
- In terms of the ease of doing business, Indonesia is poorly ranked at 121st, according to the 2011 Doing Business Survey by the World Bank. The survey measures factors including business start up procedures, time, cost, and minimum capital required to start a business.
- Indonesia PMA
- Indonesia representative office
- Indonesia joint venture
- Indonesia nominee trading company
- Indonesia corporate bank account
- Migration to Indonesia
- Indonesia Client case studies
- Tax Authority
- Ministry of Finance
- Central Bank of Indonesia
- Stock Exchange
- Investment Authority
- Chamber of Commerce
- Indonesia airport
- Visiting Indonesia