For over a decade, Healy Consultants efficiently and effectively assists our Clients complete company registration in Indonesia. The following information will assist your Firm determine whether starting a business in Indonesia is the optimum corporate solution to fulfill your international business objectives:
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 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 Indonesian business registration 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.
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.
Compared to countries of the western world, the cost of living in Indonesia is very cheap including food, transport, utilities, rent, wages etc.
Registering a company in Indonesia, 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 Indonesian PMA set up. Foreign investors should only sign business contracts after the PMA is fully registered.
One of the biggest business challenges 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.
Most types of businesses in Indonesia would require a special business license. This must be obtained from the concerned authorities and all mandatory requirements must be fulfilled before actually commencing with business operations. This is a time consuming administrative hurdle.
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%.
Healy Consultants will efficiently and effectively project-manage our Clients engagement, providing detailed email status updates every second day:
Prior to Indonesia company registration, our client a) settles Healy Consultants' fees, b) signs and returns our Client Engagement Letter and c) provide us all the required due diligence documents.
Healy Consultants drafts a detailed Indonesia company setup engagement project, mapping out by week each step to engagement completion, optimising transparency and setting Client expectations.
Healy Consultants reserves company name with the Ministry of Justice and Human Rights and prepares company deeds of establishment and articles of association. The exact corporate structure is agreed with our Client.
Our Client supplies Healy Consultants with a lease agreement for their office premises. If this is not possible, Healy Consultants will supply virtual office services for 6 months until our Client finds their preferred business address.
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.
Healy Consultants applies for i) a certificate of company domicile ii) approval of the deed of establishment from the Ministry of Law and Human Rights and iii) the permanent business trading license from the Ministry of Industry and Trade iv) filing the manpower compulsory report and company regulations with the Ministry of Manpower and v) obtain a taxpayer registration number and a VAT collector number from the Tax Office.
Healy Consultants prepare a 6 month business plan for the Capital Investment Coordinating Board (BKPM), called a Report of Capital Investment Activity. Thereafter Healy Consultants will submit a complete company incorporation application and the BKPM will issue an in-principle business license valid for 3 years.
Subsequently, Healy Consultants assists our Client register his PMA with the Company Registry Office and receive a Company Registration Certificate within 30 days (Tanda Daftar Perusahaan or “TDP”). Thereafter, we submit an announcement in the State Gazette of the Republic of Indonesia.
Following company registration engagement is complete, Healy Consultants couriers a full company kit to our client, including original Indonesia corporate documents translated in English, unopened bank correspondence and a client feedback survey.
To support Indonesian business registration Healy Consultants provides our client a Indonesian business address for invoicing purposes. Additionally, many clients request telephone, fax and email support for their company following entity establishment. Alternatively, our client may request a full Indonesia virtual office.
All immigration to Indonesia is controlled by the federal government through the Department of Immigration and Citizenship (DIAC) in Jakarta. The Indonesia Government does not encourage employment of expatriates; instead jobs in Indonesia are usually reserved for local residents only. Any employment offered to a foreigner must absolutely be necessary for local company operations. Healy Consultants will assist our Client with all immigration matters:
Entrepreneur visas
Following Indonesia company formation, 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 a 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.
Employee visas
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 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.
There are a number of Indonesia business registration options for foreign investors. Healy Consultants will assist our Client engineer the optimum Indonesian corporate structure.
Comparison of different types of corporate structures:
Summary at Glance
Representative Office
PMA (100% Foreign owned company)
Estimated total Set up costs in Year 1
17,750
16,150
Annual costs from Year 2
1,100
4,950
How long to set the entity up
5 months
3 months
Do you need to visit Indonesia to set up the entity?
No
No
Obligation to rent premises
Yes
Yes
Tenancy agreement required before incorporation?
Yes
Yes
Allowed to retail goods in Indonesia?
No
Yes
Allowed to import raw materials
No
Yes
Allowed to export goods
No
Yes
Can the entity hire staff in Indonesia?
Yes
Yes
Can the entity sign contracts in Indonesia?
No
Yes
Legal Tax exemption if properly structured
Minimum reporting
100% foreign ownership
Legal matters
Representative Office
PMA (100% Foreign owned company)
Legal status
Merely an office
Limited liability
Minimum paid up share capital required
None
US$100,000
Minimum number of shareholders required
None
2
Corporate shareholders allowed
None
Yes
Indonesia resident shareholder required
None
Depending on business activity
Minimum number of directors
None
2
Indonesia resident director required
None
No
Corporate directors allowed
None
No
Indonesia resident Company Secretary required
Yes
Yes
Legal resident representative required
Yes
Yes
Types of business permitted under this entity
Marketing, research, advertising
Depending on business activity
Public register of company details available
None
Yes
License renewal
2 years
3 years initially
Business registration certificate required
Yes
Yes
Tax and accounting matters
Representative Office
PMA (100% Foreign owned company)
Business subject to Indonesia corporation tax
No
30% on global income
Staff subject to Indonesia personal income tax
Yes
Yes
Other taxes applicable
None
Capital gains 30%
Audited accounts submitted to government
No
Yes
Annual tax return submitted to government
No
Yes
Limited liability company
This is the most common entity used to do business in Indonesia. It 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 Indonesia company law, a PMA company must obtain approval from the Capital Investment Coordinating Board (BKPM) before conducting business in indonesia.
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.
Indonesia Branch
The establishment of an Indonesian branch may be preferable to incorporating a subsidiary if one of the objectives is to consolidate the financial results of the parent company.
Representative office
According to Indonesia company law, an Indonesia Representative Office can also be 100% foreign-owned and controlled, but is not permitted to make direct sales in Indonesia. Where a foreign company does not intend to carry on business in Indonesia it may seek to establish a representative office. Such an office must however only engage in activities which will not amount to carrying on business, for example market research.
Joint Ventures
The Indonesian Government prefers foreign companies to form a joint venture with an Indonesian partner. Joint ventures in Indonesia must be established in the form of a PMA, a foreign investment limited liability company.
Public Companies
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.
The average fee per Indonesia business registration engagement amounts to US$16,150, which includes company incorporation and opening a local corporate bank account and all Government fees. Refer to draft invoice embedded in the icon below:
Healy Consultants Compliance Department guides our Client through the legal and tax obligations outlined under Indonesia company law.
The minimum amount of paid up capital to be invested in a foreign-owned company (PMA) is US$100,000. 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 company secretary is not required to set 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 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.
To receive the best internet banking and customer service, Healy Consultants recommends banking with HSBC, Standard Chartered and Citibank.
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 registration 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.
Healy Consultants assists our Clients successfully obtain Government assistance to set up a company in Indonesia. Incentives to attract company formation include:
Regional Tax Incentives for Foreign Investors
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.
KITE
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.
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 tax rate being 46.5%.
Annual audited financial statements and corporate tax return is submitted to the Indonesian Taxation Office. It is usually possible to obtain an audit exemption.
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’s 47 double tax treaties 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 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.
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.
After completing Indonesia business registration, Healy Consultants provides our Clients with i) nominee Indonesian shareholders and ii) nominee commissioners.
Before the Government approves company registration, our Client must sign an office premises lease agreement. Some of our Clients require an Indonesian virtual office for six months until a full time business office is found.
Entrepreneurs completing company registration in Indonesia can benefit from Indonesia's Intellectual Property laws. Healy Consultants will assist our Clients with trademark and patent registration. Registering your brand, trademark and designs is particularly important in Indonesia.
Healy Consultants offers a comprehensive range of Indonesia research services including i) industrial or business analysis ii) economic and political overview iii) competitor analysis iv) customer analysis v) regulation analysis vi) market entry strategies vii) business partner matching.
Healy Consultants offers a range of Indonesia business startup services to support Indonesia company formation including accounting and taxation, IT support and obtaining corporate finance.
Grants and other funding programs are available from the Indonesian government. There are grants and other assistance available in many categories, including developing your business, innovation, and export. Healy Consultants assists our Clients in locating the grants and assistance programs most relevant to your business.
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.
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