Indonesia client case studies

Indonesia client case studies – Geophysical company sets up Indonesia subsidiary

Background

business case study on company registration in Indonesia Our Client is an international oilfield services company with operations based mainly in the Middle East (Abu Dhabi, Qatar and Oman). The company provides equipment for geophysical surveys, as well as drilling services.

Following a successful bid for an oilfield services tender in Indonesia, the company required an Indonesian subsidiary company through which to carry out the contract, and approached Healy Consultants to engineer a suitable corporate structure. One key stipulation for our Client was that the Indonesian company should be 100% foreign-owned (the shareholders being two Australian citizens and a British citizen). Therefore it was decided to set up a wholly-owned foreign company (Penanaman Modal Asing (PMA)).

Engagement planning

The engagement began in mid-2006, when our Client John, who lives in Dubai, signed our engagement letter and supplied all the required due diligence by courier to our Singapore office. We had warned John that the process to incorporate an Indonesian company was challenging because of the lack of transparency in Indonesia regarding costs, as well as the long lead times due to bureaucracy. Nevertheless our Client wished to proceed because he felt that an Indonesian entity would stand a better chance of winning key contracts than a foreign one.

The first step Healy Consultants’ Jakarta-based Incorporation Team took was to visit the Office of the Board of Investment (BKPM) on Jalan Jenderal Gatot Subroto in central Jakarta, with the aim of obtaining foreign investment approval (known as Surat Persetujuan) for the company. To apply for investment approval, Healy Consultants submitted to the BKPM two copies of form Model 1/PMA containing the following information:

  • Names and descriptions of the applicants;
  • Name of the company, location and main line of business;
  • Annual production and sales of products;
  • Land area, foreign and local manpower, and infrastructure requirements;
  • Capital structure;
  • Project timetable.

As with most stages of the entire engagement, it was necessary to translate official documents from Bahasa Indonesia into English, which was organised through a professional business consulting company based in central Jakarta.

Approval from the BKPM was quicker than usual, Healy Consultants receiving a faxed approval letter after 14 working days. The BKPM approval is valid for three years.

Company incorporation

The next stage of the process was to obtain a permanent business licence (known in Indonesia as an Izin Usaha Tetap, IUT) for the company. This involved submitting the original approval letter from the BKPM along with supporting due diligence documents and a Form IUT, to the BKPM. Our Incorporation Team decided to visit the BKPM in person, since in their experience postal submissions tended to take longer to process.

Four weeks after submission of the documents to the BKPM, and after two follow up phone calls to check the status, Healy Consultants received approval for a 30-year permanent business license.

The next step was for our Incorporation Team to visit the Indonesian Tax Authority in Jakarta to obtain a VAT (value added tax) collector number for the company, a process which required the completion of an application form. Two weeks after submission we received the VAT number.

Corporate banking

Having acquired the relevant licenses, Healy Consultants visited Standard Chartered Bank in Jakarta to open a corporate bank account on behalf of the company. Since our Client was traveling in the Middle East, he was unable to visit the bank in person. However, our Corporate Banking team in Jakarta attended a bank interview on behalf of the Client, explaining the reasons for setting up the company and its main activities. Our team also submitted the necessary corporate documents, as well as information about the shareholders and directors, to the bank.\

In the meantime, since our Client was planning to be based on site in remote areas of East Kalimantan province, he requested our Virtual Office services in Jakarta, which would serve as a meeting point for Clients, as well as a secretarial, phone messaging and mail forwarding service). Our office, located in the Sudirman Central Business District, now provides a fully-equipped ‘home away from home’ for our Client when he is in the city.

Two weeks after submitting the bank account application to Standard Chartered Bank, Healy Consultants received account opening approval, notification for which we passed to John in Dubai. This was followed two weeks later by Internet login and password details in a sealed envelope, which we kept securely in our Jakarta office for our Client to pick up. In a separate package two days later, we also received ATM cards for the bank signatories, which were also kept at our Jakarta office.

Indonesia client case studies – Australian power specialist firm enters Indonesia joint venture

Background

Our Client Jordan is the owner of an Australia-based company which provides contracting services to the power industry, including maintenance and shutdown services, equipment and labour. To date, its clients have been exclusively in the Australian states of Victoria and New South Wales.

However, recent power-related developments in Asia have prompted our client to consider expanding his geographical reach and diversify his revenue sources.

One market of special interest to Jordan’s company was Indonesia, where power shortages in recent years have had a critical impact on many existing large industries, particularly on the island of Java, as well as deterring foreign investment in new industries.

In 2006, annual power demand in Indonesia was growing at 9%, with supply growing at just 7%. The World Bank believes that some US$27 billion needs to be spent on new power plants and power lines by 2012 to meet projected demand, while state power firm PLN estimates that at least 47 additional power stations and 14 high-voltage transmission lines will be required in the next 10 years. PLN is addressing the critical demand/supply imbalances by investing in new power infrastructure (including upgrading coal-fired power plants in Java and Sumatra), as well as building new facilities, such as the US$4.8 billion nuclear power plant at Gunung Muria in Central Java. The government also expects the private sector to increase investment in new power capacity in coming years.

Engagement incorporation

Despite inherent problems in Indonesia’s power industry, as well as the instability of the rupiah currency, Jordan could sense lucrative opportunities for his business in the near future. He was cautious because of the poor reputation of Indonesia as a place to do business, as well as his limited knowledge of the local market. However, he believed that establishing an Indonesian company would be a gateway to securing key contracts from PLN, and on that basis contacted Healy Consultants’ Singapore head office by telephone in early 2006.

During the initial phone consultation, Jordan conveyed his business objectives while Aidan Healy, Healy Consultants’ managing director, outlined the potential difficulties of setting up a business and operating in Indonesia, as well as the legal, accounting and tax obligations of doing so. Like many investors in Indonesia, Jordan was keen to retain 100% ownership of the company, a structure which was also recommended by Healy Consultants.

Aidan sent Jordan by e-mail a detailed cost proposal for setting up a 100% foreign-owned Indonesian company, also known as a PMA. The e-mail also included a step-by-step engagement project plan, to minimise unwanted surprises for the client.

One week later, Jordan contacted us again from Australia with some additional questions before proceeding with the engagement. It had become clear to him that, although his company had world-class capabilities and experience, it would struggle to penetrate the Indonesia market without the right network of contacts and inside market knowledge.

Given this scenario, Jordan decided to set up an Indonesian joint venture (JV), in partnership with a local Indonesian power services contractor, and the engagement proceeded on this basis.

One of the challenges when seeking JV partners in Indonesia is to find a reliable, reputable company with complementary skills, modern facilities and excellent access to local markets. Although Jordan had a limited network of contacts, he required Healy Consultants’ assistance to find a suitable JV partner and negotiate the terms of a joint venture agreement, with the aim of avoiding conflicts of interest.

The engagement began in April 2006 when Jordan signed our Client Engagement Letter, and supplied the due diligence required as part of our ‘Know your Client’ procedures. Although Jordan was based in Geelong, near Melbourne, he stated his willingness to travel to Singapore or Indonesia at any stage of the engagement if needs be. In particular, he was keen to meet any potential JV partner face-to-face.

Our initial role was for our Jakarta office to engage a reputable local lawyer to negotiate Indonesia’s opaque legal and regulatory system. Dr Hassan had originally been recommended to us by Indonesia’s Investment Coordinating Board, and has helped several of our clients set up businesses in the country.

Accounting and tax support

The next step was for our Jakarta office to contact the Indonesian Chambers of Commerce, with a view to locating a JV partner. Some of the legal stipulations that Jordan had to consider when setting up a JV included the need two appoint two directors and two shareholders, with at least 5% of the JV owned by an Indonesian citizen.

Following an extensive six-week search of potential JV partners (who had been vetted by Healy Consultants and whose details had then been passed to Jordan), Jordan indicated a potential partner, based in Jakarta, and asked us to conduct thorough due diligence checks on the company.

Our local staff requested detailed information on the Indonesian company, including financial statements for the previous five years, total assets and facilities, staff numbers, products and services offered, established clients and market prospects, and forwarded these to Jordan for his consideration. In return, Jordan supplied similar information about his company and its capabilities.

It had become clear that the two partners had mutually beneficial capabilities, and so Healy Consultants arranged to both parties, along with Dr Hassan and the legal representative of the Indonesian partner, to meet in Jakarta in early July 2006.

The meeting was successful, with both parties showcasing their capabilities, and it was agreed that the legal teams, supervised by Healy Consultants, would draft a Letter of Intent as a precursor to a JV agreement.

The Letter of Intent was drafted on the same day, and both parties arranged to sign it in Healy Consultants’ Jakarta office.

The next step was to prepare the JV agreement, which would outline the duties and obligations of both parties. Healy Consultants supervised the drafting of the agreement by the legal representatives of both parties over the course of two weeks. The JV agreement addressed issues such as the JV’s business agenda, financial commitments and obligations of the partners, as well as get-out clauses. Only when it appeared ready to be signed by both partners did our staff convene another meeting in Jakarta to sign the JV agreement.

With the terms of the partnership sealed, Healy Consultants’ Jakarta-based Incorporation Team was able to initiate the incorporation process with a visit the Office of the Board of Investment (BKPM) on Jalan Jenderal Gatot Subroto in central Jakarta, to obtain foreign investment approval (known as Surat Persetujuan) for the JV.

Healy Consultants Jakarta office completed BKPM form Model 1/PMDN, relating to foreign investment. A key challenge at this stage of the engagement was that all BKPM documents are in Bahasa Indonesia. However, Jordan expressed his trust that our officers were competent and reliable, and as such our team e-mailed him the completed form in Bahasa for his signature and return to us by post.

Upon receipt of the signed Model 1/PMDN form, our Jakarta team submitted the application by hand, and were advised by the BKPM officer that approval would take 10 working days. Over the following 10 days our Incorporation Team in Jakarta followed up with two telephone calls to the BKPM to obtain a status update on the approval. Written approval was granted in 14 days, valid for three years.

The next stage of the engagement was to obtain a Permanent Business Licence (known in Indonesia as an Izin Usaha Tetap, or IUT) for the company, which is valid for 30 years.

To achieve this, our Incorporation Team began by drafting the Articles of Association, which were then notarised by Dr Hassan and couriered to Jordan in Melbourne for his signature and return to us, which he did within three days.

Our Indonesia team then delivered by hand the signed Articles to the Ministry of Justice (MoJ) in Jakarta, where they were approved, and returned to us on the same day.

With this step complete, our Incorporation Team than submitted the original BKPM approval letter, along with supporting due diligence documents, MoJ-approved Articles of Association and an application form for the IUT, to the BKPM for approval. As with all other client engagements in Indonesia, our Jakarta staff visited the BKPM in person since in their experience postal submissions tended to take longer to process.

Four weeks after submission of the documents to the BKPM, and after two follow up phone calls to check the status, Healy Consultants received approval for a 30-year permanent business license.

The next step was for our Incorporation Team to visit the Indonesian Tax Authority in Jakarta to obtain a VAT (value added tax) collector number for the new JV, a process which required the completion of an application form. Two weeks after submission Healy Consultants received the VAT number on behalf of the JV.

Corporate banking

Having acquired the relevant license and confirming the company as a legal entity, Healy Consultants’ Banking Team prepared a corporate bank account application pack with a view to opening a multi-currency account at Standard Chartered Bank Indonesia. Our staff completed an account application form, and our Singapore-based Marketing Team also prepared a Business Plan giving details of the company’s activities, its clients, financial projections and information about the shareholders and directors. Our staff then e-mailed the account opening form and Business Plan to Jordan for his signature and return to our office.

Since Jordan was heavily committed to a project in New South Wales, he was unable to visit the bank branch in Jakarta. However, Budi, the JV’s Indonesian shareholder and director, would also be a signatory to the account and he accompanied our Banking Team to the bank interview, where he provided further brief details of the company’s intended activities. On the same visit, our Banking Team also submitted the application pack, including the signed bank account opening forms and Business Plan.

Two weeks after submitting the corporate bank account application, Healy Consultants received account opening approval, notification for which we immediately passed on to Jordan, who was now back in Melbourne. This was followed two weeks later by Internet login and password details in a sealed envelope, which we kept securely in our Jakarta office for Budi to collect. In a separate package two days later, we also received ATM cards for the bank signatories, which were also kept at our Jakarta office for Budi’s collection.

Today, the JV is bidding for power contracts from its home base on the outskirts of Jakarta. Going forward, the shareholders have agreed to invest in new facilities in Java to better serve its clients, and are looking at suitable locations on industrial parks close to major new developments. Both Jordan and Budi have expressed an interest in engaging Healy Consultants to provide advice on raising corporate finance for the expansion.

Contact us

For additional information on our company registration services in Indonesia, please email us at email@healyconsultants.com. Alternatively please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi