Business entities in Indonesia
Healy Consultants will assist our Clients to form the optimal business entity for their business needs in Indonesia. Starting a business in Indonesia is a complex and time-consuming matter for foreigners, as the registration of a foreign-invested company, the PMA, is subject to prior approval by the Indonesian authorities and a minimum paid-up capital of US$300,000. Alternatively, our Clients can also request us to incorporate a local company with nominee shareholders or to open a representative office of their foreign business.
The Indonesian limited liability company (PT)
- The Indonesian LLC (Perseroan Terbatas) is the most commonly type of business entity used by locals to do business in Indonesia. An Indonesian PT requires i) a minimum of one director, two local Indonesian shareholders and one Commissioner. The commissioner can be a non-resident individual. The role and responsibility of a commissioner includes i) supervising the company and ii) examine the annual report and approve the budget plan submitted by the Board of Directors;
- An Indonesia PT’s paid up share capital depends on the size of the company. There are three sizes of a local company and they are: i) a small size company with a paid up capital between US$3,745 to US$37,435, ii) medium size entity with a share capital between US$37,435 to US$748,740 and iii) a large company that requires a share capital above US$748,740. To sponsor foreign employees, the minimum size is a medium-sized company. In any case, the issued share capital must be deposited to the company bank account right after incorporation.
Foreign owned LLCs (PMA)
- LLCs which are partially or wholly owned and controlled by foreigners are called Penanaman Modal Asing (PMA) and are governed by the Foreign Capital Investment Law. PMAs are required to obtain approval from the Capital Investment Coordinating Board (BKPM) before conducting business in the country. Furthermore, BKPM requires the stakeholders of a PMA engaged in services to present an investment plan for minimum US$1.2 million, of which 25% (US$300,000) is required to be paid up as share capital;
- A PMA must be setup with i) a minimum of one resident director and two shareholders and ii) one commissioner (equivalent to a COO). If the PMA is fully foreign-owned, its owners are additionally required to sell a share of at least 5% of the company to an Indonesian citizen or legal entity within 15 years of commercial start up. Only PMAs initially set up as a joint venture with a local owning at least 5% of the company’s shares are exempt from this requirement;
- There are no restrictions on where a PMA can operate in the country. Depending on the intended business activity, such type of business entity may be required to obtain multiple operating licenses from different government authorities. Certain business sectors are completely restricted to foreigners or only allow companies with partial or minority foreign ownership. For example, Clients planning to operate in the mining sector must appoint a 20% Indonesian shareholder within 5 years of commencement of its production operations.
The nominee LLC option
The use of Indonesian nominees to initially setup an LLC on behalf of foreign companies is a strategy often adopted by entrepreneurs to significantly reduce by 2 months the incorporation timelines of a PMA. This approach is recommended when our Clients have an urgent need to become legally operational in order to secure contracts or close business deals that are time sensitive. Nominee LLCs are also useful to overcome foreign investment restrictions (e.g.: purchase of Indonesian property). Our Client can either ask us to appoint an Indonesian national (individual or corporate) to the position or to provide nominee services for professional passive local shareholders.
- Opening a representative office (RO) is a convenient way for foreign companies to gain a market presence in Indonesia. However, such entity is only permitted to i) conduct promotional activities, ii) market research and iii) act as a country buying/selling agent for the parent company. The RO will only obtain an operating license for two years and depending on the nature of the parent company the Indonesian Government may impose additional operating license requirements;
- Indonesia currently does not allow foreign corporations to form a branch office in the country. Consequently, it is currently impossible to convert a representative office into a branch: our Clients will have to register a PMA in order to conduct commercial operations in Indonesia.
In accordance with Indonesian Company Law a public company is required to have at least 300 shareholders and IDR 3 billion as paid-up capital. A public company is subject to more stringent regulatory provisions than an LLC. In Indonesia, it is not necessary for a public company to be listed on the national stock exchange IDX (PT Bursa Efek Indonesia).
Table of comparison between Indonesia entities
Frequently asked questions
Will there be restrictions in ownership if foreigners setup a Indonesia company?No. if you wish to setup your business in Indonesia, for the first 15 years 100% foreign ownership will be allowed. However, in the year 16, a 5% Indonesian shareholder must be appointed.
Will I be required to get a full audit if I setup a small business in Indonesia?Yes. If you setup a company in Indonesia, you will required to get an annual audit.
What are the tax implications for a business setup in Indonesia?Starting a business in Indonesia requires entrepreneurs to pay corporate tax at 25%.