Business entities in Indonesia
Wholly foreign owned entities (PMA)
- A wholly foreign owned company in Indonesia (known as a Penanaman Modal Asing, or PMA), is an ideal way for entrepreneurs to control a company and make strategic management decisions.
- For the first 15 years of its life, an Indonesian PMA (Penanaman Modal Asing) is 100% foreign-owned and controlled. In year 16, a 5% resident 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;
- This Indonesia business setup must appoint i) a minimum of one resident director and two shareholders ii) one commissioner (equivalent of a COO) and iii) paid up share capital of US$300,000. 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;
- The 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.
Advantages of an Indonesian PMA
- A PMA can be 100% foreign-owned and controlled (except of those business sectors restricted to foreigners) with key management decisions taken by the foreign investor, not an Indonesian shareholder;
- There are no restrictions on where a PMA can operate in Indonesia;
- Healy Consultants can obtain a 60-year business license for your Indonesian foreign company;
- Healy Consultants can open global corporate bank accounts to support your business;
- Healy Consultants can obtain work permits for expatriate staff to support this Indonesia business setup.
Disadvantages of an Indonesian PMA
- A PMA is required to sell a share of at least 5% of the company to an Indonesian citizen entity within 15 years of commercial start up. However, a PMA set up with an initial 95% foreign ownership is not obliged to sell any shares;
- An Indonesia company requires a minimum of two shareholders, one director and one commissioner whose details appear on a public register. Corporate shareholders are permitted;
- The shareholder structure may be restricted to a prescribed minority foreign ownership dependent upon the business sector or activity the company intends to engage in;
- An Indonesian PMA requires a minimum issued share capital of US$1,200,000 to obtain approval by the BKPM Indonesia Investment Coordination Board;
- A fully foreign company in Indonesia often lacks the local market knowledge and network of contacts compared to working directly with an Indonesian partner;
- The approval process for a PMA is lengthy and involves close liaison with the Indonesia Investment Coordination Board;
- Depending upon its intended activity, a PMA may be required to obtain a multiplicity of operating licenses from different government departments, thus adding time and cost to the engagement.
- It is necessary for the bank signatory to hold a KITAS (valid Indonesia work permit) before proceeding with bank account opening. The estimated timeframe to obtain the same amounts to 8 weeks.
Healy Consultants fees for an Indonesian PMA
Healy Consultants’ fees to establish a PMA in Indonesia start at US$10,750 in Year 1 and US$2,600 from Year 2 onwards, depending on corporate structure and range of professional services required.
Our fees to act as nominee director to support your PMA amount to US$5,950 per annum (together with a one time refundable deposit of US$2,450). When closing down your Indonesia business setup, our de-registration / liquidation fees amount to US$3,450.
Limited liability company
This is the most commonly incorporated Indonesia business setup. An Indonesian LLC is also known as Perseroan Terbatas (PT). 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, an LLC 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.
Indonesia Branch office
The establishment of a Indonesian branch office may be preferable to setting up a subsidiary if one of the objectives is to consolidate the financial results of the parent company.
According to company law, a representative office in Indonesia can also be 100% foreign-owned and controlled, but is not permitted to make direct sales in the country. A representative office is normally set up by a foreign company to conduct marketing activities, market research, or as a buying or selling agent. A foreign representative office (FRO) is not permitted to make sales or issue bills of landing. The following information will help you determine whether a rep. office is the optimum corporate solution to fulfill your business objectives:
Advantages of an Indonesian representative office
- A representative office is an ideal way for a foreign company to gain a market presence in Indonesia;
- A foreign trade representative office can be 100% foreign-owned and controlled, and has no director or shareholder requirements. However, it is necessary to appoint a Representative Office Executive, who may be of any nationality;
- Setting up a rep office in Indonesia has no minimum share capital requirements.
Disadvantages of an Indonesian representative office
- A representative office is not permitted to engage in revenue generating activities;
- The parent company is required to have all company documents legalized at an Indonesian Embassy prior to the submission of the representative office application;
- The representative office can obtain a business license for only two years;
- An Indonesia rep. office requires a registered office and company secretary. Healy Consultants Indonesia office will act as your registered office and company secretary;
- After setting up a representative office, it is necessary to submit returns to the Indonesian tax authorities;
- Depending on its intended activity, the representative office may be required to obtain multiple operating licenses from different Government departments, thus adding time and cost to the engagement.
Healy Consultants fees for an Indonesian representative office
Healy Consultants’ fees to establish a representative office in Indonesia start at US$11,900 in Year 1 and US$2,800 from Year 2 onwards, depending on corporate structure and range of professional services required.
Nominee trading company
An Indonesian nominee trading entity is a legitimate way to conduct business in the country, and is often used as a legitimate vehicle for entrepreneurs to overcome foreign investment restrictions (for example, the purchase of Indonesian property). The following information will help you determine whether setting up a trading company is the optimum corporate structure to fulfill your business objectives:
Advantages of an Indonesian nominee company
- A nominee trading entity is a legal way for foreigners to acquire property in Indonesia. To achieve this, the company buys land on behalf of the investor, and Land Title deeds are in the name of the nominee company;
- Healy Consultants can obtain a 30-year business license for your nominee company;
- Healy Consultants can open global corporate bank accounts to support your nominee company.
Disadvantages of an Indonesian nominee company
- An Indonesia nominee trading business entity requires a minimum of two directors and shareholders, whose details appear on a public register. At least one shareholder must be an Indonesian citizen;
- This Indonesia business setup requires an initial share capital of 50 million rupiah (US$5,400);
- An Indonesia nominee company is obliged to submit an annual tax return and audited financial statements;
- The nominee company requires a company secretary and a registered office. Healy Consultants Indonesia office will act as your company secretary and your registered office.
Healy Consultants fees for an Indonesian nominee trading company
Healy Consultants’ fees to establish a nominee company start at US$17,950 in Year 1 and US$10,450 from Year 2 onwards, depending on corporate structure and range of professional services required.
Our fees to act as nominee director to support your Indonesian trading company amount to US$5,950 per annum (together with a one time refundable deposit of US$2,450). When closing down the company, our de-registration / liquidation fees amount to US$3,450.
The Indonesian government prefers foreign companies to form a joint venture with an Indonesian resident company. Joint ventures in the country must be established in the form of a PMA, a foreign investment limited liability company.
Indonesia joint venture
A joint venture company is an excellent way for foreign investors to acquire local market knowledge and expertise to tap opportunities in Indonesia and overseas. The following information will help you determine whether setting up a joint venture in Indonesia is the optimum corporate structure for your business:
Advantages of an Indonesian joint venture
- A foreign investor can draw on the local market knowledge, business network and expertise of its Indonesian business partner. Similarly, the venture partner benefits from the expertise and technology of its foreign partner;
- A joint venture is not required to rent premises in Indonesia;
- An Indonesia partner company can obtain a 30-year business license;
- Healy Consultants can open global corporate bank accounts to support your venture partnership.
Disadvantages of an Indonesian joint venture
- A foreign investor does not have full control of the joint venture, which requires an Indonesian citizen to hold at least 5% of the company;
- To setup a joint venture at least two directors and shareholders are required. Furthermore, details of all directors and shareholders will appear on the public register;
- A joint venture is obligated to submit annual tax returns and audited financial statements to the authorities;
- It is mandatory for a joint venture to have a registered office and a company secretary. Healy Consultants Indonesia office will act as your registered office and resident company secretary.
Healy Consultants fees for an Indonesian joint venture
Healy Consultants’ fees to establish a joint venture company in Indonesia start at US$17,700 in Year 1 and US$7,050 from Year 2 onwards, depending on corporate structure and range of professional services required.
Our fees to act as nominee director to support your joint venture partnership amount to US$7,950 per annum.
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 IDR 3 billion, it will be a public company. 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 (PT Bursa Efek Indonesia) (IDX).
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%.
Why setup a company in Indonesia?Indonesia offers certain grants and funding programs for new businesses. Please refer to the following page for information regarding these options.
How can foreigners setup a company in Indonesia?Indonesia company setup requirements include i) reservation of business name ii) preparation of incorporation documents iii) notarization of the documents and iv) tax and business license registration.