Indonesia company formation: Types of business entities
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How to start a business in Indonesia: Process, Advantages, Timeline and Documents Required?
Multi-national Clients’ may create a legal presence in Indonesia in one of two ways: a Limited Liability Company (PT PMA) or a Representative Office.
Because of the multiple Government approvals required, company formation in Indonesia is complex and time-consuming. The PMA is subject to prior approval by the Indonesian authorities with a minimum paid-up capital of US$ 700,000.
The Indonesian limited liability company (PT PMA)
- Establishing a PT PMA is the preferred structure for multi-national Clients’ to wholly foreign own a legal presence in the country. It is necessary to have a minimum paid-up capital of US$696,000); and
- PT PMA company formation requires i) a minimum of one director and ii) two overseas shareholders and iii) one Commissioner. The commissioner can be a non-resident individual and his role and responsibility includes i) supervising the company and ii) examine the annual report and approve the budget plan submitted by the Board of Directors; and
- All applicants will need approval from the Indonesian Investment Coordinating Board (BKPM). There are no restrictions on where a PMA can operate in the country. Depending on the intended business activity, the business entity may require 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; and
- The PT PMA can only issue shares in Indonesian Rupiah. However, your company is allowed to state dual currency in the Articles of Association (for information purpose); and
- After Indonesian company formation, a PT PMA can import without the need for local importers, agents and distributors.
Representative office
- To get to know the Indonesian market, some foreign investors first open a representative office (RO). This is the easiest and fastest way to set up a presence in the country. Thereafter, if the findings are positive and the Indonesian market can be a profitable business opportunity for the company, our multi-national Clients’ can transform the representative office into a limited liability company; and
- A representative office (RO) is only permitted to i) conduct promotional activities and ii) market research and iii) act as a country buying/selling agent for the parent company; and
- 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; and
- The RO is led by a Chief Officer, who is an Indonesian national or a foreigner. However, the Chief of the RO must reside in Indonesia, and they have to provide a statement letter that they are only working at the relevant RO and not working in another place; and
- Our Clients’ can own 100 percent of this business entity and don’t have to contribute the same paid-up capital required during the PT PMA company formation; and 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; and
- The RO must be incorporated in an office building in the capital city of any province in Indonesia. If an RO does employs foreign workers, then it is obligated to employ Indonesian citizens. For example, if the appointed Chief of RO is a foreigner, the RO must employ an Indonesian employee; and
- Because the RO is classified as low-risk business entity, it can be registered within a month including securing a business identification number; and
- The parent company bears liability for the activities of the representative office and is responsible for financing its operations. Representative offices are not permitted to generate income and thus are not eligible for tax exemptions; and
- Foreign investors looking to open an RO will need to fulfil the following requirements:
- Register through the OSS online system; and
- The parent company’s Articles of Association must be legalized by a notary and the Indonesian Embassy of the parent company’s country of origin; and
- Letter of Appointment by the Indonesian Embassy located in the parent company’s country of origin; and
- Latest financial statements of the parent; and
- Letter of intent legalized by a notary and the Indonesian Embassy located in the parent company’s country of origin;
- Certificates demonstrating competency in the relevant industry or sub-sector;
- Must be located in the capital of a province and have a lease agreement;
- A letter that states the RO will not engage in any commercial activities in Indonesia.
Table of comparison between popular Indonesia entities
| Detail | PMA Company | Rep Office |
|---|---|---|
| Total company set up costs | US$30,840 | US$20,970 |
| Subsequent annual costs (excl accounting and tax fee) | US$8,520 | US$7,220 |
| How long to set the company up? | 3 months | 3 months |
| How long to open company bank account? | 4 weeks | 3 weeks |
| Issued share capital required | US$300,000 | None |
| Types of business permitted | No restriction | Marketing, research, advertising |
| Allowed to sign sales contracts with Indonesian Clients | Yes | No |
| Allowed to invoice Indonesian Clients | Yes | No |
| Corporate tax payable in Indonesia | 22% | None |
| Corporate bank account | SCB Indonesia | SCB Indonesia |
| Can rent office premises in Indonesia | Yes | Yes |
| Tenancy agreement required before incorporation? | Yes | Yes |
| Allowed to import raw materials? | Yes | No |
| Allowed to export goods? | Yes | No |
| Can the entity hire expatriate staff in Indonesia? | Yes | Yes |
| Do you visit Indonesia for company incorporation? | No | No |
| Resident director required? | Yes | No |
| Resident shareholder required? | No | No |
| Minimum number of directors | 1 | None |
| Minimum number of shareholders | 2 | None |
| Minimum number of Commissioner | 1 | None |
| Indonesia resident company secretary | No | No |
| Tax registration certificate required | Yes | No |
| Individual shareholders allowed | No | No |
| Corporate shareholders allowed | Yes | Yes |
| Corporate director(s) allowed | Yes | No |
| Public register of shareholders and directors | Yes | No |
| Indonesia employment visa fees | US$3,950 | US$3,950 |
| How long to get work permit approved | 3 months | 3 months |
| Statutory audit required | Yes | No |
| Annual tax return to be submitted | Yes | No |
| Access to Indonesia double tax treaties | Yes | No |
| Draft invoice | View invoice PDF | View invoice PDF |
Public-Private Partnership entities
- A Public-Private Partnership (PPP) is a contractual arrangement between the Indonesian Government and the private sector. Under a PPP, the private sector can build, operate and maintain public infrastructure facilities and provide services traditionally delivered by government. Examples of these are roads, airports, bridges, hospitals, schools, railways, and water and sanitation projects; and
- As of 2024, there are 34 projects in progress, with a robust pipeline of potential projects and investment opportunities. PPPs are complex to structure and implement, but present opportunities for established businesses to enter the Indonesian market. Steps to establish a PPP in Indonesia include:
- Apply to form a Special Purpose Company (SPC) as a legal entity; and
- Sign a PPP agreement with the Government Contracting Agency (GCA); and
- If there is a government guarantee, sign the guarantee agreement with the Indonesian Infrastructure Guarantee; and
- Depending on the business activity, an SPC must complete opening a bank account and tax and labour registration; and
- Financial arrangements relating to the PPP must be completed within one year of signing the project contract. PJPK can extend this for a maximum of six months;
