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2014-12-09 12:18:15

Indonesia is an attractive destination for investors and entrepreneurs who wish to set up a business abroad. Expat.com explains relating formalities.

Due to the country's large population, affordable labour and abundant natural resources, Indonesia offers great opportunities to foreign investors, and consequently, foreign direct investment (FDI) is increasing each year.

The fast-growing middle class in Indonesia is becoming a valuable target group for investors. Purchasing power is increasing, as are consumerist tendencies and, according to McKinsey, “some 90 million Indonesians will join the consumer class by 2030... For consumer companies, that will mean an additional US$1 trillion in annual spending by the nation’s optimistic and increasingly sophisticated consumers."

Indonesia has also moved up the ranks in the World Bank's Doing Business project, which measures whether reforms are making it easier to do business in the country. And corruption, which has long been an issue in Indonesia, is being addressed and, according to the Corruption Perceptions Index by Transparency International, Indonesia is slowly making improvements.

It is, therefore, understandable that the appeal of setting up a business and investing in Indonesia is increasing, but it is important to be prepared and follow the laws to a tee — even if they can seem confusing. It's worth contacting a qualified agent or the Indonesian Investment Coordinating Board to establish all up-to-date requirements beforehand, and to speak to fellow investors for advice when possible.

Although doing business in Indonesia seems to be getting easier every year, there is still a lot of red tape that entrepreneurs have to wade through. However, this can be seen as an opportunity rather than a limitation, as it means that foreign competition is not too extensive, and access to a 260-million strong consumer base is quite the reward for surviving the bureaucracy.

It is important to process the required permits, but bear in mind that this costs money and can take a lot more time than you may expect. As a result, you should make plans well in advance. Consider setting up your company before you've had a significant contract, rather than the other way around.

Types of companies in Indonesia

If you plan to generate revenue or engage directly in sales in Indonesia, then you will need to establish a foreign investment limited liability company, known as a Perseroan Terbatas Penanaman Modal Asing (PT PMA). This is the legal entity through which a foreign investor is allowed to conduct commercial activities in Indonesia. A PT PMA can either be 100% foreign-owned or partially foreign-owned, but it is important to be aware that various sectors in Indonesia are off limits or partially closed to foreigners. Before you do anything, review a recent copy of the Negative Investment List (Daftar Negatif Investasi) to find out whether your desired business is in a sector that is open to foreign investment.

If a sector is partially closed to foreign investment, then the list will clarify the maximum percentage of foreign ownership allowed, and you will require an Indonesian partner in order to engage in business in that particular sector.

If, on the other hand, you simply wish to explore business opportunities (through research or networking) in Indonesia, without engaging in commercial transactions, then you may initially prefer to set up a representative office (KPPA), followed by a PT PMA later down the line.

Procedures and requirements

At least two shareholders are required to establish a PT PMA, and at least one of these should be a foreigner, who will need to obtain a tax number (NPWP) and a work permit (KITAS).

If you do decide to establish a foreign company in Indonesia, then you should contact the Indonesia Investment Coordinating Board (BKPM), which is the service agency that deals with foreign investment in Indonesia.

Alternatively, if you don't want to deal with all the bureaucracy on your own, you can opt to employ the services of a locally-owned company that specialises in setting up PT PMAs or representative offices for foreigners. Ensure that your agent is trustworthy, can provide references, and is aware of regularly changing BKPM regulations. Once you have chosen a reliable agent, you will just need to send them all the required documents and they will deal with all procedures at the BKPM on your behalf.

In order to establish a PT PMA, you will need to comply with the minimum capital requirements for foreign investment, which currently stands at IDR10 billion. The Indonesian government has set a relatively high requirement, with the aim of attracting big companies and investors, while protecting smaller, local businesses. In theory, the paid-up capital is generally 25% of this requirement, which makes it currently IDR2.5 billion, but in certain industries, this amount is higher. However, in practice, in most sectors, a PT PMA is often established without a foreign investor needing to transfer the paid-up capital to an Indonesian bank account, so long as the shareholders of the PT PMA sign a Capital Statement Letter declaring that the paid-up capital can be transferred if needed.

In order to set up a PT PMA in Indonesia, you will require the following licenses/documents:

  • A principle license and a business license from BKPM
  • A Deed of Establishment that has been legalised by a public notary. This should detail the founders, the board of directors, the board of commissioners, and all shareholders.
  • Legal entity status of the PT PMA by the Ministry of Law and Human Rights
  • A domicile letter from the local district authority
  • A tax identification number (NPWP) and taxable entrepreneur confirmation (PKP)
  • A company registration certificate (TDP) for integrated licensing services (BPPT)
  • A manpower report and company welfare report from the Ministry of Manpower

Once you have established your PT PTMA, be sure to always report your taxes on time, as this is something that the authorities in Indonesia keep a close eye on.

You should also be aware that health insurance is now mandatory, and every PT PMA must report its investment activity.

 Useful links:

Indonesia Investment Coordinating Board
Kemlu - Ministry of Foreign Affairs
Doing Business - Starting a business in Indonesia
Indonesian Chamber of Commerce and Industry
Indonesia Investments
Imigrasi dan hak manusia Asasi - General Department of Immigration 

We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.