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Incorporation

Setting up a company in Indonesia

When setting up a company you may want to consider these factors:

  1. Business Factors

    Companies should consider business factors such as:

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Regional Language

    Regional language may be an influence. Although Indonesian is the national language, there are over 700 living languages spoken in Indonesian such as Javanese, Sundanese and Minangkabau.

Your Options

There are several types of business entities available in Indonesia, the most common vehicle being the foreign investment company (Penanaman Modal Asing or PMA). Other entity types include foreign representative offices. Branch offices are generally not allowed. Foreigners can either set up a limited liability company which is 100% foreign owned or a limited liability company through a joint venture with Indonesian partners. The steps for setting up these business types are explained below.

Representative Office

Foreign companies are allowed to establish a representative office in Indonesia, subject to significant restrictions, including only being able to perform marketing or promotion activities or market research. Only certain sectors, including trading, serices, oil and gas mining and banking, are allowed to set up a representative office.

Steps Required:

1. The Head of the representative office submits an application to the Indonesian Investment Coordinating Board.

2. Obtain domicile letter

3. Register with the Tax Office

4. Register with the Company Registry

Time: 22-33 days

Cost: Around IDR 10,000,000

Foreign representative offices are often useful for developing a principal foreign company’s business interests in Indonesia, but are not permitted to conduct business in Indonesia. There must be an individual nominated by the principal foreign company as responsible for the management of the representative office.

FROs are prohibited from:

  • Generating revenues
  • Entering directly into contracts or transactions in relation to any sale or purchase of goods and services with any business or individual in Indonesia for business purposes
  • Engaging in the management of any Indonesian company, subsidiary or branch.

The head of the representative is required to submit an application to the Indonesian Investment Coordinating Board, or may grant a power of attorney to its lawyers to do so.

Once the application is submitted, a licence can be expected within 5 days.

Benefits include that there are no capital requirements, and that a representative office can handle sales and delivery activities.

Steps involved are:

1. Obtain the Indonesian Investment Coordinating Board approval of representative office

This application requires the following documentation:

  • Letter of appointment from the parent company
  • Power of Attorney to sign the application if the parent company is represented by another party
  • Copy of valid passport (for foreigners) or copy of ID card (for Indonesians) for the individuals nominated as executives of the representative office
  • Letter of statement concerning the willingness to stay and only work as a representative office executive without engaging in other business in Indonesia

Time: 3-5 days

2. Obtain Domicile Letter

A letter of domicile must be obtained from the local government.

Time: 3-5 days

3. Register with the Tax registry

The representative office must apply for a taxpayer identification number (NPWP) from the Tax Office.

Time: 2 days

4. Register with the company registry

Time: 14-21 days

Limited Liability Company (Perseroan Terbatas)

The Perseroan Terbatas is a limited-liability corporation (LLC) organized by foreign nationals and capitalized with foreign funds.  The limited liability company must go through the entire registration and incorporation process, and is the most costly business structure to setup.

 Steps Required:

  • Pay fees for obtaining clearance of the company name at a bank
  • Arrange for notary to obtain standard form of company deed
  • Notarise company documents
  • Apply to the Ministry of Law and Human Rights for approval of the deed of establishment
  • Obtain the Building Management Domicile Certificate
  • Apply for the Certificate of Company Domicile
  • Pay non-tax state revenue fees for legal services
  • Apply for permanent business trading license
  • Obtain company registration certificate
  • Register with Ministry of Manpower
  • Apply for social security, health care insurance, taxpayer registration number and VAT collection

Time: 2-3 months

Cost: Approximately IDR 2,000,000

A limited liability corporation s a common investment vehicle for Indonesia-based business wherein foreign parties (individuals or corporate entities) can incorporate in the country. 

A limited liability company can give greater control over the business venture in Indonesia, and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.

Such problems often include profit not being maximized, leakage of the foreign firm’s intellectual property and the potential for joint venture partners to set up in competition against the foreign firm after siphoning off knowledge and expertise.

The steps for setting up a LLC  are explained in detail below.

1. Pay fees for obtaining clearance of the company name at a bank

The company name must be cleared with a notary through a computerized processing system. The notary must pay the fee of IDR 200,000 at a bank before obtaining clearance for the proposed company name. They will then obtain a payment receipt with a code.

Time: 1 day

Cost: IDR 200,000

2. Arrange for notary to obtain standard form of company deed

The notary will then use this code online to reserve the company name as proof of payment. The reserved name will be blocked for a period of 60 days, although this procedure is not necessary if the founding shareholders are confident the same name has not already been used.

The company name must not:

  • Have been lawfully used by any other company or which is similar to another company’s name
  • Be identical or similar to the name of a state, government, or international agency without approval
  • Fail to conform to the purposes and objectives and activities of the company
  • Consist of a set of numbers, letters or figures that do not form any words

The Ministry of Law and Human Rights may reject name application reservations if names are the same or resemble those of another company.

The application form for the company name must be accompanied by the following information:

  • The payment number of the approval of the use of the company’s name from the bank
  • The booked name of the company

Time: 4 days

Cost: Included in Step 3

3. Notarise company documents

An application to use a name similar to or the same as a well-known trademark will be rejected unless approval is obtained from the holder of the trademark. The maximum notary fee for objects of deed with an economical value of between IDR 100,000,000 and 1,000,000,000 is 1.5% of the total object of the deed’s value.

Time: Online process, less than a day

Cost: Depends on the value of the object of the deed

4. Apply to the Ministry of Law and Human Rights for approval of the deed of establishment

The application for approval of establishment of a company should be able to be electronically filed, by attaching the certificate of the bank account and a copy of the relevant bank transmittal advice.

The application must be filled in at most 60 days since the date of the deed establishment, which will be approved by the Ministry of Law. After 14 days, the Ministry of Law will issue the legalization on the establishment of the company. The establishment of company will be announced in the Supplement State Gazette within 14 days by the Ministry of Law.

Time: Less than 1 day

Cost: Included in Step 1

5. Obtain the Building Management Domicile Certificate

Companies located in an office building need to get the Building Management Domicile Certificate from the Building Management Office before proceeding to the next step.

Time: 1 day

Cost: No charge

6. Apply for the Certificate of Company Domicile

All Indonesian limited liability companies are required to possess a certificate of company domicile. This is issued by the head of the village where the company is located or by the building management if the office space is leased. This is required for several documents.

Time: 2 days

Cost: No charge

7. Pay non-tax state revenue fees for legal services

The requirement to pay the non-tax state revenue fee for legal services is stated on the website of the Legal Entity Administration System.

The cost breakdown is as follows:

  • IDR 1,000,000 for validation of the company as a legal entity
  • IDR 30,000 for publication in the State Gazette
  • IDR 550,000 for publication in the Supplement State Gazette

Time: 1 day

Cost: IDR 1,580,000

8. Apply for permanent business trading license

The company must then apply for the permanent business trading license (SIUP) at the Ministry of Trade. This constitutes the business license for a non-facility company engaging in trading business and contains details about company activities, and the person in charge of the company.

Usually, the following documents must be attached:

  • A copy of the company’s articles of association
  • An attestation of location and the address of company offices
  • ID card of the company’s President or Director
  • Letter of approval from the Ministry of Law and Human Rights

After the application is reviewed, the Municipality will pass it along to the technical agency at the regional office for cooperatives for further review. It usually takes around 2 days to obtain the signature of the head of that regional office, after which the SUIP is provided.

Time: 15 days

Cost: No charge

9. Obtain company registration certificate

The Company registration certificate (Tanda Dafta Perusahaan – TDP) must be obtained from the local government office, trade sub-division. The SIUP must be obtained before the TDP can be obtained, with the same documents as the previous step required for submission.

Time: 14 days

Cost: No charge

10. Register with Ministry of Manpower

Companies must submit a manpower report in the company to the Ministry of Manpower and Transmigration, or the appointed officer, within a period of no more than 30 days from establishment of the company. The report must contain the following information:

  • Company identification
  • Manpower relation
  • Manpower protection
  • Employment opportunities

Ratification of the registration of mandatory labour affairs report in the company is expected to be completed within one working day.

Time: 1 day

Cost: No charge

11. Apply for social security, health care insurance, taxpayer registration number and VAT collection

Companies must then apply for the Workers Social Security Program (BPJS Ketenagakerjaan), healthcare insurance, and for a taxpayer registration number and VAT collector number. These are processed with the Social Security Administrative Bodies and Tax Office.

For social security and healthcare insurance the employer must provide the following personal information for each candidate:

  • Name
  • Date of birth
  • Name of health service provider as selected by the employee
  • Other personal information including:
    • Employee and family member(s) who will be covered by the health insurance program
    • Employee salary information
    • Information on participation status

To register for tax, the following must be sent:

  • Deed of establishment
  • Identity card of one active director
  • Statement letter regarding confirmation on place of business from one of the active directors

Time: 7 days, simultaneous with previous procedures

Cost: No charge

Joint Venture

A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Indonesian investors, who together share the profits, losses and management of the JV. It is used most often when there is a need for a local business partner who can offer distribution channels, government relationships or significant market knowledge. Despite this the JV structure can bring challenges and risks by entering a business relationship with Indonesian investors.

Steps Required:

  • Register Business License
  • Obtain Certificate of Approval
  • Name Internal Supervisor

A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Indonesian investors, who together share the profits, losses and management of the JV. As a foreign investor, there are several advantages to creating a JV:

  • Foreign investors can draw upon local market knowledge, business networks and the expertise of their Indonesian business partner
  • JVs are not required to rent premises in Indonesia, although a registered office is required
  • Indonesian partner companies can obtain a 30-year license to undertake business

As with any partnership, in addition to the advantages of working together, JVs also face serious challenges. It is strongly recommended that prior to choosing this form of investment vehicle you consult with the foreign partner of an existing JV in order to better understand the advantages and disadvantages of the JV structure.

A JV is a limited liability company, where the liability of the JV’s investor(s) is generally limited to the assets of the JV. The “total investment” of a JV is the amount of capital required to start-up the business until it becomes self-sufficient from its investors.

Parties to an incorporated joint venture typically enter into a joint venture agreement or shareholders’ agreement which supplements the terms of the company’s articles of association. This agreement has no particular requirements, other than its terms should not contravene the mandatory corporate governancy requirements of Indonesia’s company law.

The time and costs of forming a joint venture are not specifically dictated under Indonesian law.

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Indonesia, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Indonesia they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Indonesia
  • the company needs help with tax, employment, immigration and payroll compliance in Indonesia

The complexity of employment regulations in Indonesia makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Indonesia allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Indonesia.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Indonesia. Read more about outsourced employment through Shield GEO.

 

Indonesia

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