How to start a company in indonesia

How to start a company in indonesia

Indonesia has long tended to be very reticent about foreign investment, and heavily favored local investment. The country used to be one of the only nations in the world to have a Negative Investment List, a list of economic sectors closed to investors from abroad. However, following the global economic crisis caused by the Covid-19 pandemic, local authorities decided to open the country to foreign investment to promote national economic recovery.

Consequently, the Negative Investment List has been replaced by a Positive Investment List, and the sectors closed to foreign investment have been reduced to only six prohibited economic businesses in Indonesia, such as narcotics production, fishing of protected species and coral reef exploitation, among others. All domestic economic activities are now technically open to foreign investors, but the degree of openness differs from sector to sector.

Public/private investment in Indonesia

There is a high level of public investment in Indonesia. As many as 164 state-owned enterprises are located throughout the country. The state controls prices on many basic commodities, including rice, oil and electricity. This policy led the Indonesian government to ban the export of palm oil in 2022, of which the country is the world's largest producer, in an effort to better control the price of palm oil domestically following soaring costs and a wave of public protests. This decision has had a considerable impact on international food prices, as palm oil is used in a large number of food products.

This extensive state involvement in national economic activities has allowed the country to maintain a high rate of economic performance over time. On the other hand however, the country has also been prone to institutional corruption; a long-standing problem in Indonesia, that is now being addressed. Hence, according to Transparency International's Corruption Perceptions Index, Indonesia is slowly but surely making improvements. In 2021, Indonesia was located at 96th place in Transparency International's Corruption Perception Index ranking, improving its ranking by one place from the previous year.

Types of businesses in Indonesia

If you plan to generate income by selling products or services in Indonesia, you will need to establish a "Foreign Investment Limited Company", a.k.a PT PMA (Perseroan Terbatas Penanaman Modal Asing ). This is the legal entity through which any foreign investor is allowed to conduct business activities in Indonesia.

PT PMA can be wholly or partly foreign-owned.

Procedures and requirements for establishing a business in Indonesia

At least two shareholders are required to establish a PT PMA, and at least one of these two shareholders is required to be a foreigner. He will have to obtain a tax identification number (NPWP) as well as a work permit (KITAS).

If you decide to establish a foreign company in Indonesia, contact the Indonesia Investment Coordinating Board (BKPM). This service agency is dedicated to handling foreign investments in Indonesia.

Alternatively, if you don't want to handle all the administration by yourself, you can hire us for setting up PT PMAs.

In order to establish a PT PMA, you will need to meet the minimum capital requirements for foreign investment, which currently stands at IDR 2.5 billion, or just under US$200,000. In the past, the Indonesian government had set a relatively high requirement in an effort to attract large companies and investors while protecting small local businesses. Thankfully the country has recently opened its economy even more to foreign investment in an attempt to help restore growth the Covid-19 crisis aftermath (see above).

In theory, paid-up capital is supposed to constitute 25% of the above requirement, but in some industries, this amount may be higher. However, in practice, in most industries, a PT PMA is often established without the need for a foreign investor to transfer paid-up capital to an Indonesian bank account, provided that the shareholders of the PT PMA sign a capital declaration stating that paid-up capital can be transferred if necessary.

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

• A master license and a business license from the BKPM
• A deed of establishment legalized by a notary public. This document must detail KYC information about the founding members, board of directors, board of commissioners and all shareholders.
• PT PMA's legal entity status by the Ministry of Law and Human Rights
• A letter of domicile from the local district authority
• A tax identification number (NPWP) and a confirmation of taxable business (PKP)
• A business registration certificate (TDP) for integrated licensing services (BPPT)
• A labor report and a business welfare report from the Department of Labor.

Once your PT PMA is established, be sure to file your Indonesian taxes on time. This step is monitored very closely by the Indonesian authorities.

You should also be aware that health insurance is now mandatory, and every ATP must declare their activity.

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