Foreign Investment and Company Establishment

Foreign Investment and Company Establishment

There are several options for foreign investors to enter the market and this article lists the key things you need to know about starting a business in Indonesia.

What is considered a foreign company in Indonesia?

Any company that has even 1% of foreign shareholding is already a foreign company in Indonesia (PT PMA - Perseroan Terbatas Penanaman Modal Asing).

The percentage of the allowed foreign ownership of a company in Indonesia depends on its business activities and is regulated by the Negative Investment List (DNI - Daftar Negatif Investasi). Foreign investors can set up wholly foreign-owned enterprises in many business lines, for example in trading and real estate. However, some business lines are partially or entirely closed to foreign shareholding.

Requirements for foreign companies

To establish a foreign company in Indonesia, shareholders must inject at least IDR 2.5 billion (~USD 175,000) of minimum paid-up capital, while minimum commitment of total investment should be at least of IDR 10 billion.

According to the Indonesia Company Law (04/2007), every limited liability company in Indonesia requires at least two shareholders, one commissioner, and at least one director. The shareholders can be individuals, corporations, or both.

The commissioner will supervise the company’s activities and can be a non-resident in Indonesia. The director’s responsibility is to manage the company pursuant to its Articles of Association and the Indonesia Company Law.

Directors of a PT PMA can be foreigners or Indonesians, and like commissioners, they are not required to be residents in Indonesia. However, non-resident directors do not have the authority to sign documents on behalf of the company.

Before embarking on the process of incorporation, you need to choose the location of your business and have a registered address in an office building Indonesia. You cannot use your home address as it is not possible to register a company with a residential address. Alternatively, you can also use a virtual office.

Incorporation of a PT PMA

Indonesia has gradually become more liberal toward foreign direct investment (FDI) over the past years. In 2018, the government released a New Government Regulation No.24 of the Year 2018, introducing the One Single Submission (OSS) and simplified procedures of licensing.

The new regulation removed the previously-required approval from the Indonesia Investment Coordinating Board (BKPM - Badan Koordinasi Penanaman Modal) and for most business lines, the establishment process now proceeds through the One Single Submission (OSS) system.

The implementation of OSS reduced the incorporation timeline in Indonesia from previous 3-12 months to less than a month.

Step 1: Deed of Establishment

Before you begin with company registration, the first step is to determine the percentage of the allowed foreign ownership of your planned business activities. As your business line has to be correct from the beginning, it is advised to have a professional consultant to determine it for you.

Once you are confident that the DNI allows foreign investment in your planned business classification, choose a name for your PT PMA. The name has to include at least 3 words and cannot be misleading or similar to any other existing company or government institution’s name. It also cannot contain any vulgar or obscene words.

The company’s activities and purpose must be specified in its Articles of Association within the Deed of Establishment which must be made before a notary.

The Deed of Establishment must also be ratified by the Ministry of Law and Human Rights. This also means that your company is legally established under Indonesian Law.

Step 2: Domicile and Tax Registration

After the Ministry of Law and Human Rights has ratified your Deed of Establishment, the next step is to obtain a Domicile Letter (Surat Keterangan Domisili) from the district government and acquire a Tax Identification Number (NPWP - Nomor Pokok Wajib Pajak) from the local tax office.

Step 3: Identification Number to Operate (NIB-Nomor Induk Berusaha) and Operational License/Commercial License

The last step of incorporation is to register your legal entity to the One Single Submission System (OSS).

A unique identification number, NIB, will identify your company profile in Indonesia and it will also serve as your import license (previously API-U), customs identification number (previously NIK), and business registry (previously TDP).

Registration of your legal entity to OSS also automatically registers your PT PMA under the Indonesian Health and Social Security System (BPJS Kesehatan, BPJS Ketenagakerjaan).

For businesses that do not require specific operational licenses, the OSS system will automatically provide them (such as trading of goods, consulting activities). However, Some business classifications, for example, construction or financial technology companies, require further operational licenses that should be acquired additionally from the governing authorities.

Taxation and Compliance

All companies in Indonesia must pay and report taxes on a monthly and annual basis. Main corporate taxes imposed on companies in Indonesia are corporate income tax (CIT), value-added tax (VAT), and land and building tax.

The general corporate income tax rate imposed in Indonesia is 25%. Medium-sized companies with annual revenue of less than IDR 50 billion can apply for a reduced income tax rate of 12.5%, and small companies with annual revenue of less than IDR 4.8 billion are eligible for corporate income tax of 0.5%.

Apart from taxes, companies must also register for social and health program (BPJS) by the government.

Regulations in Indonesia tend to change frequently and for any specific advice on doing business in Indonesia, it is a wise move to take counsel from a professional consultant or a lawyer who would walk you through the process and explain you the current applicable laws and regulations or can contact us at +6281331733073