Setting Up a Company in Indonesia

Indonesia is a country of islands between the Indian Ocean and the Pacific Ocean in Southeast Asia. It ranks fourth in economic size, following China, Japan, and India, and population size worldwide. Because of these factors, registering a company in Indonesia can be highly beneficial. Company registration in Indonesia is generally straightforward, but meeting all local legal requirements is essential.

Wondering how to register a company in Indonesia? This article will look at establishing a company in Indonesia, elucidating the nuances, and uncovering the strategies for thriving within this multifaceted and dynamic business environment.

Advantages of Starting a Business in Indonesia

Setting up a business in Indonesia is an attractive prospect for many entrepreneurs, given the many benefits that characterize the process. Here are a few advantages of setting up a company in Indonesia:

Free Trade Agreement

Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), comprising Brunei, Cambodia, Laos, Malaysia, the Philippines, Singapore, Myanmar, Thailand, and Vietnam. Indonesia enjoys advantageous trade conditions within this ASEAN framework, featuring minimal or non-existent taxes. 

Moreover, companies in Indonesia aiming to export to other Southeast Asian nations can benefit from reduced tax burdens. Businesses can tap into a vast consumer base of over 667.3 million people by trading within the region. Moreover, Indonesia's international trade connections extend to countries like New Zealand, China, Australia, India, Japan, and South Korea, significantly expanding the spectrum of economic opportunities available.

Indonesia has also entered several other free trade agreements, including

1. The ASEAN-Australia-New Zealand Free Trade Area (AANZFTA),

2. The ASEAN-China Free Trade Agreement (ACFTA),

3. The ASEAN-India Free Trade Area (AIFTA),

4. The ASEAN-Japan Free Trade Area (AJFTA),

5. The ASEAN-Republic of Korea Free Trade Area (AKFTA),

6. The ASEAN-Hong Kong, China Free Trade Area (AHKFTA),

7. The ASEAN Trade in Goods Agreement (ATIGA).

In addition to these agreements, Indonesia has forged a Comprehensive Economic Partnership Agreement (CEPA) with the European Free Trade Association (EFTA). This agreement encompasses benefits and support in

• Trade in goods and services,
• Protection of intellectual property rights, 
• Investment facilitation, 
• Government procurement, 
• Technical trade barriers.

Foreigners Can Own Land

Foreign investors can legally hold land and real estate assets in Indonesia. There exist three distinct property ownership rights in Indonesia, each characterized as follows:

1. The Right to Construct (Hak Guna Bangunan)

The "Hak Guna Bangunan," also known as the Right to Construct, is a legal property right in Indonesia that grants individuals or entities the authority to build and own structures on a specific piece of land.

2. The Right to Cultivate (Hak Guna Usaha):

The "Hak Guna Usaha," or the Right to Cultivate, is a legal land-use right in Indonesia that permits individuals or entities to cultivate and utilize a particular piece of land for agricultural or farming purposes.

3. The Right to Use (Hak Pakai):

The "Hak Pakai," or the Right to Use, is a legal land tenure arrangement in Indonesia that grants individuals or entities the right to utilize a specific parcel of land for various purposes, such as residential or commercial use. 

English-Speaking Business Environment

Indonesia has a rich ethnic diversity, with over 300 languages spoken within its borders. While Bahasa Indonesia serves as the country's primary language, English finds widespread use for business communication in major urban centers like Jakarta.

How to Start a Business in Indonesia as a Foreigner

Strategize Your Business Expansion

Before setting up your company in Indonesia, conducting extensive research about the market is essential. Identify potential market gaps, comprehend local consumer preferences, and assess competitors. Using the findings, develop a well-structured business plan detailing your objectives, target demographic, unique selling propositions, and revenue projections. 

Choose the Appropriate Business Structure

Selecting the proper business structure is pivotal. As a foreigner, you can establish a Limited Liability Company (PT PMA), which permits foreign ownership. Collaborate with a legal advisor to determine the most suitable structure for your business. Once you decide on the structure, register your business name and obtain a distinctive tax identification number (NPWP).

Capital And Investment

Indonesia imposes minimum capital requirements for foreign-owned enterprises. Allocate funds accordingly and deposit them in a local corporate bank account. Further, your investment strategy should align with the regulations the Indonesia Investment Coordinating Board (BKPM) sets. The BKPM sets minimum capital requirements for different companies; for example, for an LLC (PT PMA), it is IDR 10 billion.

Acquire Essential Licenses and Permits

To successfully navigate Indonesia's regulatory framework, securing the necessary business licenses and permits is essential. Collaborate closely with legal professionals to secure approvals from relevant authorities such as the BKPM and local government agencies. Key permits include the Business License (Izin Usaha) and Location Permit (Izin Lokasi).

Employment and Visas

Compliance with Indonesia's labor laws is imperative if your business involves hiring local staff or bringing in foreign employees. Procure the necessary work permits and visas for your international workforce. Consider partnering with a professional employer organization (PEO) to streamline the employment process and ensure adherence to employment regulations.

Also Read: Guide to Employing and Officing in Indonesia

Business Types in Indonesia

Indonesia offers a range of business structures to choose from. Here's an overview of common types of business entities available in Indonesia:

Limited Liability Company or Perseroan Terbatas (PT):

• Perseroan Terbatas is a legal entity in Indonesia operating as a Limited Liability Company.
• It can be publicly listed or privately owned, protecting shareholders' assets.
• PTs are further classified into local and foreign-owned PT PMAs (Penanaman Modal Asing).
• The company's name must begin with "PT."

Private-Owned Enterprises (BUMS)

• BUMs encompass three types of entities: Firma/Firm (FA), Commanditaire Vennootschap (CV), and Limited Company (PT).
• FA is established by Indonesian individuals but doesn't shield personal assets.
• CV is an LLP with no minimum capital requirement, lacking personal asset protection.
• PT, similar to PTs mentioned earlier, provides limited liability.

Sole Proprietorship

• Ideal for single-person businesses with straightforward setup and dissolution procedures.
• The business owner bears all debts and enjoys all benefits.

Representative Office

• A choice for foreign companies exploring the Indonesian market.
• Conducts market research promotional activities and acts as a buying/selling agent.
• The foreign parent company oversees all commercial transactions.
• No minimum capital is required, and local and foreign employees can be hired.
• Three types: Foreign Representative Office, Foreign Construction Representative Office, and Foreign Trade Representative Office.

Subsidiary Company

• Subsidiary companies are established as Limited Liability Companies (LLCs) in Indonesia.
• Often chosen by foreign parent companies to access the Indonesian market.
• Operates as a separate legal entity, providing distinct business ownership.

Indonesia offers a variety of business structures to cater to different needs and objectives, from protecting personal assets to exploring foreign markets. Each structure has its own advantages and considerations, allowing entrepreneurs to make informed choices based on their specific requirements.

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Documents Required for Company Registration in Indonesia

The following documents must be submitted when registering a company in Indonesia:

A Deed Of Establishment (DOE) 

A Deed of Establishment (DOE) or Articles of Association is a legal document crafted by company founders, specifying essential details regarding the company, including the company's name, registered address, purpose, and objectives. It also includes information such as the date of incorporation (both start and end), the amount of capital invested, and a roster of the Board of Directors and Board of Commissioners.

For it to be considered valid, the DOE must undergo legalization by a public notary. Should any alterations be made to the DOE information, the company must create a memorandum specifying the adjustments.

Capital Statement Letter

In cases where you are registering your company in Indonesia as a PMA (foreign-owned company), the local government mandates the submission of a Capital Statement Letter. This document, composed in Bahasa Indonesia and endorsed by shareholders, confirms their commitment to invest a minimum capital amount stipulated by Indonesian regulations. The minimum investment value required for foreign companies in Indonesia is set at 10 billion Rupiah. This letter is one of the prerequisites for obtaining approval from the Ministry of Law & Human Rights.

MOLHR Approval

Every business operating in Indonesia must secure its legal entity status through the process of company legalization by the Ministry of Law and Human Rights (MOLHR). To initiate this approval, the company must submit its DOE to the MOLHR within 60 days of its creation. The MOLHR will then undertake a review before deciding on the status of the legal entity. The entire process, from approval application, typically takes at least 14 days, with the ministry issuing a signed decision electronically upon approval.

Tax Identification Number (NPWP & PKP)

NPWP, equivalent to a taxpayer registration number, is essential for individuals or entities residing in Indonesia, whether temporarily or permanently. This ID is a prerequisite for fulfilling tax obligations and obtaining business licenses. NPWPs are not automatically assigned by the government; thus, individuals and entities must undertake registration with local tax offices. Once acquired, your NPWP data becomes integrated into the Directorate General of Taxes.

Business License

A business license is mandatory for any company conducting operations in Indonesia. However, before applying for a license, verify which one applies to your business, as there are four distinct categories, each for different industries. Once the appropriate license is identified, the Online Single Submission (OSS) portal can initiate the application process. It's essential to ensure that you have already obtained the necessary documents, including the DOE, MOLHR approval, and Tax Identification Number, as they are prerequisites for the business license application.

Timeline for Indonesia Company Registration

The incorporation process for a foreigner establishing a company in Indonesia involves several key steps, each with its respective timeframe:

Please note that these timeframes can vary depending on specific circumstances and regulatory changes, but they provide a general guideline for the incorporation process in Indonesia.

Setting Up a Company vs Partnering With an Employer of Record in Indonesia

Here's a comparison table between setting up a company and partnering with an Employer of Record (EOR) in Indonesia:

Hire Talent in Indonesia Compliantly 

If you are setting up a company in Indonesia, ensuring that your organization adheres to Indonesian employment laws is essential to prevent potential fines and penalties.

However, you can also explore the Indonesian markets and onboard talented employees without the hassle of setting up a separate entity by partnering with Skuad.

Skuad, a unified Employer of Record platform, allows organizations to legally and compliantly hire and onboard contractors and employees in over 160 countries, including Indonesia. With Skuad, you can sidestep concerns about legal risks and fines as the platform guarantees full compliance with each country's specific laws and regulations.

Book a demo with Skuad today!

FAQs

Can foreigners start a business in Indonesia?

Yes, foreigners can start a business in Indonesia. However, the specific regulations and requirements may vary depending on the type of business and the foreigner's nationality. It often involves setting up a PT PMA (Foreign-Owned Limited Liability Company) or partnering with a local entity. It's advisable to seek legal guidance to navigate the process effectively.

How much does it cost to start a business in Indonesia?

The cost of starting a business in Indonesia can vary significantly depending on various factors, including the type of business, location, and specific requirements. It typically includes expenses for company registration in Indonesia, licenses, permits, capital, legal and administrative fees, and ongoing operational costs. Costs can range from thousands to tens of thousands of US dollars.

Can an American start a business in Bali?

Yes, an American can start a business in Bali, Indonesia. Bali is part of Indonesia, and the same rules and regulations apply to foreigners looking to establish businesses there. The process may involve registering a company, obtaining necessary permits, and complying with Indonesian laws and regulations.

Does Indonesia tax foreign income?

Indonesia taxes income generated within its borders, whether by residents or non-residents. Foreign income is generally only subject to Indonesian tax if it is considered Indonesian-source income. The tax treatment of foreign income can vary depending on factors such as residency status, type of income, and tax treaties between Indonesia and the foreigner's home country. It's essential to consult with tax professionals to understand the specific tax implications of your foreign income in Indonesia.