Company Incorporation

Foreign companies have many options when considering expansion, catering to their specific needs and objectives. Among these options, two common and widely chosen paths are establishing a Foreign-Owned Company (PT PMA) or a Representative Office. Understanding the advantages and disadvantages of each company incorporation option will enable foreign companies to make an informed decision that will lead them to success in the Indonesian market. Having served thousands of global entrepreneurs and companies in Asia Pacific, Europe, and North America, Incorp Indonesia’s team of experts will ease the process of business setup in Indonesia for you. From business process and outsourcing to compliance and secretarial services, our team is ready to make business registry and operations in Indonesia hassle-free.

Foreigners who want to create or build a business in Indonesia tend to establish a PT PMA.

A PT PMA (Penanaman Modal Asing) or Foreign Investment Company, is the establishment of capital for the purpose of doing business in the Republic of Indonesia by a Foreign Investor. The investment can be made by using full Foreign Capital or in part with a Domestic Investor. Before an Investor decides to register a PT PMA in Indonesia, they must investigate his exact business activities in the Positive Investment List, which notes Foreign ownership to allow investment in certain business classifications. It is issued by the Indonesian Ministry of Investment, also known as the Indonesian Investment Coordination Board (BKPM).

The minimum investment plan is IDR 10 billion (approximately USD 750,000), which is also the minimum Paid-Up Capital, which shall be deposited after the company is established and Bank Account is opened. The company is required to submit an Investment Activity Report (LKPM) and monthly Tax Reports, even if the company does not have any activities and owes no taxes.

The Advantages

A PT PMA is recognized as a form of Legal entity by Indonesian Law
Eligible to obtain special Privileges
Can sponsor Foreign employees
Eligible to directly obtain business license for certain activities
For a minimum investment plan of IDR 10 billion, investor is eligible for 3-hour licensing services

The Disadvantages

Stricter compliance compared to a local PT, required to submit quarterly Investment Reports
Required to fulfill a minimum investment plan of IDR 10 billion (including Paid-Up Capital)

One of the available legal entities in Indonesia is a limited liability company. A Limited liability company, also called a “Local PT” and officially called a PT PMDN, is the most popular and most widely used business entity in Indonesia for carrying out various business activities.

In addition to having a clear legal basis as provided for in Law No. 40 year 2007 on Limited Liability companies, a local PT is allowed to conduct business activities that are closed to foreigners. A local PT must be founded by a minimum of two local person as responsible shareholders, one Local Director and one Local Commissioner.

The Advantages

The viability of the company is more secure
Can easily get additional funds/capital, for example by issuing new shares
The limited liability company binds and protects the company’s activity
The minimum capital investment is based on company size:
- Small: IDR 600 million
- Medium: IDR 600 million – 10 billion
- Large: more than IDR 10 billion
The company can have three main business activities
Usually no limitations apply, and it can use all open government tenders
It can directly get an import license and employ foreigners
It can have a foreign director

The Disadvantages

It is subject to a separate tax, and dividends received by shareholders will be taxed
The dissolution process, changes to articles of association, mergers and takeovers require time and money, as well as approval by a General Meeting of Shareholders (RUPS)
The company is 100% owned by Local shareholders

A Representative office in Indonesia is a structure that is utilized by Foreign businesses for the purpose of engaging in the market surveillance, networking, exploring business opportunities or providing other managerial support in Indonesia to the parent company abroad.

The activities a Representative Office can undertake are limited. These include:

Supervising, connecting, coordinating and overseeing company interests in Indonesia.
Performing market research based on company requirements.
Monitoring sales for the company’s marketing activities.
A representative office in Indonesia is not allowed to seek income nor allowed to conduct management activities.

Although the revenue restrictions seem like a major disadvantage, you can still arrange many activities visit parent company and local agents.

There are four options to consider:

Foreign Representative office
Foreign Trade Representative office
Foreign Construction Representative office

While the first two options are used by vast majority of the companies, a Foreign Construction Representative Office can be useful in delivery of construction projects.