Establishing A Business in Indonesia 101
19 October 2022
Growing as the largest economy in Southeast Asia with a GDP of $951 billion from over 260 million of population, Indonesia comes as one of the most emerging markets that attract investors from around the world. The abundance of natural resources, and trained workforce add a huge plus, and improving investment climate gives another massive plus for anyone who wants to start a business in Indonesia.
Know the Ease of Doing A Business
The government continues to improve the Ease of Doing Business (EoDB), which raised by 1.4% from last year. Its foreign investment program is far more simplified with deregulation and cuts of number of permits needed by investors. Many of the system is digitalised and more are in the process, taking fewer clicks to register a business. Now, it only take 22 working days instead of 180 days to establish a company in Jakarta.
The Three Types of Legal Entities
There are three types of legal entities available for foreign investors to start a business in Indonesia.
Perseroan Terbatas (PT)
Also known as Limited Liability Company, a PT is a legal entity which lets foreign investor to run a business under a shared-based capital structure. The Limited Liability protect the owner’s pesonal assets should the business goes awry. The PT company could only be owned by Indonesian citizen. So, if a foreign investor wants to set up this type of business, they need a resident shareholders. The PT model is perfect for foreign investors who want to reach a sector that is restricted to foreigners. The business capital needed to establish a PT company range from IDR 50 million to IDR 10 million or more, depending on the size of the company.
The PT PMA
Also known as a Foreign-Owned Limited Liability Company, the PT PMA model allows partial or 100% foreign ownership of a business. You don’t need to share your company with local shareholders and this model is perfect for almost any type of business. The PT PMA is governed under the Foreign Capital Investment law and you will need permission from the Capital Investment Coordinating Board.
Branch or Representative Office
For large-scale multinational companies which want to reach the Indonesian market, a Representative Office is the best company model to apply. However, the branch office is only permitted to conduct market research, promotional operations, and purchasing or selling on behalf of the foreign parent company. After two years, the company’s license will expire and must be renewed in order to continue doing business in Indonesia. Every commercial transaction should be done by the parent company.
Make Sure Your Business is Listed in the “Positive Investments”
Before starting your PT PMA, you need to know which fields or sectors your business falls in the Indonesian Standard Business Classification (locally known as KLBI). If your sector is enlisted under the Positive Investment, you can go to set your PT PMA. However, if it is open with conditions or altogether restrained for foreign investment under the Negative Investment list, you might need a local partner to set up a PT company.
Know What You Need to Register the Company
The Company Domicile (SKDP) for enterprises in Jakarta is no longer necessary as of May 2019. Prior to this time, the domicile letter is one of the prerequisite to start a business in Indonesia. A Domicile Letter serves as official documentation confirming your business’s address has been registered. Before May 2019, every foreign-owned company must have an office while being incorporated. It is important to remember that a residential address cannot be used as a business address. However, some banks still require businesses to provide a Company Domicile Letter / Business Domicile letter to set up bank accounts and various applications. Be sure to keep that in mind.
Get the Deed of Incorporation
To start a business in Indonesia, you need to get the Deed of Incorporation from a public notary. The deed contains Articles of Association and it declares the legality of your company incorporation as well as details of the company. Hire a public notary who speaks English very well so they understands all the important points in your business, since the deed papers must be written in Bahasa Indonesia. All the shareholders must be present in the notary to fill in necessary information or get represented through their attorney.
Get Advised by the Right Business Consultants
Getting a new business off the ground in a new country is no small feat. To set everything right from the beginning and minimise legality errors that might cost you a fortune in the future are the main challenges facing entrepreneurs who want to establish their company in Indonesia.
Seeking advice and guidance is key. Get help from the experts to build solid ground for your business. We at Synergy Pro are always ready to help.
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