August 7, 2017 |
Starting a business or legal entity in Indonesia can be a hazardous undertaking for foreigners, in particular to newcomers in Indonesia who lack profound experience with the country and do not have useful contacts or a network to rely on. Indonesia is not the world's most business-friendly country (reflected by the weak ranking in the World Bank's Doing Business Index) and contains specific cultural dynamics which - to an outsider - can make matters complicated.
There are two legal entities that are permitted for foreigners in Indonesia: (1) a foreign investment limited liability company (in Indonesian: Perseroan Terbatas Penanaman Modal Asing, or, PT PMA), and (2) a representative office (in Indonesian Kantor Perwakilan Perusahaan Asing, or, KPPA). This section aims to provide you all required information about the establishment of a:
- Foreign Investment Company (PT PMA)
- Representative Office (KPPA)
| Foreign Investment Company | Representative Office | |
| Allowed Activities | All business activities related to the sector it is engaged in and received approval for from BKPM | Only for market research & local representation |
| Best Option for | Companies that want to engage in commercial activities in Indonesia | Companies that want to engage in market research, networking, etc. It is strictly forbidden to generate profit and revenue or engage in sales directly |
| Foreign Ownership Restriction | Foreign ownership varies between 0% - 100% depending on the Negative Investment List | No restriction |
| Minimum Capital | IDR 10 billion (paid up capital at least 25% of investment plan) | No requirement |
| Benefits | Operates as an independent limited liability company within the business classification | No capital requirement, Takes less time to establish |
| Disadvantages | Large capital requirement | Cannot engage in commercial activities, Valid for a maximum period of 5 years |
| Issuing Work Permits and Visas for Foreigners | All shareholders, directors and commissioners eligible for work permit, unlimited amount of business visa sponsorships, work permits can be issued to foreign experts | Work permit for the chief representative, unlimited business visa sponsorships, 3 Indonesians for every expat hired |
| Compliance | Monthly withholding tax report, quarterly/semi-annual investment report | Monthly withholding tax report, annual activity report to the BKPM |
| Time to Establish | 10 weeks | 6 weeks |
| Estimated Costs | ± USD $3,500 | ± USD $2,500 |
Source: https://www.indonesia-investments.com/business/foreign-investment/item5738?
