Incorporate Company – Having a population estimated at 273.52 million in 2020, Indonesia is still nominated as the 4th largest country in the world. With this huge population, Indonesia provides abundant business and investment opportunities, both for nationals and foreigners.
With a GDP of US$1.016 trillion, Indonesia is one of the fastest-growing middle class in the world. Over the past decade Indonesia has enjoyed economic growth, and the opportunities are available to businesses and investors which are considering overseas expansion.
Also, each year foreign direct investment (FDI) realization in Indonesia tends to grow. The business environment in the country can be attractive to incorporate a foreign investment limited liability company in Indonesia, known as Perseroan Terbatas Penanaman Modal Asing (abbreviated PT PMA). It is also the legal entity through which a foreign investor can conduct commercial activities in Indonesia.
Based on Law No. 25/2007 regarding Investment (New Investment Law), a foreign investment in Indonesia is defined as an investing activity held by a foreign investor in order to run a business within the territory of Indonesia.
Before getting deeper into the incorporation of a company in Indonesia, you should know the fact that the country is previously quite well known to restrict the ownership of business for foreigners. One of the major obstacles of doing business here is obtaining the necessary permits and licenses. But, the obstacles can be easy solved, if you know the steps well.
Additionally, many companies will take a look and want to incorporate their businesses in Indonesia. It is recommended that you get ahead of the curve and enter the market in Indonesia, as soon as possible before the competition edges you out of the market.
Thus, we have a guide to incorporate a company in the country, and keep in mind to seek the local assistance to ensure a smooth ride through the process!
The Incorporation Requirement in Indonesia
There is a minimum share capital requirement to incorporate a company in this country. It depends on the size and scope of your business, and whether it will be owned by Indonesian or foreigners. Indonesian-based businesses can incorporate with a minimum share capital of between US$3,500 and US$35,000 for a local limited liability company.
If you are a foreign entrepreneur, you will need a significant upfront investment to join the market.
International investors must have an investment plan worth US$1.2 million or more, and must deposit at least a quarter of that figure in the country as initial share capital. This may be quite difficult for investors, but it is possible to bypass the requirement by working with Indonesian-based entrepreneurs as a joint venture.
There is another way though, you can apply for an Indonesian visa or citizenship to incorporate as if you were a resident of this country. Another way to reduce the barriers to entry when you are expanding in the country is appointing a nominee director. That would be a good option as well.
Opening a business in this country, you will need a minimum of two shareholders, one resident director, and a commissioner, who can be from any nationality. It is so recommended that you would partner with a local entrepreneur or business to ensure you stay compliant throughout the process.
After you are firm in deciding to enter the market in Indonesia, the next step is to determine the level of demand for your products and services. You can do this by talking to local citizens, then analyzing the performance of your competitors and also the overall market. Lastly, conducting your own primary research and street tests.
You can use all the information that you have gathered in the market research to determine the success of your venture with Indonesian consumers. You should consider visiting Indonesia on a market research mission, and speaking with potential clients to begin the relationship before you enter the Indonesian market.
Choose The Business Entity Type
Before incorporating a company in the country, it is better to know what entity type of business that you will set up. Choosing the right business entity type will save you time and ensure that you can access the necessary benefits and tax relief when expanding across South Asia.
- The Indonesian LLC (Perseroan Terbatas)
This is the most common entity, and most often used by local entrepreneurs. This entity requires one director and two Indonesian shareholders, as well as the commissioner can be from overseas.
- Penanaman Modal Asing (PMA)
Companies that are partly or wholly foreign owned are called PMAs, governed by the Foreign Capital Investment Law. Before incorporating and conducting activity in the country, the businesses must be approved by the Capital Investment Coordinating Board.
PMAs must invest US$1.2 million in the country, 25% of this investment must be paid up as share capital when incorporating. The Indonesian government set a high requirement in order to attract large scale companies and investors, while protecting smaller local businesses.
Establishment of a PT PMA requires at least two shareholders: President Director and President Commissioner. And, at least one of the shareholders needs to be a foreign individual. The Director needs to reside in Indonesia to take care of all daily activities. The foreigner who works and resides in Indonesia is required to obtain a tax number (NPWP) and a work permit (KITAS).
- Representative Office
If foreign firms want to gain a presence in Indonesia, they should consider a representative office. However, the businesses are only able to conduct research and promotional activities, and cannot conduct revenue-generating activities. The necessary note is, Indonesia does not offer a Branch Office entity.
- Public Company
According to Indonesian Company Law, public companies must have at least 300 shareholders and IDR$3 billion in capital. Such companies will face strict regulations and must be listed on the PT Bursa Efek Indonesia stock exchange, while the foreign businesses are unlikely to become public companies overnight. It is also good to know that PMAs can be converted to public companies with local investment.
Registration Process to Incorporate Your Company
Once you have chosen the entity type of your business, you should obtain incorporation documents and register your company name with the Ministry of Law and Human Rights. The documents must be notarized, and you need to pay a registration fee. After the payment, you will receive a receipt to file with the Trade Register.
The next step is to apply for your business license in the country through the relevant authority, and then register for employment with the Ministry of Manpower. Eventually, you will be able to register for social security and obtain tax identification numbers for your business, and then open a corporate bank account.
Waiting the approval for your incorporation documents can take around 10 days, drafting your Article of Association around 2-3 days, and obtaining a business and a permanent license, around 10-15 days.
In total, you should be able to progress to a fully registered business around 1-2 months. You should submit correct paperwork and work with a local business advisor who can help to speed up the process.
If you want an advisor to help you or need assistance throughout the process, you can contact us anytime. We will be ready to assist you anytime you want!