Setting Up a Company in Indonesia (Part One)

In Indonesia, prospective business owners can start any company of any sort as long as they have fulfilled all the necessary criteria and regulations. Two of the most important and well-known business entities in Indonesia are Perseroan Terbatas (PT) and Perseroan Terbatas Penanaman Modal Asing (PT PMA). PTs or PT PMAs can be found all over the country. They form a large part of Indonesia's economic backbone and contribute to the country's corporate success. This article, consisting of two parts, is dedicated to providing all you need to know about local PT and PT PMA. 

Part One: Local PT

What is a Local PT?

PT is the abbreviation of Perseroan Terbatas, a limited-liability company whose capital is divided into shares and the responsibility of shareholders is based on the number of shares that he or she has.

The Indonesian government, through Presidential Regulation No. 10 of 2021, which contains a Positive Investment List, has made the investment process easier for foreign investors. However, there are several business fields that are closed off to foreign ownership. The only alternative for foreign investors to operate within these business lines is to establish a local PT.

As the name suggests, local PT companies are for Indonesian citizens, with 100% local ownership. The general requirements for establishing a local PT company are as follows:

• 2 local shareholders;
• 1 local director;
• 1 local commissioner.

Sizes of local PT company

After you've learned what a local PT is, you should also be aware that starting a local PT in Indonesia will require some financial resources as your business capital. The amount varies, but usually it starts from IDR50 million to more than IDR10 million. Based on this amount of capital, local PTs in Indonesia are categorized into three sizes:

You can easily obtain additional funding and capital from a local PT company by issuing new shares, among other methods.

Procedures for establishing a PT Company in Indonesia

According to the Indonesian Ministry of Investment, setting up a company in Indonesia requires several procedures to be followed, which include:

• All founders, or one of the authorized founders, must submit the application for the establishment of a Limited Liability Company to the Notary by bringing the completeness of the company’s articles of association and the requirements required for the Deed of Establishment and Limited Liability Company.
• The Notary will make minutes of copies of the same limited company statement with a deed of incorporation to be signed by the founders.
• If there is a mistake in writing, the founders or the power of attorney are allowed to make corrections.
• After the minutes or copies of the company’s articles of association have been signed and submitted to the Notary, an Authentic Deed of Limited Liability Company Certificate will be issued, signed, and stamped by the Notary.
• As evidence of the company’s establishment, the deed of the establishment must include a  written day, date, month, and year.
• The Notary will submit the Deed of Establishment containing the articles of association of a Limited Liability Company to the Minister to obtain its legalization as a Legal Entity.
• After the issuance of the Decree of the Minister of Law and Human Rights of the Republic of Indonesia, the Limited Liability Company will obtain status as a Legal Entity.
• Once the Deed of Establishment and Ratification of the Company’s Articles of Association is completed, your business has been established in the form of the Limited Liability Company (PT).

Considerations for Foreign Investors

A local PT company can hire foreign employees. However, the hiring is done via the Special Purpose Vehicle Company, and the required company size is Medium. 

Furthermore, for foreign investors, a local nominee arrangement is required to reap the benefits of a local PT company. This means that the company will be set up by a local nominee director, and the local nominee director will have full legal ownership of the company. 

The most viable way for foreign investors to gain control of a local PT company in Indonesia is by setting up the company’s bank account in Indonesia. Despite the fact that you will not have legal ownership of the company, you can still manage the bank account and transactions to gain control of its funds.

To summarize, local PT provides a common and easy approach for your investment plan in Indonesia, thanks to several advantages like lower paid-up capital requirement or wider range of business opportunities. However, finding a trustworthy local partner to be the legal owner of the  company is still considered the biggest challenge for foreign investors. Additionally, the intricate system of Indonesian laws and regulations also makes it quite tricky for foreign investors who do not have connections in this country. These problems call for a reliable local firm that is recognized by the authorities and can deliver quick solutions.

Those who are uncomfortable with giving another person or entity full legal ownership of their business should consider forming a PT PMA company instead.