Consequences of Being a Dormant Company
A dormant company has to face the legal consequences imposed by the Indonesian District Court. The Court can dissolve the company upon requests from the directors, board of commissioners, and shareholders according to Article 146.1. (c) of the Indonesian Company Law. According to Indonesia’s accounting and tax laws, dormant companies must fulfill obligations including:
- Regularly appointing the commissioners and directors according to their respective terms of offices
- Organizing the Annual General Meeting of the shareholders to approve the Board of Directors’ annual report
- Submission of investment reports and updates about information about the company at the BKPM
Along with these obligations, the tax office needs to provide a few applications required for the company in question to be declared as a dormant company. The approval for this can be expected within 10 working days. The tax authorities should not issue the tax warning letters if the particular company has not submitted the SPT Masa or SPT Tahunan report or the monthly tax report and has not paid any administrative sanctions.
A few legal requirements instead of the tax report that dormant companies must fulfill include the following:
- Dormant companies in Indonesia are still in existence as they are not carrying out any financial transaction but have not dissolved completely. They continue to pay taxes.
- These companies have to regularly submit a tax return known as Surat Pemberitahuan that is related to the corporate income tax or the value-added tax under the annual return filed by the companies. Unless the company is exempted by the court or dissolved, it has to pay taxes regularly.
- In any case, if the company fails to pay the taxes, then there will be no sanction as stated under the Ministry of Finance’s regulations.
- Dormant companies are exempt from annual audits. This applies to the companies that have either been dormant since their inception or until the end of the previous financial year.
When a Company Should Become Dormant
Many business owners choose to make their companies dormant. Those who operate a business in Indonesia and want it to become a dormant company in Indonesia will need to take the following points into account:
- Companies that are undergoing a significant rebranding of the company can choose to remain dormant so that they can obtain time to study the Indonesian market trends and economic development to come back with newer ideas. This will save businesses from the hassle of dissolving their company.
- If companies or MNCs are undergoing any internal restructuring, staffing, or want to start fresh, they can make their company dormant for three years. This way, they can restructure internally and start trading again.
- If there are unavoidable personal situations that occur, giving the company a dormant status will enable it to put trading on hold, record everything, and then start work when ready.
Indonesian companies can become dormant in certain situations. To do so, they can take the advice of a professional law and business firm that can guide the owners. While the company is dormant, the business owners can find time and conduct research to return to competitiveness and make profits.
How to Dissolve a Dormant Company in Indonesia
If a company is planning to put an end to its business activities in Indonesia, it does not automatically lose its legal entity status; it has to follow certain steps before liquidation of the company. The dormant company can be dissolved by adhering to the following steps:
Step 1: The shareholders, Board of Directors, and Board of Commissioners must submit the proposal for winding up the company in Indonesia.
Step 2: In the General Meeting of the Shareholders, the liquidator is appointed to seek the liquidation process, and it is generally the Director of the Company.
Step 3: The liquidator needs to announce the liquidation process of the PT PMA Company or the Dormant Company in the State Gazette of the Republic of Indonesia as well as in a newspaper. This announcement must be made within 30 days of the General Meeting of the Shareholders. If there are any lenders or creditors whose loans are due, they can claim their debts within the 60 days of the announcement.
Step 4: The liquidator must submit the approval form for the winding up of the company to the Ministry of Law and Human Rights. After the Ministry approves the company’s dissolution, it is considered to be dissolved.
Step 5: With the announcement of the dissolution of the dormant company, the decision about its asset division must also be made.
Step 6: After the passing of another 60 days, the shareholders must ratify the division of the Company’s assets.
Step 7: Again, the liquidator has to take permission from the Ministry of Law and Human Rights about the distribution of the assets. With this step, the liquidation process is concluded and the company loses its legal status in the country.
Step 8: The final step involves the issuing of the public notification by which the company’s dissolution process is completed. This notification states about the non-existence of the company or the particular company’s cessation to exist in Indonesia.
Many companies in Indonesia follow this eight-step dissolution process. However, most companies stop when they receive the approval from the Ministry of Law and Human Rights. The company needs to get its tax card closed from the local tax authority when the Ministry has approved its dissolution. The verification and tax audit may take place on the Company’s tax liabilities, any revision, or other related matters. This process usually takes a period of six months to one year, depending on how well the company has maintained its tax and accounting reports.
Dormant companies in Indonesia are approved if they are in the process of restructuring or re-establishing themselves in the competitive business market. From setting up a company to company registration and maintaining the tax reports, everything needs to be done transparently. Doing so will prevent business owners from facing any problems if they are considering making the company dormant or if there are no financial activities to be carried out during a particular period.
If you are a business owner who is considering making your own company dormant or even dissolving your company, contact us at Paul Hype Page & Co. Our experienced and knowledgeable specialists will guide you through the entire process to make it a simple and stress-free experience for you.