There are many reasons why a company in Indonesia might become dormant. Nevertheless, in any case, there are many factors to take into consideration when such is the case. From tax obligations to legal consequences to possible dissolution, dormant companies often face uncertain futures.

Dormant Company

There are many dormant companies currently existing in Indonesia. A dormant company does not carry out any business activities; neither does it have a record of transactions in its financial books from some specific period. Several other business experts claim that a dormant company in Indonesia is stated to be inactive with regard to the taxation laws by the tax authorities.

According to the information stated in Article 146 of Law Number 40 in 2007 about limited liability companies (PT PMA), dormant companies in Indonesia are the companies that are not able to continue operations as they are non-active or not conducting any business for the last three years as conveyed to the tax office through the notification letter.

The tax authorities in Indonesia define the company as a non-active taxpayer if the company fulfills the following criteria:

  • The domicile of the taxpayer is not known
  • The taxpayers are not able to perform their tax obligations that include either paying of the tax or reporting the periodic tax return, also known as SPT Masa, or the annual tax return, also called SPT Tahunan, for three consecutive years
  • There is full cessation of every kind of business activity

A business in Indonesia can remain dormant for three years and the shareholders, Board of Commissioners, or Board of Directors can file a petition in court to dissolve the company permanently by following the proper judicial process.

Why and How Companies Become Dormant in Indonesia 

Companies in Indonesia can become dormant through circumstance or, in a few cases, by the decision of business owners. The following are some reasons why a company might become dormant:

  • Reduced demand for the company’s products and services in the market; becoming dormant would therefore minimize any potential loss due to an unfavorable response from the customers
  • The company has not noticed market trends, competitors’ markets, or customer demand and are just expanding their market aggressively without complete research.
  • The owners set up the company to watch business activities but not carry out any real businesses
  • Foreign investors carrying out the preparations for projects and construction related to the company, as mentioned in the Investment Registration Approval for foreign investment companies.
  • Companies that are making losses or will soon be wound up also choose to become dormant.

Companies can only receive dormant status if they comply with the rules and regulations of the Indonesian company or tax laws.

Tax laws can sometimes be difficult to understand, so business owners unfamiliar with them may inadvertently violate them. With this in mind, we at Paul Hype Page & Co can be of assistance. Our tax experts will help you gain more understanding about Indonesia’s tax laws so as to benefit you and your company and ensure that you do not break any laws.

In any case, if the shareholders take the decision to dissolve or discontinue the business, there should be discontinuation on the business activities from the company to give the company its dormant status. The business needs to terminate its employees, only keep the administrative staff, and maintain only the valuable tax reports. If the company is an MNC, the entire management must be taken over by the head office.