Dormant Companies in Indonesia

Indonesia has been an emerging market for many years and many business owners have incorporated their companies in the country. With every incorporation or a new business venture, there are bound to be some unsuccessful ones.

In such cases, there are two options:

1. Dissolve the company where the company ceases to exist
2. Keep the company dormant

Moreover, a dormant company has ceased to operate and does not have any records of transactions in its financial books dating back to a specific period. Hence, according to other business experts, a dormant company in Indonesia is considered inactive by the tax authorities in terms of taxation regulations.

Dormant companies in Indonesia, according to the information stated in Article 146 of Law Number 40 in 2007 about limited liability companies (PT PMA), are companies that are:

• Unable to continue operations because they have been non-active
• Have not conducted any business for the previous 3 years, as reported to the tax office

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

• The domicile of the taxpayer is not known
• For three years in a row, taxpayers have been unable to meet their tax requirements, which include either paying the tax or filing the periodic tax return, also known as SPT Masa, or the yearly tax return, also known as SPT Tahunan
• There is full cessation of every kind of business activity

Why and How Businesses Become Dormant Companies in Indonesia?

Businesses become dormant companies in Indonesia due to many factors, including the situation and, in some circumstances, the decision of business owners. The following are some of the reasons why a business could go out of business or be a dormant company in Indonesia:

• Reduced market demand for the company’s products and services; thus, being dormant would mitigate any potential losses due to a negative client response
• The company has failed to observe market trends, competition markets, or client demand, and is instead rapidly growing its market without conducting thorough research
• The proprietors established the corporation to monitor business activity but not to engage in any actual business
• As stated in the Investment Registration Approval for foreign investment businesses, foreign investors are preparing for projects and construction connected to the company
• Companies that are losing money or are about to go out of business opt to become inactive.

Companies can only be designated as inactive if they follow the norms and regulations of the Indonesian company or tax legislation.

In any event, if the shareholders decide to dissolve or end the business, the firm’s business operations must cease for the company to be classified as inactive. The company has to:

• Fire all of its employees
• Keep only the administrative personnel
• Save only the most important tax documents

Consequences of Being a Dormant Company in Indonesia

After all, the District Court has the authority to inflict legal repercussions on a dormant company in Indonesia. According to Article 146.1. (c) of the Indonesian Company Law, the Court can dissolve the company if requested by:

• The directors
• Board of Commissioners
• Shareholders

Dormant companies in Indonesia must comply with Indonesian accounting and tax rules, which require them to:

• Appoint commissioners and directors regularly, according to their periods of office
• Organising the shareholders’ Annual General Meeting to endorse the Board of Directors’ annual report
• Investment reports and firm information updates must be submitted to the BKPM

In addition to these responsibilities, the tax office must submit a few applications for the firm to be declared dormant. Although, this is likely to be approved within 10 working days. If a corporation has not submitted:

• SPT Masa or SPT Tahunan report
• Monthly tax report
• Has not paid any administrative penalty, the tax authorities should not issue tax warning letters.

A few legal requirements instead of the tax report that dormant companies in Indonesia must fulfil include the following:

• Dormant companies in Indonesia persist because they are not doing any financial transactions but have not yet been disbanded. They keep paying their taxes.
• Under the yearly return filed by the corporations, these companies must submit a tax return known as Surat Pemberitahuan that is connected to corporate income tax or value-added tax. Unless the court grants an exemption or the firm is dissolved, it is required to pay taxes regularly.
• In any event, if the company fails to pay the taxes, the Ministry of Finance laws stipulate that there would be no sanctions.
• Annual audits are not required for dormant firms. This is true for businesses that have been dormant since their formation or until the conclusion of the preceding fiscal year.

How to Dissolve a Dormant Company in Indonesia?

Also, the corporation must take specific steps to liquidate, as it doesn’t lose legal status immediately upon ceasing business.

• Investigate to ensure the company has no assets or liabilities and hasn’t ceased operations for over three months
• The shareholders, the Board of Directors, and the Board of Commissioners must submit a request for the company’s winding up.
• The liquidator, who is usually the Company’s Director, is appointed at the General Meeting of Shareholders to seek the liquidation process.
• The liquidator must publish liquidation notices in the State Gazette and a newspaper within 30 days of the Shareholders’ General Meeting.
• The liquidator must submit the winding-up approval form to the Ministry, and the company is dissolved upon approval.
• Applying to have the BKPM licence revoked.
• Filing a notice and request for company liquidation with the Ministry of Law and Human Rights
• Record the shareholders’ general meeting outcome in a notary deed for registration with the official public notary.
• When the inactive company’s dissolution is announced, the asset division choice must be made as well.
• The shareholders must confirm the split of the Company’s assets after another 60 days have passed.
• The liquidator must obtain Ministry authorization to distribute assets, completing liquidation and ending the corporation’s legal standing.
• Publish a notice that the company’s dissolution is complete, informing about its non-existence or decision to cease operations.