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Dormant Companies in Indonesia

6 min read|Last Updated: September 6, 2022|
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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:

  • Dissolve the company where the company ceases to exist

  • Keep the company dormant

A dormant company is one that has ceased to operate and does not have any records of transactions in its financial books dating back to a certain time period. According to several 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 or have not conducted any business for the previous three years, as reported to the tax office via 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

  • 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 Companies Become Dormant in Indonesia?

Companies in Indonesia might go dormant 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 their 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 in order for the company to be classified as inactive. The company has to fire all of its employees, keep only the administrative personnel, and save only the most important tax documents.

Consequences of Being a Dormant Company in Indonesia

The Indonesian District Court has the authority to inflict legal repercussions on a dormant company. According to Article 146.1. (c) of the Indonesian Company Law, the Court can dissolve the company if the directors, board of commissioners, and shareholders request it.

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

  • Appoint commissioners and directors on a regular basis, 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 in order for the firm to be declared dormant. This is likely to be approved within 10 working days. If a corporation has not submitted the SPT Masa or SPT Tahunan report, or the monthly tax report, and 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 must fulfill include the following:

  • Dormant companies in Indonesia persist because they are not doing any financial transactions but have not yet been totally 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 on a regular basis.

  • In any event, if the compnay 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?

If a corporation decides to stop doing business in Indonesia, it does not lose its legal entity status instantly. It must take specific actions before liquidating the firm. The following steps can be used to dissolve an inactive corporation:

  • 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 notice of the PT PMA Company’s or the Dormant Company’s liquidation in the Republic of Indonesia’s State Gazette as well as in a newspaper. This notification must be issued within 30 days of the Shareholders’ General Meeting. If any lenders or creditors owe money, they have 60 days from the date of the notification to claim their obligations.

  • The liquidator must submit to the Ministry of Law and Human Rights the approval form for the company’s winding up. The corporation is deemed dissolved after the Ministry approves its dissolution.

  • 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 seek authorization from the Ministry of Law and Human Rights to distribute the assets once again. The liquidation procedure is completed at this point, and the corporation loses its legal standing in the nation.

  • The last step is to publish a public notice that the company’s dissolution procedure has been completed. This notice informs you about the company’s non-existence or the company’s decision to cease operations in Indonesia.

Thinking of setting up a company in Indonesia or require corporate secretarial services? Reach out to us for a free consultation today.

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FAQs

Can I make my LTD Company dormant?2021-12-13T12:41:30+08:00

You first need to tell your Corporation Tax office, clients and agents that you’ll no longer be trading. You’ll also have to chase any unpaid invoices and prepare final accounts up to the usual financial year end. 

Can dormant company have bank account?2021-12-13T12:41:07+08:00

Non-trading (dormant) companies do not require a bank account because no money is being spent or generated by the business; therefore, no financial transactions are taking place that require entry in the company accounts. 

How long can a company stay dormant?2021-12-13T12:40:44+08:00

As a company can remain dormant indefinitely so long as it meets certain requirements, you could set the company up a few months or even years before starting to trade. 

What is the meaning of dormant company?2021-12-13T12:39:26+08:00

In common parlance, the word “Dormant” means inactive or inoperative. A dormant company is an excellent opportunity to start a company for a future project or hold an asset/intellectual property without having significant accounting transactions. 

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