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Business Law in Indonesia

Jun 205 mins

Indonesia, home to 17,500 islands, is one of the world’s growing economies and sometimes referred to as the world’s largest archipelago. It is also one of Southeast Asia’s greatest economies and is regarded as a young democratic country due to its political stability, which has been steadily maintained since emerging from decades of autocratic rule.

The legal system in Indonesia is based on civil law and in civil law systems, codes and statutes are designed to cover all cases. There are various types of business entities in Indonesia, with a limited liability company, as known as a Perseroan Terbatas (PT).

Under a PT, the shareholder liability is limited to the extent of capital agreed to be contributed by the shareholders. The Indonesian Business Law divides the PT into 2 classes which are:

  • Local Company and PMDN Company

  • Perseroan Terbatas Penanaman Moda Asing (PT PMA)

What is a PT PMA in Indonesia?

A foreign investment in Indonesia is defined under Indonesian Law No. 25/2007 as an action carried out by a foreign investor with the goal of operating a business inside the country’s jurisdiction.

The PT PMA is a legal entity through which a foreign national, a foreign firm, or a foreign government agency can conduct business. The formation of PT PMA is governed by the Company Law’s Law No. 40/2007 on Limited Liability Companies.

This type of business might be held entirely or partially by foreigners. Due to the fact that certain industries in Indonesia are totally or partially closed to foreign investment, ownership restrictions may apply depending on the business.

Corporate Secretarial checker

Corporate Structure in Indonesia

As shareholders are considered the company’s owners, they hold the top position in the decision-making hierarchy through the General Meeting of Shareholders (GMS).

The Board of Commissioners is in charge of overseeing management policies and providing advice to the Board of Directors (BOD). According to Indonesian business law, the Board of Directors is primarily responsible for the firm’s management and operations.

Business Language

The official language of Indonesia is Bahasa Indonesia, which is utilised in both commerce and education. Despite the fact that English is extensively spoken in Indonesia, it is not generally spoken outside of the country’s major cities. Business owners and international staff, on the other hand, may want to consider taking Bahasa classes.

Business Incorporation and Set-up

Foreigners who want to incorporate a company in Indonesia must apply to the Indonesia Investment Coordinating Board for permission (BKPM). Foreign nationals can own wholly owned corporations, such as a PT PMA company, which requires at least two shareholders and IDR 10 billion in paid-up capital.

The Indonesian LLC (Perseroan Terbatas) is the most prevalent type of business entities used by locals to do business in Indonesia.

Other forms on business entities in Indonesia are:

  • Civil partnership (Maatschap or Persekutuan Perdata),

  • Firma partnership

  • Representative office

  • Permanent establishment

  • Limited partnership (Comanditer Venootschap)

Filing Requirements for Business

After the completion of each financial year, every company in Indonesia is required to deliver its annual report to its General Meeting of Shareholders (GMS). Certain businesses, such as public firms and businesses with a turnover of more than IDR 50 billion, must have their financial statements audited by a public accountant.

Also, public listed companies must submit their financial reports to Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK).

Setting up an Indonesia company can be difficult. Reach out to us for a free consultation for your incorporation and other corporate needs from taxation to visa application!

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FAQs

How much does it cost to start a business in Indonesia?2021-11-19T14:54:56+08:00

Indonesia company set up costs in Year 1 amount to US$4,250 and annual company costs in Year 2 and thereafter amount to US$2,300. The average total fees per Indonesia company formation engagement amounts to US$19,440 includes company set up, company secretary, Government registrations and corporate bank account. 

Does an LLC really protect you?2021-11-19T14:54:36+08:00

Personal Liability for Actions by LLC Co-Owners and Employees. In all states, having an LLC will protect owners from personal liability for any wrongdoing committed by the co-owners or employees of an LLC during the course of business. 

What type of business are there in Indonesia?2021-11-19T14:54:29+08:00

A local company, or PT PMDN in Bahasa, is the most common form of business entity in Indonesia. 

What is company law what regulation does govern company law in Indonesia?2021-11-19T14:49:50+08:00

Indonesia’s Company Law (Law No. 40 of 2007 regarding Limited Liability Companies) regulates how companies operate their corporations in Indonesia. 

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Join the discussions

  1. Lilly June 4, 2020 at 4:05 pm - Reply

    What are the government regulations that businesses need to follow in Indonesia? Can you explain these regulations so they are easy for me to understand and follow.

    • Tiwi June 18, 2020 at 4:23 pm

      Hi Lily
      The regulations that apply to your business will depend on the nature of your business, to properly advise you on the regulations to take note of and to explain them to you easily, please get in touch with us.

      Thank you for your comment.
      Warm regards
      Paul