Indonesia is home to many businesses which include companies and representative offices. Each of these business entities has distinctive characteristics. They also come with specific advantages and disadvantages which do not apply to other business entities in any way.
Indonesia’s business scene is one that has truly begun to flourish. The country’s economy has grown at a rapid pace in recent years. The general amount of entrepreneurial activity across the country has also increased exponentially. Therefore, many people, whether locals or foreigners, have developed an interest in starting a business of their own in Indonesia. When one chooses to do so, it is important to select the business entity which is most appropriate for the business’s operations. Some choose to set up a company in Indonesia; others, a representative office. Both of these options have unique features as well as specific advantages and disadvantages.
Company Types in Indonesia
In Indonesia, a business owner may select the option of starting a company. However, companies owned by people, also known as privately-owned companies, are not the only types of companies that exist in Indonesia. Some companies are either completely or partially owned by the government. Such companies are known as state-owned companies.
State-owned companies include public companies (Perum) and liability companies (Persero). A Perum is typically set up in such a way that the generation of profit is prioritized over the provision of services to the public. Nevertheless, a Perum does have social functions which accompany its economic functions. The employees of a Perum are regarded as government workers. The capital of a Perum is derived from government sources. A Perum is led by directors and is also a legal entity, which thus allows it to prosecute or be prosecuted itself according to the laws of Indonesia.
A Persero is a company which has all of its capital in the form of stock. A Persero usually places its shares into a stock exchange so that these shares can be traded. A Persero’s objectives are twofold: these are the provision of services to the public as well as the generation of profit. Its capital is derived from government assets; these assets are kept separate in the form of shares. Those who work in a Persero are deemed to be private employees. Just as is the case with a Perum, a Persero is led by directors.
Privately-owned companies in Indonesia include firms and limited companies (PTs). Firms are business entities which have been established by more than one person. Every owner of a firm has direct responsibility for each of the firm’s obligations. A firm is established through the execution of an agreement deed; this execution takes place in front of a notary. The capital of a firm is obtained via the submission of some or all of the property of the firm’s owners. Firms are relatively easy to establish, have verifiable legal status, and possess increased financial capability. However, the owners of a firm have unlimited liability for its debts. The continuity of a firm is also perpetually at risk because conflict among owners or one or more departures of owners may lead to the ultimate ruin of the firm.
A variant of the firm is the Commanditaire Vennotschap (CV). A CV is formed in the same way as is any other firm. The advantages and disadvantages of a CV are also the same as those of a firm. However, the primary difference between a firm and a CV lies in its ownership structure. Unlike a firm, a CV is owned by active and silent partners. Active partners are people who provide capital for the CV while also running the business. They are completely responsible for all of the CV’s liabilities and assets. Silent partners are people who provide venture capital. They are only responsible for the capital which they have paid.
PTs are business entities which have their capital divided into shares. Only those who own holdings of a PT are held responsible for the debts and liabilities of a PT. PTs are divided into closed PTs which have limited shareholding and open PTs which have public shareholding. A PT is driven by profit, led by directors, has economic and commercial functions, and is not established by any government authorities. Its employees are regarded as private employees. A PT’s owners benefit from limited liability for debts incurred, the ability to restrict stock ownership as necessary, the ability to easily trade shares, the increased likelihood of business continuity, and the increased chances that the public will channel capital towards the PT. However, PTs are relatively expensive to establish. Those who own a PT must also make tax reports to the government. They require specific permits before business operations may be commenced and also have no effective means by which shareholders’ interests could be protected.
Representative Office Types in Indonesia
Another business entity which exists in Indonesia is that of the representative office. Representative offices are related to a specific foreign company; this foreign company is known as a parent company. There are four types of representative offices in Indonesia; these are the general representative office (KPPA), representative office for trading (KP3A), representative office related to foreign construction companies (BUJKA), and representative office related to foreign oil and gas companies (KPPA Migas).
There are restrictions placed on the business activities of a KPPA. A KPPA is only permitted to oversee the interests of its parent company as well as any companies affiliated with the parent company. A KPPA may not earn any revenue in Indonesia; neither may it issue invoices. Its business location must be in the capital city of any province of Indonesia. The license of a KPPA is valid for three years but may be extended through the use of a Letter of Appointment. It usually takes approximately 13 working days to set up a KPPA.
A KP3A is used by a parent company for the purposes of manufacturing, sales, and purchases in Indonesia. It also oversees the establishment of the Indonesia-based branch offices of the parent company. Its transactions are to be in the parent company’s name and may not issue any invoices. It may be located in any major city of Indonesia. A KP3A’s temporary license is valid for two months; its permanent license, one year. The validity duration may be extended by using a Letter of Appointment. The usual duration of the KP3A setup process is around 16 working days.
Foreign construction companies may choose to establish a BUJKA in Indonesia. Doing so allows these companies to collect information related to construction projects in Indonesia, hire local and foreign experts, participate in tenders, and open an Indonesia-based bank account. However, before a BUJKA may provide construction services, it must first enter a joint venture with a company which provides local construction services. BUJKAs must be related to large construction service companies and must also have an official construction service business license. A BUJKA’s license is valid for three years and is extendable. The process of setting up a BUJKA is fairly lengthy, clocking in at approximately 43 working days.
Foreign oil and gas companies have the option of establishing a KPPA Migas in Indonesia. A KPPA Migas is used by such companies to help establish a permanent establishment in the country. Its license is valid for three years and may be extended. Prior to establishment, the owner of a KPPA Migas requires a recommendation letter from the Ministry of Oil and Gas; this letter is to be submitted to the Indonesian Investment Coordinating Board (BKPM). It takes around 27 working days to set up a KPPA Migas.
Similarities and Differences Between Companies and Representative Offices
One of the key similarities between companies and representative offices in Indonesia lies in the fact that both categories of business entities include multiple business types. This therefore makes it easier for anyone who plans to start a business in Indonesia because they would then have more options, allowing them to select the business entity which best suits their corporate needs. Both companies and representative offices alike are led by one or more directors. Certain types of companies and representative offices require licenses before they may commence any business operations. Representative offices must be linked to foreign-owned companies; similarly, foreigners may own a company under certain circumstances. Both companies and representative offices are also driven by profits.
However, companies and representative offices in Indonesia also differ in several important ways. Companies are owned by the government or people, but representative offices are owned by foreign parent companies. Certain representative offices are reserved for those in the oil and gas or construction industries; such do not exist with regard to companies. Some types of representative offices have restrictions on their possible location. Once again, companies are not subject to such a restriction. Although both companies and representative offices seek to generate profits, companies do so in the name of the government or in their own name while representative offices do so in the name of the parent company.
Anyone who plans to commence any business operations in Indonesia must carefully consider the business entity to be set up. Those who already own a foreign company may choose to arrange for the setup of a representative office in Indonesia. Those who do not can easily choose to set up a company. In either case, the growth and increasing power of Indonesia’s economy and corporate scene have created much expansion of business opportunities in the country.
We at Paul Hype Page & Co are able to assist you in taking advantage of such opportunities. Regardless of the business entity which you plan to establish, we will be able to guide you through the entire incorporation process by providing you with the best of our services. Once we have finished working with you, you will have an Indonesia-based business of your own; you may then proceed to do as you will with it. Please contact us for further information.
Paul Hype Page & Co – OSS service provider and Asean Chartered Accountant.
Paul Hype Page & Co. have 3 physical offices in Singapore, Malaysia and Indonesia
Our Firm Goal is to assist Foreigner and Foreign Companies to set up business in Asean.
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Step 1- Listen to your Business plan and Relocation needs.
Step 2- Analysis your Tax Planning
Step 3- Recommend the most suited type of Company Incorporation, Open Bank account and Work Visa
Step 4- Arrange for your Spouse and Children Visa
Step 5- Assist as your company to hire staffs and handle all HR matters
Step 6- Every financial year end, we assist you with your yearly OSS Finanical and Tax Complianc
Step 7- Assist you to expand business to Malaysia, Indonesia, Vietnam and Thailand.
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