Advantages of Representative Offices in Indonesia
Those who have chosen to set up a representative office in Indonesia ought to know that there are certain advantages which are inherent to setting up such an office from which they could gain tremendous benefits. Perhaps the most significant advantage lies in the fact that a representative office may be completely owned by one or more foreigners. There is thus no need to spend additional time attempting to recruit one or more Indonesians to jointly own the representative office. It is also relatively inexpensive to set up a representative office in Indonesia. This is because there is no minimum investment amount stipulated by the law. For this reason, it is also possible for the owner of a representative office to establish a market presence in Indonesia without the expense of much time or money. A representative office in Indonesia is also allowed to operate without any directors or shareholders; thus, the time which would once again have been spent on recruitment will be saved. The incorporation and setup process of a representative office in Indonesia is one of the quickest and simplest of all business entities in the country. Compliance with all the laws and regulations in Indonesia which govern representative office is neither difficult nor burdensome. One final advantage granted to Indonesia’s representative offices can be seen through the ability to apply for limited stay permits (KITAS) which are to be given to its foreign executives.
Disadvantages of Representative Offices in Indonesia
Despite the many advantages afforded to representative offices in Indonesia and their owners, there are nevertheless several disadvantages which must be overcome by all who plan to open a representative office there. Among these disadvantages is the restriction imposed by the government on a representative office’s sales and business activities. The marketing and supervisory activities of a representative office are also legally restricted. Furthermore, there is a limit imposed on the number of foreign workers who are allowed to work in a representative office. There must be at least three times as many locals working in a given representative office as there are foreigners. Those who opt to set up a BUJKA will also find that there is much paperwork to be completed, especially when compared to the setup process of other types of representative offices.
Required Documents for the Setup of a Representative Office
Before anyone may set up a representative office in Indonesia, certain documents must already have been prepared. These documents include a Letter of Appointment from the foreign company, the foreign company’s Articles of Association including all amendments, a copy of the official company registration document, the Power of Attorney to sign the application if the representative office is represented by another company, a copy of the representative office head’s passport (if the person is a foreigner) or identification card and tax number (if the person is an Indonesian citizen), and a Letter of Intent and Letter of Statement confirming that the representative office executive will not conduct other business activities in Indonesia.
If you have read this article up to this point, you may have gained an interest in starting a representative office of your own in Indonesia. If such is the case, we at Paul Hype Page & Co can assist you in this regard. Our incorporation experts will work with you in order to facilitate the setup of your new representative office in Indonesia. We do not only help our clients set up representative offices – we can also assist in the setup of any business entity in Indonesia.
How a Representative Office in Indonesia is Taxed
Representative offices in Indonesia are not subject to any corporate income tax. This is because representative offices are not allowed to conduct direct sales. Therefore, they do not generate any profits or revenue. However, the owner of a representative office must report withholding tax on a monthly basis.
However, if the representative office has direct links to profits made by its affiliated foreign company, it is to be taxed according to the special metric of gross export value when calculating corporate income tax. Such is the case when these profits are generated through activities carried out by the representative office in Indonesia. The tax rate concerning the special metric of gross export value is 0.44% unless otherwise stipulated by details found in any relevant tax treaty.
In general, tax matters can often be complex and difficult to understand. You might be experiencing difficulties in fully comprehending all of your tax obligations in Indonesia. However, if you are, there is no need to worry because we at Paul Hype Page & Co are able to assist you. Our tax team will enable you to understand how much tax you are to pay, as well as for what purposes you are to pay tax.
There are many reasons why a foreign business owner should consider setting up a representative office in Indonesia. Doing so will allow such an owner to learn more about the Indonesian market and therefore allow the affiliated foreign company to gain more profits. Although there are some disadvantages which accompany the setup of a representative office, these disadvantages can easily be overcome through careful planning. Those who set up a representative office in the proper manner and operate it appropriately will soon discover that the representative office will bring many positive outcomes to its affiliated foreign company while also further cementing the foreign company’s position in Indonesia through all its activities carried out there.