Many people who own a foreign company choose to set up a representative office in Indonesia. Doing so allows them to learn more about the Indonesian market. Thus, should they ever expand their company to Indonesia, they will have an inherent advantage over their competitors.
One of the business entities which could be set up in Indonesia is that of the representative office. Representative offices are set up by foreigners who already own a company abroad. The representative office in Indonesia is to be affiliated with its owner’s foreign company. The opening of a representative office often serves as a step on the path towards the opening of a foreign-owned company (PT PMA) in Indonesia. Representative offices are usually set up to enable the company owner to better understand the Indonesian market, become more familiar with prospective customers in Indonesia, find suitable distributors and business partners, and advertise the products sold or services provided by the affiliated foreign company.
Anyone who is interested in setting up a representative office in Indonesia ought to know about the four types of representative office which exist in Indonesia. These are the general representative office of a foreign company (KPPA), the representative office of a foreign trading company (KP3A), the representative office of a foreign construction service company (BUJKA), and the representative office of a foreign oil and gas company (KPPA MIGAS). Each of these types of representative offices has particular qualities which specifically pertain to certain types of business activities to be carried out.
KPPAs are created to establish a market presence in Indonesia without the need to make a significant capital investment. It also manages and represents its affiliated foreign company. Before a KPPA can be set up, an application to the Indonesian Investment Coordinating Board (BKPM) must be made. Such an application is to be made through a director or manager of the affiliated foreign company. It is also possible to utilize the services of a lawyer for this purpose. KPPAs are to be located in office buildings of provincial capital cities. A KPPA license has a validity period of three years and can be extended indefinitely.
KP3As promote the products of their affiliated foreign companies in Indonesia. However, a KP3A is not permitted to engage in any trading or sales activities. KP3As differ from KPPAs in several ways. The owner of a KP3A may open a branch office anywhere in Indonesia; such is not permitted of KPPA owners. The license required to set up a KP3A also differs from that of a KPPA. It is known as a SIUP3A. There are three varieties of SIUP3A: a Temporary SIUP3A which is valid for two months from the date of issuance, a Head Office SIUP3A which is valid for one year from the date of issuance, and a Branch Office SIUP3A and SIUP3A extension which are valid for three years from the date of issuance unless details in the letter of appointment specify otherwise.
BUJKAs may only be set up by foreign construction companies which have obtained a B or B2 business qualification. BUJKAs are allowed to carry out certain construction projects in Indonesia. However, they may only do so when working with a local construction organization (BUJK). BUJKAs are also allowed to conduct market research as well as interact with other companies and institutions. Other tasks which may be performed by a BUJKA include those of procurement of construction services as well as hiring of staff members for management of the office. All relevant applications and documents pertaining to the setup of a BUJKA are to be submitted to the Ministry of Public Works. The permit connected to the setup of a BUJKA is valid for three years and extendable.
A KPPA MIGAS may be set up by any foreign oil or gas company. It is to be used as the company’s permanent establishment in Indonesia. There are several similarities between a KPPA MIGAS and a KPPA. One of these similarities concerns regulation: a KPPA MIGAS is regulated in the same way as is a KPPA. Before setting up a KPPA MIGAS, a recommendation letter from the Ministry of Oil and Gas is required. Applications to set up a KPPA MIGAS are to be submitted to the BKPM. The permit for a KPPA MIGAS is valid for three years; this permit may also be extended. There is no location in which a KPPA MIGAS must be established.
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.
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.
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Representative Offices in Indonesia FAQs
Most companies in Indonesia are taxed at a rate of 25%. However, companies which have at least 40% of their shares available to the public and are listed on the Indonesia Stock Exchange are taxed at 20%.
The Indonesian government has been taking steps to lower the existing unemployment rate in the country. For this reason, certain restrictions on foreign workers have been imposed. One such restriction relates to foreign workers in representative offices.
A KITAS is a permit which allows its bearer to remain in Indonesia for an extended period of time. Foreigners who plan to work in Indonesia will require a KITAS. There are four KITAS types which exist in Indonesia: a KITAS sponsored by Indonesian entities, a KITAS sponsored by an Indonesian spouse, a retirement KITAS, and a dependent KITAS. The type required will depend on the needs and status of the applicant.