With a massive population of over 276 million locals accompanied with its strategic location on the world map, Indonesia is definitely one of the most popular destinations to establish a business in.
There are various types of business that you can establish depending on your needs and considerations. We have listed out the different types of entities below for you to consider before setting up a company in Indonesia.
What are the Types of Entities You Can Set Up in Indonesia?
There are 3 types of business entities that investors can set up in Indonesia. These include:
1. Local Company / Perseroan Terbatas (PT)
PT is also known as a limited liability company which is a legal entity to run a business that consists of capital shares. It is the most common business entity in Indonesia’s market as it has a small capital requirement for start-ups, and it has a faster set-up time as compared to foreign companies.
A PT company usually consists of 2 local shareholders, 1 director, and 1 commissioner. However, the downside to a PT company is that no percentage of foreign ownership is allowed. This means that only local entrepreneurs are able to incorporate this business entity.
The approximate time taken to set up a PT is roughly 3-4 weeks, and this is highly recommended for individuals that wish to enter the local business with no intention of involving any foreign investors.
The minimum investment values are 3,500 USD – 35,000USD, 35,000 USD-700,000 USD and >700,000USD for small, medium, and large companies respectively.
2. Foreign-owned Company / Penanaman Modal Asing (PMA)
A PT PMA company is considered to be a wholly or partially foreign owned limited liability company which is governed by the Foreign Capital Investment Law and approval from Capital Investment Coordinating Board (BKPM) is required before incorporation.
The core benefit of incorporating a PT PMA company is that it is the ideal legal method for foreign owned businesses to operate and generate revenue in Indonesia. However, due to its international position in the market, the start-up capital value will be high, and it is not available for all business fields.
The minimum investment value for a PT PMA company is estimated to be 700,000USD plus a long waiting time of 10 weeks for establishment. Hence, this form of business entity is not commonly chosen unless you are a foreign investor or company that plans to operate business in Indonesia.
3. Representative Office (KPPA)
A representative office (KPPA) is also known as a branch of an overseas parent company, and it does not help your company generate revenue. The purpose of establishing a representative office in Indonesia is to conduct market research to analyse suitability of the country for your company and to corporate communications with a total life of up to 5 years.
However, you are allowed to apply for KITAS under a KPPA for the Chief Representative Officer if he is a foreigner. The advantage of setting up a KPPA is that there is no minimum capital required and it has a fast set-up time of 7 weeks.
However, the downside of KPPA is that no revenue will be generated, and it is only valid for a maximum of 5 years. A KPPA works best for foreign investors or companies that does not want to jump right into the Indonesian market before conducting research and evaluation.
What are the Documents Required for Incorporating a local PT/ PT PMA Entity?
The documents needed to incorporate a local PT or PT PMA company are:
1. Company Documents
2. Shareholder Documents
3.Personal Documents – Directors & Commissioners
What are the Documents Required for Incorporating a KPPA?
For KPPA, the documents required are slightly different from a Local PT/ PT PMA company. These documents are listed below:
1. Company Documents
2. Chief Representative Officer Documents
Procedure to Incorporate an Indonesia Company
There are 6 steps for company incorporation in Indonesia, which will take approximately 1-2 months for complete registration.
Step 1: Apply for a company name
Check your desired company name is available – you can use our free company name checker to do so! If the name is available, you may proceed to apply and register for your desired company name with the Ministry of Law and Human Rights.
Here are some tips when choosing a company name. Do not select names that:
Step 2: Apply for Deed of Establishment
The Deed of Establishment is to be applied online, together with the submission of the certificate of the bank account and official copy of the bank transfer advice. If the application is successful, you will receive a legalization on the establishment of the company and can announce the establishment within the following 14 days.
Step 3: Apply for the Certificate of Company Domicile
The next step is to apply for the Certificate of Company Domicile where all Indonesian limited liability companies are required to hold.
Step 4: Obtain a tax registration number (NPWP)
After getting your Certificate of Company Domicile, you will need to obtain a valid tax ID for financial purposes with the local tax authority. The documents required for this application include:
Step 5: Get your business identification number (NIB)
The NIB is obtained from the Online Single Submission. This is a unique number that is assigned to your company as a form of identification (like an identification card!).
Step 6: Apply for other relevant documents and licenses
Different types of businesses require various business licenses. Depending on the nature of your business, you will need to apply for licenses before you are allowed to start your operations.
PT is the abbreviation for Perseroan Terbatas, and it means Limited Liability Company. Therefore, all company names in Indonesia must be preceded by “PT” once they are approved. This official name that starts with PT will be used in all permits, licenses and transactions owned by the company.
An LLC is a legal entity only and must choose to pay tax either as an S Corp, C Corp, Partnership, or Sole Proprietorship. Therefore, for tax purposes, an LLC can be an S Corp, so there is really no difference.
Yes, you can. You will need a local nominee director for your foreign local company incorporation.
The Negative Investment List was replaced by the Positive Investment List in 2021. The list details the restricted sectors that the government prohibits investors and entrepreneurs to invest in.
As of 4 March 2021, the Positive Investment List was introduced to significantly reduce the number of restricted sectors that prevents foreigners to enter from 350 to 46.
Articles of association form a document that specifies the regulations for a company’s operations and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.