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If you’re looking to start a new business in Indonesia, you’re in for an exciting adventure! This Southeast Asian country is home to a booming economy and a population of over 250 million people. However, starting a business in Indonesia can be challenging – there are many laws and regulations that you need to comply with. In this blog post, we will discuss the steps you need to take to start your business in Indonesia.
Indonesia is an emerging economic power with a lot of business possibilities. Indonesia is particularly known for its farming and natural oil and gas industries. In recent years, several new industries have emerged, including infrastructure, tourism, manufacturing, digital industry, and even lifestyle.
There are many reasons why starting a new business in Indonesia makes perfect sense. Indonesia is the world’s fourth most populous country with over 250 million people, making it a huge potential market for your products or services. Even though Bahasa Indonesia is the official language, English is widely spoken in major cities and businesses, making communication easier.
How to Open a Company in Indonesia?
There are a few different ways to open a company in Indonesia, depending on your nationality and the type of business you want to establish. If you are a foreign investor, there are several options available to you, including setting up a representative office, starting a joint venture, or investing in an existing company. Before moving on to other details, let’s look at the types of companies that you can set up in Indonesia.
Local Company (PT) In Indonesia
In Indonesia, most firms are local companies called Perseroan Terbatas (PT) (Perseroan Terbatas is the local term for a corporation). A foreigner cannot legally have 100 percent control over a PT in Indonesia, which can only be held by Indonesians. A nominee company agreement, on the other hand, allows a foreigner to work with a PT. By doing so, a local nominee will allow a foreign investor to manage the company while still complying with Indonesia’s legal requirements.
While there are a few legal hurdles to overcome, PT businesses have several legal advantages over other types of businesses. The liability of a PT is limited, and it’s considerably easier to raise money for local businesses.
Representative Office in Indonesia
The Representative Office, or RO, is the second kind of business that you may begin in Indonesia. This is the commercial type to choose if you want to test the water with an Indonesian business rather than making a large investment. It is possible to create a corporation even if you do not have access to large amounts of money.
These are perfect for individuals wanting to raise brand recognition or perform market research in Indonesia before launching their own business. ROs are prohibited from earning a profit, as they are merely the representatives of your foreign business and are not allowed to do business in Indonesia. However, by establishing a representative office there, you have the opportunity to grow your business and develop personal relationships in one of the world’s fastest-growing large economies.
Owners of ROs are permitted to sponsor work or stay permits for foreign employees and business visas for foreign corporate partners moving to Indonesia. An RO is an excellent opportunity for anyone wanting to dip their toe into the Indonesian market. While the legal activities of an RO are limited, they provide a strong basis for individuals wanting to operate in Indonesia.
Limited Liability Company (PT PMA) In Indonesia
The final sort of business, the foreign-owned LLC known as the PT PMA in Indonesia, is a little more challenging to set up. The advantages make the challenges worth it. Maximum foreign ownership restrictions for PT PMAs are more lenient when it comes to foreign investment. You can operate a completely foreign-owned PT PMA without the aid of a partnership. PT PMAs are treated the same as domestic businesses, regardless of foreign ownership.
For PT PMAs, obtaining permits and licenses is considerably easier than it is for PTs. Import duties for PMAs are significantly lower than the usual rate, and a foreign direct investment company is permitted to acquire 100% of the business, unlike with PTs. PMAs are able to sponsor as many foreign employees as needed and only one director, commissioner, and two shareholders are required in the organizational structure.
The Basics of Starting a Business in Indonesia
Indonesia has emerged as a fast-growing economic power, drawing investors and company owners from around the world. According to the Indonesia Coordinating Investment Board (Badan Koordinasi Penanaman Modal or BKPM), both foreign and local economies have made billions worth of investment in recent years.
Anyone may establish a company in Indonesia, due to the country’s abundance of business opportunities and startups. To establish a legitimate business in Indonesia, there are a number of criteria that must be met. These simple instructions will help you meet the requirements for establishing a firm in Indonesia.
Negative Investment List
The Negative Investment List outlines which business sectors have restrictions on foreign investment. To start a foreign direct investment firm in Indonesia, you must first select which business sectors or industries you wish to invest in according to the Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI). Then, according to the Presidential Regulation on the Negative Investment List, you must decide whether a company sector is open to foreign direct investment or completely closed (Daftar Negatif Investasi or DNI).
The Right Legal Entity
There are many legal entities to choose from when starting a business, which we have discussed above. The most important factor in choosing the right legal entity is understanding the Negative Investment List. It is important to choose a legal entity that is not restricted by the Negative Investment List, as this could limit the involvement of foreign investors.
Deal With the Bureaucracy
To establish a company in Indonesia, an investor must first obtain a Deed of Incorporation or the Articles of Association and have it legalized by a Public Notary. All banking activities (such as capital injection, loan administration, payment of capital equipment, raw material, and so on) of a new PT PMA must be completed through the company bank account.
Starting a business in Indonesia, as previously said, entails the following:
- Deed of Incorporation
- Approval from the Ministry of Justice and Human Rights (SK HAM)
- Company tax identification number (Nomor Pokok Wajib Pajak or NPWP)
- Business License (Izin Usaha)
- Single Business Identity Number (Nomor Induk Berusaha or NIB)
- Commercial/Operational License (Izin Komersial/Operasional), all of which can be obtained via the Online Single Submission or OSS.
Prepare the Location
Choosing where your firm will be established is an essential stage in launching a company in Indonesia. Different regions and sorts of organizations have various ground rules, which you must adhere to.
According to Industrial Law No. 3 of 2014 and Government Regulation No. 142 of 2015, industrial estates must be used for all industrial activities. Representative Offices can only be established in the country’s major cities, such as Jakarta, Surabaya, Denpasar, and Medan. It must also be located in a business building. You may submit the domicile letter and other necessary paperwork to any of the office locations you choose.
Next, you need to consider how are you going to manage your resources, especially human resources. You can always hire locally. But if you want to hire foreign staff you might have restrictions. Of course, certain types of businesses as discussed above give a level of freedom for hiring foreign labor.
Starting a Business in Indonesia – FAQ
We hope that we have shed some light on starting a business in Indonesia. However, if you have more questions here are some FAQs.
How Long Does It Take To Start a Business in Indonesia?
Starting a firm in Indonesia takes anywhere from one to three months, depending on how quickly business owners are able to submit company papers, deeds, and reports to their market-entry consultants so they can complete the process. From the moment their papers are delivered to Indonesia, companies with all of their paperwork in order can begin operating within 30 days.
How to Obtain a Domicile Letter?
A Domicile Letter (locally known as a Surat Keterangan Domisili) is legal evidence that you have registered your company’s office address or location. During their incorporation, all foreign-owned firms are legally required to have an office or a business location. To obtain a Domicile Letter, all you need is a signed office lease agreement. Both the Kelurahan (administrative village) and Kecamatan (city/regency’s subdivision) may grant Domicile Letters. It’s worth noting that a residential address is not allowed for a company location.
What Are the Capital Requirements for Starting a Foreign-Owned Business in Indonesia?
In Indonesia, to start a PT PMA, you must invest a paid-up capital of IDR 10 billion (approximately USD 680,000+). At the beginning of a firm’s creation, this paid-up capital is required and does not include fixed assets. This legislation was passed in June 2021 without any penalties specified if a firm does not comply with these standards.
Can a Foreign-Owned Company Hire a Foreigner?
Yes, foreign-owned businesses can hire foreigners and obtain work permits for them (also known as a Work KITAS). However, it is worth noting that certain industries do not welcome foreign workers. Here are some examples:
- Supply Chain Management (including procurement and logistics)
- Human Resource
- Legal & Compliance
- Quality Control and Inspection
- Health, Safety, and Environment
If you’re looking to start a business venture in Indonesia, it’s important to do your research and choose the right sector for your company. With a growing economy and an increasingly sophisticated consumer base, Indonesia is a great place to do business. However, there are a few key things to keep in mind when starting a business in this country.