There are two common types of legal entities for investors in Indonesia: Perseroan Terbatas (PT) and foreign-owned companies (PT PMA). PT is also known as a local company. Most foreign investors choose a PT PMA due to its possible foreign ownership of up to 100%.
Here are some of the PT PMA’s legal obligations you have to fulfill if you are thinking of establishing one.
Legal Obligations to Be Fulfilled by a PT PMA
To ensure a successful and on-track Indonesia company incorporation of your PT PMA, you must fulfill certain legal obligations.
1. Company Registration and Incorporation
Setting up a PT PMA must first comply with the main registration and incorporation requirements:
- Get a notarised deed of establishment in the Indonesian language
- Follow the shareholding limitation under the Negative Investment List
- Acquire approval from the Ministry of Law and Human Rights (MOLHR)
- Obtain a domicile certificate (SKDP) from the head of the sub-district
- Apply for NPWP taxpayer number from the local tax office
- Open an Indonesian bank account
- Apply for business license and other necessary operational licenses
2. Management Structure
The management structure of a PT PMA consists of a board of directors (BOD) and a board of commissioners (BOC). The BOD manages the company’s daily operation and the BOC supervises and advises the BOD.
3. Management Restrictions
Individuals who have declared bankruptcy, caused the company to become bankrupt while serving as a member of BOC or BOD, or committed crimes that caused losses to the financial sector, are not permitted to be appointed as directors. Directors are not required to reside in Indonesia but certain positions cannot be held by foreigners.
4. Liabilities of Directors and Officers
The member of BOD and the BOD itself will not hold liability for the acts carried out on behalf of the company. However, the individual member of BOC or BOD may hold personal liability for the company’s losses.
5. Liabilities of Parent Company
If a parent company is a shareholder of its subsidiary, it does not hold any liability for the losses of the subsidiary outside the parent company’s investment scope.
The parent company can be liable only when the parent company is in direct involvement of the subsidiary’s illegal act; the parent company uses the subsidiary for its benefits; the subsidiary is no longer regarded as a lawful entity.
6. Report Submission
A PT PMA is required to submit these reports: quarterly Capital Investment Activity Report (LKPM) before the acquisition of a business license, and every semester after obtaining the license; annual audited financial statement; mandatory manpower report.
If your PT PMA is in the financial sector, you must also submit a monthly report, an annual audited financial statement, and an annual report of good corporate governance.
7. Tax Resident and Non-tax Resident Employees
Tax resident staff in a PT PMA are subject to income tax (5 – 30%) and social security taxes such as pension insurance (1%), old-age insurance (2%), and healthcare contribution (1%).
For non-tax resident employees, they are subject to a flat 20% income tax rate. A 5% tax may incur on the sale of certain shares or assets of a PT PMA owned by the non-tax resident.
8. Taxes Applicable to Business
- Social security taxes for employees (JHT – 3.7%; JP – 2%; and healthcare contribution – 4%)
- Corporate income tax (25% in general)
- Value-added tax (10%)
- Land and building tax (rate varies)
- Luxury goods sales tax (10-75%)
- Duty on Acquisition of Rights to Land and Building (BPHTB) (rate varies)
- Local government tax (rate varies)
- Stamp duty (IDR6,000)
How Cekindo can Assist with Company Incorporation in Indonesia
Cekindo is a progressive, full-service business consulting firm with a long record of professional expertise and excellence in Indonesia.
Our Indonesia company incorporation team comprises the most talented consultants and effective lawyers who are ready to serve you with your legal and business needs.
With Cekindo’s Indonesia company incorporation solution, you can now forget the taxing procedures and focus on your business in Indonesia. We make setting up a business in Indonesia easier than you think.
Feel free to contact us with any questions or for your first consultation!
