Foreigners from all the world see Indonesia as Southeast Asia’s powerhouse. The small and medium-sized companies (SMEs), from a sole proprietorship to partnership, make up a huge proportion of Indonesia’s economy. Even though it is not easy to do company registration in Indonesia, the Indonesian government is now very open to the establishments of businesses across many sectors. If you wish to open a business in Indonesia, we have prepared a comparison of legal entities and the most important points you need to know.
TYPES OF LEGAL ENTITIES IN INDONESIA
Individuals or companies who intend to engage in commercial activity in Indonesia are required to incorporate some legal entity. Foreign companies who have not had any presence in Indonesia yet may need to seek for an agent to expand their services to the country and establish a correct entity.
A piece of advice from business experts is also essential for companies to determine what company structure is required by each entity and how it can affect the overall business activities.
There are three legal entities most entrepreneurs tend to choose from.
FOREIGN-OWNED COMPANY (PT PMA)
Known as Perseroan Terbatas Penanaman Modal Asing (PT PMA) in Indonesia, a foreign-owned limited liability company is by far the most common and popular form of legal entity in Indonesia for foreigners.
Before submitting an application to form a PT PMA, you must know your business location, as well as business activities specified under the Negative Investment List (NIL or Daftar Negatif Investasi DNI).
NIL consists of important requirements and restrictions for PT PMA. For examples, the maximum percentage of foreign ownership, as well as the prohibited sectors.
Benefits of a PT PMA
- Perform business activities legally and has equal responsibilities and rights as a local-owned company.
- Better conditions granted by the Indonesian government for imported goods
- Products can be registered under the name of a foreign company
- Business visas sponsorship for visitors and clients
- Work permit sponsorship for foreign workers
- Foreign nationals can own up to 100% of a PT PMA’s shares
LOCAL COMPANY (PT)
Another well-known legal entity in Indonesia is a locally owned limited liability company or Perseroan Terbatas (PT) in Indonesian. This type of an entity is often set up by local nationals as its formation is less demanding and more flexible requirements apply.
However, a local company is the only choice for foreign entrepreneurs who decide to open a business in sectors that are only partially or entirely closed to foreign investments under the NIL.
In this case, foreigners will require a special purpose vehicle through a reliable company consultant and sign a special purpose agreement.
Benefits of a Special Purpose Vehicle
- Clear responsibility and asset separation between the shareholders and the owner
- A simple business entity to set up
- Easier to get additional funds and capitals
- Three main business activities are allowed
- Limited shareholder’s liability
- No restriction under NIL
REPRESENTATIVE OFFICES
In order to set up a representative office, your purpose should be only to represent an overseas company in Indonesia to test the water and to make a market presence. No business activities are allowed, and no income shall be generated.
Representative offices can be categorised into four types:
- General Representative Office of a Foreign Company
- Representative Office of a Foreign Trading Company
- Representative Office of a Foreign Construction Service Company
- Representative Office of a Foreign Oil and Gas Company.
Benefits of a Representative Office
- Easy to manage with full foreign ownership
- No-hassle and fast setup with minimum expenses
- Directors and shareholders are not necessary
- Minimum investment does not apply
This article serves as a comparison of legal entities in Indonesia and demonstrates its main benefits to consider when expanding to Indonesia.
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