The advantage of setting up a representative office in Indonesia is that it is a legal entity that does not require a lot of capital. Besides, it is a much easier and quicker way to set up a business than forming a limited liability company in Indonesia.
Through representative offices, foreign investors are able to develop markets, promote products, find business partners (distributors), and become familiar with the commercial culture in Indonesia.
Contrary to the foreign-owned company (PT PMA), which is subject to the negative investment list (NIL), foreign investors can set up a representative office in most sectors or industries in Indonesia.
One of the few exceptions is the law firm, where a representative office is not allowed.
One thing that needs to be emphasised is that foreign companies cannot make use of a representative office to make a profit or directly engage in business activities.
TYPES OF REPRESENTATIVE OFFICES IN INDONESIA
Under recently enacted BKPM’s Regulation 13/2017, new types of representative offices were added as well as the limited 5-year validity license for regional representative offices was removed.
Currently, there are four types of representative offices in Indonesia:
- KPPA: General Representative Office of a Foreign Company
- KP3A: Representative Office of a Foreign Trading Company
- BUJKA: Representative Office of a Foreign Construction Service Company
- KPPA MIGAS: Representative Office of a Foreign Oil and Gas Company
In fact, the official abbreviation of Representative Office of a Foreign Trading Company is KPPPA. However, people will often refer to this type of representative as KP3A or KPA3, which are both correct.
The functions of different types of representative office are:
KPPA: General Representative Office of a Foreign Company
KPPA is set up to have a market presence in Indonesia, and take care of the interests of its parent company and the parent company’s affiliated companies. It does not require large capital investments, and it is the most common representative company opt for before setting a PT PMA in Indonesia.
A KPPA is not allowed to issues invoices as income generation in Indonesia is not permitted. The law also prohibits a KPPA to be a member of any branch, subsidiary or company management in Indonesia.
Three years is the validity of a KPPA license, and the license is extendable based on the Letter of Appointment. Most companies will use this type of representative office to conduct feasibility studies of a particular market in Indonesia before setting up a foreign-owned company.
KP3A: Representative Office of a Foreign Trading Company
There are three types of KP3A: manufacturing agent, selling agent, and buying agent.
They can manage the parent company’s branch offices established in any Indonesian cities. Just like KPPA, KP3A is not permitted to issue invoices, and all transactions must be under the parent company’s issuance. Of course, sales and trading activities are prohibited as well.
For an individual who manages a KP3A, he or she has to possess a higher educational background and related experience in the sector of the KP3A.
The KP3A licenses (SIUP3A) can be temporary or permanent based on its functions. The temporary SIUP3A is valid for two months, and the permanent SIUP3A lasts for 12 months.
Licenses can be extended, and the validity will be based on the Letter of Appointment. If you are a foreign company planning to build up a network of distributors and agents in Indonesia, KP3A is the best option.
BUJKA: Representative Office of a Foreign Construction Service Company
Construction companies with B (Perencana – Planning) or B2 (Pelaksana – Implemeter) business qualification, who seek to expand their business activities to Indonesia, can register for a BUJKA. BUJKA is a narrower form of representative office than others.
The biggest difference between BUJKA, KP3A and KPPA is that project execution is allowed in Indonesia through joint operation — while your company partners with a local construction organisation (BUJK). This BUJK has to be entirely owned by an Indonesian national.
In addition to that, a BUJKA is permitted to hire local staff or foreign talent to support their operation in Indonesia.
The BUJKA’s permit is valid for three years with a possibility of extension. However, it requires more paperwork than all other representative offices in Indonesia. Your company will also need to be reputable and participate in large projects.
KPPA MIGAS: Representative Office of a Foreign Oil and Gas Company
For foreign companies who wish to establish a permanent and legal entity in Indonesia under the oil and gas subsector, KPPA MIGAS is the way to go. KPPA MIGAS is regulated similar to other representative offices, but before the application, companies need to obtain a letter of recommendation from the Ministry of Oil and Gas.
KPPA MIGAS can be set up in any location in Indonesia as it is not specified by law. The validity of the license is three years, and it can be extended afterwards.
BENEFITS OF SETTING UP A REPRESENTATIVE OFFICE
Foreign companies can benefit in many ways by setting up a representative office in Indonesia:
- No minimum investment required, and the expenses are low
- 100% foreign ownership is permitted
- Fast and simple incorporation and set up
- Directors and shareholders are not required
- Legal entity complying fully to the Indonesian Law
- Establish reputation and market presence in Indonesia in a cost-effective manner
- Limited Stay Permit (KITAS) application for foreign executives is allowed
OPENING A BANK ACCOUNT BY A REPRESENTATIVE OFFICE
A representative office is a legal entity in Indonesia, and thus it can open a local bank account.
The requirements for opening a bank account may differ depending on an individual bank, but usually, a representative office should provide proof of company registration, a business license from BKPM, and a copy of the tax identification number NPWP.
Foreigners who are employed in the representative office are able to open personal bank accounts as well. A foreign employee from a representative office will only have to provide his/her passport, KITAS and placement of a minimum deposit.
Now, it is possible to purchase representative offices in Indonesia online. Cekindo will register a representative office on your behalf so you will not need to worry about any paperwork related to a specific representative office in Indonesia. Contact us today.