Differences between Local Company, Foreign Owned Company and Representative Office in Indonesia

Do you want to explore more about registering company in Indonesia?

Do you want to know what is the most suitable type of legal entity in Indonesia? We will help you to reach better understanding of the possible types of company registration in Indonesia.

 

Check also our other helpful articles:

10 THINGS FOREIGN INVESTORS MUST AVOID IN COMPANY REGISTRATION PROCESS IN INDONESIA (PT PMA)

WHY SHOULD I OWN BUSINESS LICENSE?

THE KEYS TO SMOOTH THE PROCESS OF ESTABLISHING COMPANY IN INDONESIA

 

You don’t have to worry about several types of companies in Indonesia. Each of them has different benefits. Three most common types of companies in Indonesia:

So how to do company registration in Indonesia?

1. LOCAL COMPANY (PT PMDN)

A Limited Liability Company or PT, is the most popular and generally the form of business entity in Indonesia. PT can carry out business activities in many fields in Indonesia. PT can have option for foreigners who want to expand business in Indonesia suitable with what is in law No. 40 year 2007. The characteristic of PT is must establish by minimum of two local people as responsible shareholders, limited from the debt of the company.

BENEFITS AND DISADVANTAGES OF LOCAL COMPANY

Benefits: the limitation of Shareholder liability is for the company’s debt
  Can easily get additional funds/capital, for example by issuing new shares
  The viability of the company is more secure
  Efficient use of leadership, because the leadership can be replaced at any time through a general meeting of shareholders
  Company management has a clear responsibility to the owner or shareholders
  Set out clearly by law and other regulations, a limited liability company binds and protects the company’s activity
  The company registration request, less minimum capital investment, is specifically based on company size: small IDR 600 million, medium IDR 600 million – 10 billion, large IDR more than 10 billion.
  The company can have three main business activities.
  Usually no limitations apply, and it can use all open government tenders.
Disadvantages: It is a subject to a separate tax, and dividends received by shareholders will be taxed.
  The company’s trade secrets can be less secure, as all activities should be reported to the shareholders.
  The founding process takes more time and money than other entities.
  The dissolution process, changes to articles of association, mergers and takeovers require time and money, as well as approval by a General Meeting Of Shareholders (RUPS).
  The company is 100% owned by local shareholders and foreigners must apply to local shareholders for a reliable nominee agreement.

2. FOREIGN-OWNED COMPANY (PT PMA)

 

What is a PT PMA? PT PMA (Penanaman Modal Asing) or Foreign Investment Company, one of the option for foreign investors to company registration in Indonesia. In PT PMA can use foreign capital fully or in a part with a domestic investors. Before an investor decides to register a PT PMA in Indonesia, he has to investigate his exact business activities regarding the Negative Investment List. Which notes foreign ownership limits in certain business classifications. The Investment Coordination Board or also called BKPM will issue this.

 

The minimum investment plan is US$1 million, and is allocated for Indonesia for land, building, work capital, etc. The minimum requirement for paid-up capital is US$250,000. That shall deposits after the company is established and bank account is issued. After incorporation, the company is required to submit an Investment Activity Report and monthly tax reports. Even if the company does not have any activities.

BENEFITS AND DISADVANTAGES OF FOREIGN OWNED COMPANY

Benefit: PT PMA has same rights and responsibilities as local companies.
  Minimum of two shareholders (can be individuals or legal entities).
  Minimum organizational structure is one Director and one Commissioner.
  Easy and quick license permits.
  The granting of special customs facilities at PMA.
  On-site tax or import duties are lower.
  The foreign investor owns 100% or less of the company.
  Can sponsor many foreign employees.
Disadvantages: The company must make monthly tax reports.
  The company is required to provide reports on business activities to the BKPM every 3 months so that the BKPM may monitor the company’s development.
  The minimum investment plan is US$1 million.

3. REPRESENTATIVE OFFICE IN INDONESIA (KPPA)

 

Representative Office also known as KPPA can be the solution for foreign company to take of its business activities in Indonesia. A start with a representative office can be the preparation to establish foreign- owned company.

 

Meanwhile, the activities of Representative Office has many limitation because of the regulation, such as:

 

1. Activities in its role as a supervisor, connector, coordinator and caretaker of company interests or of its affiliate companies in Indonesia and/or outside of Indonesia. The representative office in Indonesia is not allowed to seek income or pursue sales transaction activity and purchases of goods and services.

2. Perform market research for items or products based on company requirements.

3. Sales monitoring in Indonesia for the company’s marketing activities.

4. The location of the representative office must be in the capital of the province and in an office building.

 

The Representative Office is required to have KPPA permission to conduct its activities. Submitting to the head of the Capital investment Coordination Board, also called BKPM is a must to get a petition for permission to have a Representative Office in Indonesia and foreign nationals working.

 

REQUIREMENTS FOR SETTING UP A REPRESENTATIVE OFFICE:

 

1. Presenting the Articles of Association of the foreign company.

2. Presenting a designation letter of the foreign company.

3. Photocopies of the passports (for foreigners) or ID cards (for citizens) who will be the representative executives

4. Statement of willingness to live and work as the Executive Representative only, and not conduct other business

5. A power of attorney, if the petition is not filed by the foreign company’s management

 

The Representative Office is the good option before starting company registration in Indonesia (establish PT/PMA). After the Representative Office shows that an examination of its products proves they are marketable and suitable for the Indonesian market, then the foreign company can create a PT PMA or foreign capital investment limited liability company.

 

If you think about company registration in Indonesia, check our page with complete information and packages.

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