When starting a business in Indonesia, there are tons of things to do. You will have to raise money to have enough capital for your initial expenses, recruit employees, develop a marketing strategy, and the list goes on.
However, before you could do any of that, it is critical for you to select the type of legal structure for your company.
Not only that the choice you make will impact tax amount to pay, but it will also affect the amount of administrative works your business is required to fulfil.
In this article, we cover the benefits of different types of business entities in Indonesia and let you know how to determine what the best structure for your business is.
TYPES OF LEGAL ENTITIES IN INDONESIA
The type of legal entities you pick will most probably be based on three important elements: tax issues, paperwork, and liability.
Here is a glance at the differences among the most prevailing forms of legal business structures in Indonesia:
Limited Liability Company (LLC)
A limited liability company is one of the most common types of business entity in Indonesia. It is also known as “Perseroan Terbatas” (PT) in Indonesian.
In Indonesia, there are two types of limited liability companies: foreign-owned limited liability company (PT PMA) and local limited liability company (local PT).
This business entity is a hybrid structure that is suitable for investors who want to enjoy the benefits of tax and partnership while limiting their personal liabilities.
PT established with a nominee is particularly useful when a business sector that a foreigner wants to get involved in is restricted under the Negative Investment List (NIL).
There are several benefits of creating a local PT or PT PMA, and here are some of them that stand out:
- Open to Foreigners: As mentioned, the PT PMA allows foreigners to easily start a business in Indonesia on your own or through an agreement with a local nominee.
- Legal Protection: The owners are shielded from business debts and obligations with no personal liabilities.
- Increased Credibility: It is easier for a PT or PT PMA to raise money from partners, suppliers and lenders as they prefer this type of business structure.
A shelf company in Indonesia is an aged or preregistered limited liability company that was legally formed with no business activity under the Indonesian Law.
It is suited for investors who would like to set up a business in Indonesia quickly without the need to go through all the registration process and paperwork.
So why does it become more and more common for investors to purchase a shelf company? The reason is simple – the great advantages it offers:
- Time-saving and not necessary to go through all the bureaucracy of establishing a company
- It is more credible as the company has already been set up for a specified length of time, allowing investors to gain contracts more rapidly
- More likely to gain access to loans for business venture
An offshore company is a type of business entity formed by investors from a foreign country for the purpose of operating outside the country of its registration.
It allows foreigners to conduct business that is outside his or her jurisdiction. Investors who want to maximise the profits while limiting their tax responsibilities should opt for this type of entity.
The innumerable benefits of setting up an offshore company include the following:
- Low taxes and tax incentives
- Assets protection
- Low administration costs