A REPRESENTATIVE OFFICE AS AN EFFICIENT WAY TO INVEST IN INDONESIA FOR FOREIGN INVESTOR
For foreign investors, seems like you might be not sure what are the legal entities that can be the option for investing in Indonesia? We could tell that the best option are Foreign Representative Office and PT. PMA.
BUSINESS PROSPECTIVE FROM REPRESENTATIVE OFFICE POINT OF VIEW
Do you want to explore business prospective in Indonesia (through conducting market research)? How if you do not have prospective clients in Indonesia yet?
Due to answering those question, so we suggest you to open a representative office instead of company as your first step.
HERE ARE SOME ACTIVITIES THAT COULD BE DONE BY REPRESENTATIVE OFFICE:
• Obtain work permits for expatriate managers
• Tax (SKFLN).
HOW DOES IT WORK?
Some efficient way for foreign investors before they could establishing PT PMA is by using Representative Office. The main activity of representative office is conducting market research activities as well as marketing and promotion through selling or buying agents. Meanwhile, you need to aware that this form of business entity does not allow you to generate revenues business directly under the name of the representative office.
Point from this, you need to have existing parent company overseas first to manage the representative office in Indonesia. Beside. a foreign company may establish a representative office in Indonesia but there is a limit for activities for supervising and coordinating the business. Its principal, branches and representative office in Indonesia does not allow to make any business transaction with companies or persons in Indonesia either for export or import or domestic trading.
Structure the representative office lead by one or more foreign or Indonesian citizen who are appointed by a foreign company or joint foreign companies as their representative with the intention of:
• Handling the company or its affiliates concerns, and or
• companies, in Indonesia or in other countries and Indonesia.
BENEFITS AND DISADVANTAGES OF REPRESENTATIVE OFFICE:
This are the benefit and also disadvantages of representative office in Indonesia:
|BENEFITS:||It is relatively easy and quick to set up|
|Less paperwork; you only need to report income tax for the employees as well as (rented) office space tax|
|No need for large investments or paid up capital|
|DISADVANTAGES:||You are not allow to generate the revenues, profit or engage in sales directly|
THERE ARE 4 TYPES OF REPRESENTATIVE OFFICE WHICH YOU CAN CONSIDER:
I) FOREIGN REPRESENTATIVE OFFICE (KPPA)
Kantor Perwakilan Perusahaan Asing – KPPA or Foreign representative office allows you to basically create a market presence without almost any money. A Foreign Representative office is more general than a Foreign Trade Representative office and is usually set up for management reasons. Hence, there is limitation for role to; supervising, managing, liaising, coordinating and also representing the parent company
If you want to start Foreign Reprentative Office (KPPA), you need to take care of the legal requirement first. And you must submit an application to the Indonesian Investment Coordinating Board (BKPM). This can be done either by the director or manager of the foreign company, or by the director candidate in Indonesia due to behalf of the foreign company of the new representative office, who must be appointed prior to establishing a presence in Indonesia. Another option could be a power of attorney.
Probably this process almost look so simple, but there are several steps need to consider to be a part of the application that will certainly take you some time. Make sure you review the following points completely:
•Appoint a business representative (expatriates are acceptable)
•Collect all the important documents
•Notarized letter of intent
•Notarized letter of appointment
•Letter of reference
•Resume and work permit of the company representative
•Submit application to BKPM
After all of the paperwork is complete, BKPM will issue the license, usually within one month. The license is valid for three years and could be extended for a maximum of two years. With the new regulation BKPM 12/2013, there are no limitations on extension of the license.
II) FOREIGN TRADE REPRESENTATIVE OFFICE (SIUP3)
Owing a license SIUP3A (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing) from the Ministry of Industry and Trade of the Republic of Indonesia is a must for all foreign trade company or Joint Enterprise (Association) who will open their representative office in Indonesia. it is suitable with the Minister of Industry and Trade Decree No.: 402/MPP/Kep/11/1997.
Since only Foreign individuals or Indonesian individuals with high educational background and experience are eligible to manage the Representative Office. Hence, This individual will act as Head of Representative Office or Assistant to Representative and in addition the educational background must be at least graduate from university or equal to university graduate with 3 years experiences in the field where she/he will be posted
REPRESENTATIVE OFFICE CAN ACT SAME AS SELLING AGENT
The Representative Office also can act as selling agent and/or manufacturing agent and/or buying agent of their principal. Apply The representative office their detail activities in accordance with article 3, The Minister of Industry and Trade Decree No. 402/MPP/Kep/11/1997 that is for the promotion and market research of import or export products.
Foreign expatriate who intend to work at the Representative Office either as Head of Representative or as Assistant to representative are subject to The Minister of Man Power Decree No. Kep 682/MEN/85 due to his/her working permit.
And as the name already implies, this kind of representative office can use for trading as well as marketing. Hence, The activities that allow for Foreign Trade Representative office with an active permit SIUP3A (Surat Izin Usaha Perwakilan Perdagangan Asing) are as follows:
1. Act as a buying or selling agent
2. Conduct market research and create promotional materials
It is necessary to understand that neither a Foreign Representative office, nor a Foreign Trade Representative office allow you to really do business. Because of this, you are not permitted to sign or enter into any contracts, generate revenues or even engage in the management of a company in Indonesia. You will finally follow the same process for Foreign Trade Company as for Foreign Representative Office (KPPA).
Difference is that in this case, all documents such as the Letter of Intent or Letter of Appointment must sign by a notary in the country of origin and legalized by the Indonesian Ministry of Foreign Affairs.
III) FOREIGN CONSTRUCTION REPRESENTATIVE OFFICE (SIUJK)
Unlike the previous two cases, the regulation for construction sector is by Ministry of Public Works and also partially by BKPM. Require a permit (surat izin usaha jasa konstruksi – SIUJK) to operate in the construction area. It is important information to note that only large companies can qualify for the license, this is issue for three months with the possibility of extension.
Finally in late September, the Minister of Public Works (Minister) issued Minister Regulation number 10/PRT/M/2014 regarding Guideline Requirements for Giving Permission Foreign Construction Service Representative Office (New Regulation).
The New Regulation for construction representative offices in Indonesia replaces the old Minister regulation 05/PRT/M/2011 (Old Regulation) which had a similar title. The New Regulation has become more comprehensive than the Old Regulation, also the New Regulation sets clear requirements for the distribution of work between the Foreign Construction Representative Office and the Indonesian construction company.
Unless regulated differently by a related authority, for construction work the distribution of work in a Joint Operation is as follows:
1. Perform At least 50 percent of the value of construction work in Indonesia; and
2. Perform At least 30 percent of the value of construction work by the Indonesian construction company.
For construction planning work, the distribution of work in a Joint Operation is as follows:
1. Perform The entire technical planning work inside Indonesia; and
2. Perform At least 50 percent of the value of construction planning work by the Indonesian construction company.
THE FOREIGN CONSTRUCTION REPRESENTATIVE OFFICE ALLOWS YOU TO:
1. Do market research and contact institutions and companies
2. Involve in procurement of construction services
3. Appoint local and foreign manpower to head the office
WHAT IS NEEDED TO ESTABLISH A FOREIGN CONSTRUCTION REPRESENTATIVE OFFICE?
First, Submit the application and all the necessary documents to the Ministry of Public Works and pay the administration fee. The fee can amount to either $5,000 in the case of construction consultancy services sector, or $10,000 if target sector is construction implementation services.
Company applying for an SIUJK license also has to do a lot of paperwork. Apart from the same requirements as for a KPPA, submit several items along with the application to prove that the company setting up the office has a good reputation, is big enough etc.
IV) FOREIGN BANK REPRESENTATIVE OFFICE IN INDONESIA
A foreign bank can open a representative office in Indonesia to act as a liaison office between the foreign bank and its customers in Indonesia. This type of representative office is regulated and monitored by Bank Indonesia, the Indonesian central bank. As a liaison office, the representative office cannot conduct banking activities in Indonesia, and is only allowed to:
1. provide information to third parties within Indonesia on requirements and procedures for establishing relations with its principal office/branch offices outside Indonesia
2. In order to assist its head office/branch offices outside Indonesia in supervising credit collateral in Indonesia
3. act as proxies in making contact with institutions/agencies to represent the interests of its head office/branch offices outside Indonesia
4. Person who act as supervisors of projects within Indonesia which are partially or wholly financed by its head office/branch offices outside Indonesia
5. promotional activities
6. provide same information on Indonesian trade, economic matters, and also finance for foreign parties or vice-versa; and · assist Indonesian exporters in obtaining market access outside Indonesia through international network of banks affiliated with the representative office or vice-versa.
PROCEDURE FOR OPENING A REPRESENTATIVE OFFICE
First of all, there is procedure for opening a representative office in Indonesia refers to Decree of Director of Bank Indonesia No. 32/37 /KEP/DIR dated 12 May 1999. Here are the highlight guidelines of the procedure: The opening of a representative office must have permission from Board of Governor of Bank Indonesia.
Bank that probably intends to open a representative office in Indonesia should have total asset which ranks top 300 in the world, which could be refer to the bank rank’s that issued by credible international agency. Sign The application letter by the Director of the bank and addresses to the Board of Governor of Bank Indonesia.
Furthermore, application letter should also mention as the reason to open a representative office in Indonesia. The application send along by: a copy document that mentions total asset of banks is ranks top 300 in the world, and the letter of assignment from Head office to the candidate of head of representative office in Indonesia, the curriculum vitae of the candidate of head of representative office in Indonesia, the letter that stated the candidate of head of representative office will work exclusively for the bank (no double position in any other companies), the letter that stated no objection from banking authority where the head office located, to open a representative office in Indonesia.
Letter of objection / no objection to open a representative office in Indonesia will be given by Bank Indonesia within 30 days after all complete application is received by Bank Indonesia.
With regard to the application process, Bank Indonesia will 1) check the completeness and accuracy of the documents 2) And conduct interview with the candidate of head of representative office.