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The Indonesian government is quite aware of the importance of foreign investments for economical growth and sustainability. To promote more investments in the country, the government is taking initiatives to minimise bureaucracy and deregulation, thus creating a wider range of investment activities for foreign investors.
When setting up a new company in a foreign country, it is important that you know the different types of entities available, their characteristics and requirements. Let’s look at the forms of business entities in Indonesia that a business owner can start:
A Limited Liability Company (Perseroan Terbatas-PT) is a legal entity which is an association of capital, established on the basis of agreement, conduct business activity on the basic capital which is wholly divided into shares and which fulfils the requirements stipulated in the Act and its implementing regulations. There are two types of limited companies, namely a closed PT and an open PT. A closed PT is one whose shareholders are limited, for example among families. An open PT (often called PT going public) is a PT whose common shares are sold to the public.
Indonesia’s Company Law makes the following distinctions between Limited Liability Companies or PTs:
This business model is suitable for Indonesian Limited Liability businesses owned (either partially or fully) and controlled by foreigners. Before you can conduct business in Indonesia this structure, you need approval from local authorities.
The Capital Investment Coordinating Board (BKPM) grant approval for PMA businesses. For that, your PMA business must:
Additionally, your PMA must have:
PMAs that are fully foreign-owned must also sell at least 5% of their share to an Indonesian citizen or entity within its first 15 years of operations. This can be avoided if the PMA has evolved from a joint venture with a local.
This type of a business model allows an Indonesian nominee to set up a Limited Liability Company on behalf of a foreign company. It lets you get past restrictions on foreign investment/ownership. Thus, starting of the business becomes much easier and quicker with a Nominee Limited Liability Company. This is especially helpful for entrepreneurs operating with time sensitive contracts or business deals.
With specific eligibility requirements, representative offices may conduct market research, promotional activities, or act as buying or selling agents for the parent company only. One major thing to keep in mind while starting a representative business, is that the license for these entities only last for 2 years, and would require to be renewed for continuous operation. The government also carries discretion to impose further operating requisites depending on the nature of the parent company.
Foreign corporations can’t currently form branch offices in the country, barring the opportunity for future conversion for their Representative Office.
Sole proprietorships or Usaha Dagang is the simplest form of company in Indonesia as it requires only one person to run the business. There is no legal difference between the owner and the sole proprietorship. To open a UD you would need:
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