Dormant Companies in Indonesia: An Overview

Dormant CompanyA dormant company in Indonesia is one that has ceased its business activities or remained inactive for a specified period. This status also affects its tax reporting obligations. Under Article 146 of Law Number 40 of 2007 on Limited Liability Companies, a company is deemed unable to continue its operations if it stays inactive for three or more years, supported by a notification to the tax office. Such companies can be categorised as Non-active Taxpayers under specific conditions.


Criteria for Non-active Taxpayer Status

Tax authorities classify companies as Non-active Taxpayers if they meet any of these criteria:

  • Failure to fulfill tax obligations, including tax payments and submission of periodic or annual tax returns, for three consecutive years.
  • Unknown domicile.
  • Evident closure of business activities.


Reasons for Dormancy

Business owners may opt to make their companies dormant for several reasons, including:

  • Minimising potential losses due to poor market response or declining demand.
  • Strategic planning before actual business activities, especially for foreign investment companies.
  • Winding up operations or running at a loss, often leading to suspending activities and maintaining essential tax reports.


Consequences of Dormancy

Being a dormant company carries legal implications, such as the Indonesian District Court’s authority to dissolve the company upon requests from shareholders, directors, or the board of commissioners, per Article 146.1.(c) of the Indonesian Company Law. Despite dormancy, certain obligations must be fulfilled:

  • Holding the Annual General Meeting of Shareholders to approve the Board of Directors’ annual report.
  • Regularly re-appointing directors and commissioners based on their respective terms of office.
  • Submit investment reports and update company information with the Indonesia Investment Coordinating Board (BKPM) for foreign investment companies.

Additionally, the tax office requires specific applications to declare a company as dormant, with approvals usually granted within ten working days. Consequently, tax authorities do not issue tax warning letters if the company fails to submit tax reports or pay administrative sanctions during its dormant phase. Understanding the concept and implications of dormancy is crucial for businesses navigating the Indonesian corporate landscape.