A Comprehensive Guide for Foreigners to Start a Business in Indonesia
Investors take heed as 3E Accounting gives you a comprehensive guideline for foreigners to start a business in Indonesia.
Indonesia, as a country for business investment, ticks all the right boxes. An emerging economy, rising consumption and a plenitude of natural and labour resources all make for great investing. However, compliance and regulation can be a nightmare as Indonesia’s laws are formidable, convoluted, and complex. That is why investors still need a comprehensive guideline for foreigners to start a business in Indonesia.
Business as Usual in Indonesia
Indonesia’s Omnibus Law is set to redefine the way business is done, especially regarding direct foreign investment (FDI). It was ratified and signed into law on the 2nd of November 2020. However, many of its provisions are wide-sweeping and will require future presidential decrees and bylaws for a specific application.
As such, the existing laws are applicable along with the Omnibus Law until further gazetted notice. Law No 25/2007 defines foreign investment as an investing activity for business by foreign investors within Indonesia. It includes persons, companies, or governments of foreign origin. Do read the Negative Investment List (DNI) – regularly updated by Indonesia’s Investment Coordinating Board or BKPM – which:
- Excludes certain sectors from FDI.
- Limits the percentage of investment by foreigners.
- Requires a local partner or domestic ownership for some sectors.
Foreigners are strongly advised to engage business solution firms such as 3E Accounting to assist in entering Indonesia’s commercial arena. Despite the recent amendments, company incorporation, licensing and other compliance issues can delay that start of business. When considering your company’s legal structure, the most suitable for foreign investment consists of the following:
- Representative Office: best for exploring business opportunities and does not have financial reporting obligations. Can mostly perform promotional or marketing research and activities.
- Limited Liability Company or Perseroan Terbatas Penanaman Modal Asing or PT PMA: ideal for revenue-generating business and can be wholly or partially foreign-owned. There is a minimum capital requirement of IDR 10 billion with at least two shareholders. One director must be a foreigner while one director must be ordinarily resident in Indonesia.
Interestingly, existing PT PMAs can also be purchased. Conversely, a local limited liability company (Perseroan Terbatas or PT) can be acquired and converted into a PT PMA. These hasten the incorporation process but still require Ministry approval and OSS registration. Any foreign employee working and residing in Indonesia will also need to get a KITAS or work permit and a tax number (NPWP).
All PT PMAs in Indonesia will need the following documentation, permits and licensing to establish and conduct their business activity:
- A notarized Deed of Establishment with articles of association, etc.
- Company Registration Certificate (TDP)
- Legalization of separate legal entity status from the Ministry of Law and Human Rights.
- Registration with the Online Single Submission (OSS) platform.
- Issuance of business registration number (Nomor Induk Berusaha or NIB) from OSS.
- Location Permit which has replaced the Letter of Domicile.
- Principle and business license from BKPM.
- Confirmation as a taxable entrepreneur (BPPT)
- Tax Identification Number (NPWP)
Most companies can start their business activity after obtaining their NIB. However, companies with business activity in specialised sectors such as food, agriculture, etc. will need further permits and licenses. PT PMAs are required to file audited annual reports to the Ministry of Trade.
A comprehensive guideline for foreigners to start a business in Indonesia gives you a bird’s eye view of all the things to consider before starting. To ensure a seamless transition from start-up to trading, do get in touch with 3E Accounting. Our team of experts have years of industry knowledge and practice that will come in handy when navigating Indonesia’s commercial landscape.
Contact 3E Accounting for the best and latest bespoke business solutions for the discerning entrepreneur.