Type of Business Structures in Indonesia – a Pocket Guide
It’s business as usual when you know the type of business structures in Indonesia. 3E Accounting offers a pocket-guide of must-know facts.
Indonesia recently introduced it’s Omnibus or Job Creation Law aimed at ameliorating a pandemic-hit economy and encouraging foreign direct investment (FDI). However, laws and regulations are still complex and convoluted. Knowing the type of business structures in Indonesia facilitates ease in doing business in Southeast Asia’s largest emerging economy.
All business and companies need to be registered with the Trade Register or Company Registry. Aside from Government-owned companies, there are two broad categories of entities based on approval or registration.
Legal entities need government approvals to operate and are of the following structures:
- Local Companies which are Perseroan Terbatas Penanaman Modal Dalam Negeri or PT PMDN.
- Foreign Investment Companies which are Perseroan Terbatas Penanaman Modal Asing or PT PMA.
- Representative Offices (KPPA)
Business entities, on the other hand, only need to be registered with the relevant government departments. Their structures include:
- Firms (Firma)
- Limited Partnerships (Commandiatire Vennotshcap or CV)
PTs are the Indonesian version of locally limited companies and have separate legal identities that provide limited liability to shareholders. PT PMDNs are wholly owned by Indonesian citizens and is the most popular choice to generate revenue and conduct business. PT PMDNs can be small, medium or large companies and are categorized according to total projected investment values. Incorporation is relatively easy and fast, while capital investment is less compared to PT PMAs.
PT PMAs are also limited liability companies but can be wholly owned and invested in by foreigners to generate revenue. Incorporation is slightly more complex, and capital investment is high. PT PMAs also need a Permanent Business License from the Capital Investment Coordinating Board (BKPM). Further, the Negative Investment List exempts or restricts specific sectors from wholly-owned foreign investment.
Established foreign businesses can set up a KPPA in Indonesia. Unlike PT PMAs, KPPAs are only allowed to establish a presence in Indonesia for the purposes of corporate communications and research. There are no restrictions on ownership or minimum investment, and they are relatively easy to establish.
This type of structure falls under the category of civil partnership and includes Firms and CVs. As they are not incorporated, no separate legal identity is created, and there is no limited liability protection for owners and partners.
Firms are partnerships consisting of two or more people and will cease to exist upon the resignation or death of a partner. All partners are active in the daily management of business operations and equally, share liability for the firm’s debts.
CVs are similar to Firms but differ in that partners can be active or passive members. Active members are involved in the daily operations of the business and have unlimited liability. Passive members do not get involved in operations but do invest in the business. They are liable to the amount of capital invested only.
These are the most common type of business structures in Indonesia, not including the state-owned companies and agencies such as PERSERO, PERUM and PERJAN. To learn more about these or to start your company incorporation process, Contact 3E Accounting today. We offer customizable business solutions that range from compliance to office rental to software development. Call us to speak to our team of skilled professionals.