With the largest economy in Southeast Asia, Indonesia is one of the premier emerging market economies in the world.
With an annual GDP growth rate of 5%, Indonesia is a top developing location for those looking to start up in Asia.
If this has you hooked, then we’ll go over a step-by-step guide on how to open your own company in Indonesia.
Obtaining a Business License in Indonesia
The first order of business is to obtain your Indonesian business license.
Depending on your plans for your business, there are a total of three options for the type of business you want to start.
Here are the three types of businesses you can open in Indonesia.
Local Company (PT) in Indonesia
A Local Company, or Perseroan Terbatas (PT), is the most common type of business run in Indonesia.
On paper, this type of business is meant to be exclusively for Indonesian citizens. However, there are ways to work around this stipulation.
Under Indonesian law, a foreigner cannot wholly own a PT, which can only be owned by Indonesian citizens.
However, a foreigner can partner with a PT owner through a Nominee Company Agreement.
Through this agreement, a local nominee will allow a foreign investor to run the PT, while still being compliant with the laws of Indonesia.
While there are some legal hoops to jump through, PTs enjoy certain legal benefits over other types of business.
PT founders can take advantage of lower incorporation costs.
To start a small PT, rates go as low as about $3,550.
For the larger PTs, the incorporation reaches a maximum of roughly $709,981.
PTs are similar to LLCs, so the liability is limited, and it’s much easier to gain additional funding and capital for local businesses.
There are a few disadvantages, however.
For example, stock dividends received by shareholders are taxed, the founding process is more time-consuming, and company trade secrets must be reported to shareholders.
Additionally, there is extra risk involved since you, as a foreigner in Indonesia, will not own 100% of the business.
The process of starting a PT is as follows:
- Submit a Company Name Application to the Ministry of Law & Human Rights
- Sign the Articles of Association in the presence of a notary public
- Gain approval of the Deed of Establishment from the Ministry of Law & Human Rights
- Acquire the Certificate of Domicile to establish your business location
- Apply for a Taxpayer Registration Number (NPWP)
- Apply for a Business Identification Number (NIB)
- Acquire the Company Registration Certificate (TDP)
Representative Office in Indonesia
The second type of business you can start in Indonesia is the Representative Office or RO. If you would rather dip your toe into Indonesian business instead of making a large investment, this is the business type for you.
ROs can be established in the absence of large capital investment, as there is very little incorporation cost.
These are ideal for those looking to create brand awareness or conduct market research in Indonesia before starting their business.
ROs are prohibited from generating profits, as they are merely representatives of your foreign business and cannot actually conduct business in Indonesia.
That is the primary disadvantage of ROs, as you cannot conduct business through them.
However, it is the best way to get your foot in the door of the Indonesian market without making a hefty capital investment.
Additionally, owners of ROs are entitled to sponsor work or stay permits for foreign employees and sponsor business visas for foreign business partners moving to Indonesia.
ROs do not require shareholders or directors and can be solely owned by one chief executive.
If you’re looking to test the waters of Indonesian business, an RO is a perfect structure for you.
While the legal activities or an RO are limited, they are a great first step for those looking to do business in Indonesia.
Think of ROs as a way to test the waters before diving in
The process of establishing an RO is very simple.
- Obtain a Representative Office License (KPPA)
- Obtain a Certificate of Domicile
- Apply for a Taxpayer Registration Number (NPWP)
- Obtain a Company Registration Certificate (TDP)
Limited Liability Company (PT PMA) in Indonesia
The last type of business is the foreign-owned LLC, known as the PT PMA in Indonesia.
While this may be the most time-consuming and costly business type to open, the benefits included make the initial difficulty worth it.
First, foreign ownership laws for PT PMAs are more relaxed when it comes to foreign ownership.
You can operate a fully foreign-owned PT PMA without the use of a partnership.
PT PMAs have the same rights and responsibilities as local companies, regardless of foreign ownership.
Compared to PTs, obtaining permits and licensure is much simpler for foreigners.
Import taxation for PT PMAs is lower than the standard rate, and foreign owners are allowed to own 100% of the company, unlike PTs.
PT PMAs are capable of sponsoring as many foreign employees as needed, and organizational structure requirements include only one director, one commissioner, and a minimum of 2 shareholders.
Although it has advantages, the PT PMA has some disadvantages. PT PMAs must file monthly tax reports.
Additionally, the cost of incorporation is high, as the minimum investment plan is $1 million.
While the establishment of a PT PMA is costly, the benefits of establishing a wholly-owned business make it worth the cost.
Setting up a PT PMA requires the following:
- Obtaining approval of company name
- Acquiring a Deed of Incorporation
- Acquiring an Approval of Legal Entity
- Apply for a Taxpayer Registration Number (NPWP)
- Obtain a Certificate of Domicile
- Apply for a Business Identification Number (NIB)
- Additional licensure may be required depending on the business type/region of operation
After your business is established, you need to start a business account for your new business.
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