BUSINESS ENTITIES IN INDONESIA: NON-RESIDENT
Indonesia, with its dynamic economy and vast market potential, is an attractive destination for foreign investors and entrepreneurs looking to expand their business operations. The Indonesian government offers several business permits and licenses to facilitate foreign investment, each tailored to different business needs and activities. Understanding the registration process, required permits, and associated costs is crucial for a smooth entry into the Indonesian market.
2.1 Non-Resident
2.1.1. Registration of Investment: Penanaman Modal Asing/PMA
Foreign investors (PMA - Penanam Modal Asing) are required to register their investments through the One-Door Integrated Services (Pelayanan Terpadu Satu Pintu/PTSP) at Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM). This registration checks if the investor's business sector is on the negative investment list. Domestic investors (Penanam Modal Dalam Negeri/PMDN) do not need to register unless necessary.
Foreign investors can register either before or after obtaining a Notarial Deed and before or after the company's legal entity status is approved by the Department of Law and Human Rights. After registration, the company must draft its Deed of Establishment and obtain legal entity status within a specified timeframe.
Taxpayer Number (NPWP)
All investors, foreign or domestic, must obtain a Taxpayer Number (Nomor Pokok Wajib Pajak/NPWP), which serves as the taxpayer's identity for business activities. It is also required for drafting the company’s deed and obtaining other licenses. The NPWP is issued by the local Tax Service Office.
Establishment Deed of Legal Entity
Both foreign and domestic investors in Indonesia must form legal entities, specifically Limited Liability Companies (Perseroan Terbatas/PT). A Notary Public can process and issue the Legal Entity Deed, which must be legalized by the Ministry of Law and Human Rights.
Legalization of Legal Entity
The legalization of a business entity formalizes the PT’s legal status, making it enforceable for investment activities in Indonesia. This process is conducted online through the Legal Entity Administration system at the Ministry of Law and Human Rights.
Facility Obtained
Investment Principle License
Foreign and domestic investors seeking investment facilities must obtain a Principle License. Facilities include exemptions from machinery import duty, goods and material import duty, VAT, and income tax reductions. The Principle License is obtained through the One-Door Integrated Services at BKPM.
Importer-Producer Identity Number/General Identity Number
The API (Angka Pengenal Impor) is the identity for investors to perform imports and obtain import facilities. The Importer-Producer Identity Number (Angka Pengenal Impor Produsen/API-P) is for importing capital goods and materials not for resale. The General Importer Identity Number (Angka Pengenal Importir Umum/API-U) is for importing goods for trading.
Employment of Foreign Workers
Plan of Foreign Workers Employment
Foreign and domestic investors employing foreign workers need an Foreign Workers Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/RPTKA, a document outlining the employment plan for foreign workers, issued by the Ministry of Manpower and Transmigration.
Recommendation of Visa for Working (TA-01)
The TA-01 Recommendation is required to obtain a visa for foreign workers employed in investment activities. It is processed by the Ministry of Manpower and Transmigration.
Permit of Foreign Worker Employment
Investors employing foreign workers must obtain an Foreign Worker Employment Permit (Izin Menggunakan Tenaga Kerja Asing/IMTA) processed by the Ministry of Manpower and Transmigration.
Construction and Environment
City Spatial Planning
Some regions require investors to obtain a permit or document relevant to city spatial planning. This permit ensures the investment activity aligns with local urban planning and is issued by regional governments.
Land Utilization Allotment Permit
Investment activities requiring land must obtain a Land Utilization Allotment Permit (IPPT), which indicates that the land is available for the investment. The permit is issued by regional governments.
Building Construction Permit
Investors constructing buildings must obtain a building construction permit from regional governments.
Environment
Hinder Regulation
To ensure investment activities do not disturb local communities, regional governments require investors to obtain a Hinder Regulation (HO - Hinder Ordinasi) permit.
Recommendation of Environment Impact Assessment (EIA)
Investors must obtain an EIA recommendation (AMDAL) for activities potentially impacting the environment. Smaller-scale investments require a UKL/UPL recommendation for environmental management.
Underground Water Suction/Utilization Permit
Investors using underground water must obtain an Underground Water Suction/Utilization Permit (IPABT) from the regional SKPD.
Business Area Establishment
Business License
Foreign investors must obtain a Business License to conduct business operations. This can be processed through the One-Door Integrated Services at BKPM.
Business Domicile License
A Business Domicile License (SITU) is required for investment activities and serves as legal evidence of the business location. It is also needed for other operational permits.
Company's Registration Evidence
Investors must obtain a TDP (Tanda Daftar Perusahaan) or Company's Registration Evidence before starting investment activities. This is processed through the regional One-Door Integrated Services or the Head of Region.
**https://nswi.bkpm.go.id/panduan/content/ESTABLISHMENT-REGISTRATION-OF-BUSINESS
2.1.2. PT PMA (Penanaman Modal Asing)
According to Law No. 25/2007 on Investment, foreign investment in Indonesia involves activities by a foreign investor aimed at conducting business within the country. The entity through which a foreign individual, company, or government body can operate and generate revenue in Indonesia is a PT PMA (Penanaman Modal Asing). The establishment and operation of a PT PMA are governed by Law No. 40/2007 on Limited Liability Companies. A PT PMA can be fully foreign-owned or partially foreign-owned.
It's crucial to note that not all sectors in Indonesia are open to foreign investment. The sectors that are either closed or partially closed to foreign investors are listed in the Negative Investment List (Daftar Negatif Investasi), which is compiled and regularly updated by the Indonesia Investment Coordinating Board (BKPM). If a sector is partially closed to foreign investment, the list specifies the maximum allowable percentage of foreign ownership, necessitating a local (Indonesian) partner for business operations in that sector.
Required documents
- Principle license and business license from BKPM.
- Legalisation of the PT PMA by the Ministry of Law and Human Rights.
- Domicile letter from the local district authority.
- Tax identification number and taxable entrepreneur confirmation.
- Company registration certificate.
- Manpower and company welfare reports from the Ministry of Manpower.
Shareholders Structure of PT PMA
The establishment of a PT PMA (Penanaman Modal Asing) in Indonesia requires at least two shareholders, namely the President Director and the President Commissioner. Among them, at least one shareholder must be a foreign individual or legal entity. The President Director, responsible for daily operations, must be a resident of Indonesia. Any foreign individual working and residing in Indonesia must obtain a tax number (NPWP) and a work permit (KITAS).
Deed of Establishment Requirements
To establish a PT PMA, shareholders must present a deed of establishment, which must be notarized by a public notary. This document, in addition to the Articles of Association, includes detailed information such as:
a. Detail of Founders:
- For individual shareholders: name, date and place of birth, current residence, and citizenship.
- For legal entity shareholders: domicile, full address, and legalization details.
b. Board of Directors and Commissioners
- Names, dates and places of birth, current residence, and citizenship of the first appointed members.
c. Other shareholders
- Names, number of shares, and issued/paid-up nominal value.
Minimum Capital Requirements
Foreign investors must comply with minimum capital requirements for PT PMA establishment, currently set at IDR 10 billion or equivalent in USD. This high requirement aims to attract significant investors while safeguarding local businesses. Paid-up capital is typically 25% of this minimum (IDR 2.5 billion), although certain industries may have higher requirements. In practice, some PT PMAs are established without transferring paid-up capital to Indonesian banks. Instead, shareholders may issue a Capital Statement Letter, pledging to transfer the capital if required, though exceptions exist, such as in the financial sector.
By following these registration and compliance steps, foreign companies can establish and operate their business in Indonesia efficiently.
2.1.3. Representative Office
A representative office in Indonesia is ideal for foreign companies exploring the market. It can engage in market research, promotional activities, and act as buying or selling agents for the parent company. This office cannot generate profit in Indonesia, and all commercial transactions must be managed by the parent company. The license for a representative office is valid for two years and must be renewed. There is no minimum capital requirement, and both local and foreign employees can be hired.
There are three types of representative offices:
Foreign Representative Office
- Activities: Supervising, coordinating, managing company interests in Indonesia or abroad without engaging in profit-generating activities, entering contracts, or purchasing goods/services domestically.
- Required Documents: Appointment letter from the parent company, articles of association, head of representative office's identification, letters of intent and statement, and other necessary approvals and registrations.
- Permits/Licenses: Approval from BKPM, Business Registration Number, Business License, domicile letter, taxpayer registration number, company registration certificate.
Foreign Construction Representative Office
- Activities: Construction services, handling high-risk, high-tech, or high-cost projects through joint operations, conducting construction work with necessary permissions.
- Required Documents: Articles of association, construction services license, recommendation letter from the Indonesian Embassy, audited financial statements, CV of the head of representative office, and other relevant documents.
- Permits/Licenses: License for foreign construction representative office, valid for three years and renewable.
Foreign Trade Representative Office
- Activities: Promoting and marketing foreign-produced products, providing usage and import information, conducting market research, supervising sales, and concluding contracts on behalf of the parent company.
- Permits/Licenses: Foreign trade representative office business license (SIUP3A) with four types (Temporary, Permanent, Extension, Modification).
- Required Documents: Various application forms, legalised letters of intent, appointment, statement, reference, work plan, CV, identification, and other necessary approvals.
**https://indonesia.acclime.com/guides/foreign-company-registration-options/
2.1.4. Permanent Establishment (PE) / Bentuk Usaha Tetap (BUT)
According to the provisions of the Income Tax Law, a non-resident company may be deemed to have a taxable presence if it engages in business activities within Indonesia. This presence can take various forms, including:
- Management offices
- Company branches
- Representative offices
- Office facilities
- Factories
- Workshops
- Warehouses
- Sales and promotional spaces
- Mining and extraction sites for natural resources
- Oil and natural gas mining areas
- Locations for fisheries, animal husbandry, agriculture, plantations, or forestry
- Construction, installation, or assembly projects
