Indonesia has become a country with massive economic growth, garnering attention from investors and entrepreneurs all over the world. With the many startups and available business ventures, it is possible for anyone, including foreigners, to start their own company in Indonesia. Of course, several steps needed to be done before establishing a well-operated Indonesian company.
If you have plans to start a new company in Indonesia, read and follow these easy steps that can help you in becoming a business owner in Indonesia.
To establish a foreign direct investment company in Indonesia you must first decide what business sector you are going to invest based on Indonesian Classification for Business Sector (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI). Then, you must check whether the business sector is open with requirements or closed for foreign direct investment based on the Presidential Regulation about Negative Investment List (Daftar Negatif Investasi or DNI). If the business sector which you are interested in is not regulated, and no other restrictions from related technical ministries, then it means the business sector is open for foreign direct investment with maximum foreign ownership of 100%.
Several industries may have gone from partially open to fully open for foreign ownerships in 2019. This list can help you decide whether you need a local partner or not. The Negative Investment List includes Indonesian companies in trade, tourism, communications, transportation, and telecommunications sectors.
On a fresher note, the Indonesian government has been planning to instead make a “positive” investment list to promote several industries that are open for foreign and domestic investment. Later on, rather than banning several business sectors from having foreigners as owners, Indonesia will welcome foreign investors and entrepreneurs with a priority list.
After looking at the Negative Investment List, you are one step closer to establish a new company in Indonesia. Next, you need to choose which type of Indonesian company that a foreigner can form.
First is to establish a Limited Liability Company or Ltd (PT PMA). The ‘PT’ company should be owned by a minimum of two shareholders. Those can be individual or corporate shareholders or a combination of both. The minimum investment for an FDI company is above IDR 10 billion (excluding land and building cost), while the minimum paid up and issued capital is IDR 2.5 billion. For each shareholder, at least IDR 10 million or its equivalent in USD is required.
Second, a foreign investor could set up a Representative Office to study the market. Foreign Representative Office (Kantor Perwakilan Perusahaan Asing or KPPA) is an office incorporated by an overseas company to represent itself in Indonesia. Foreign Representative Office usually has limited functionality and generally are prohibited from directly engaging in operational activities, signing contracts, issuing official invoices, receiving payments from its clients, and directly engaging in other profit-generating activities.
The process of company establishment in Indonesia requires Investor to issue Article of Association and legalization of the company, through Public Notary and get taxpayer number (Nomor Pokok Wajib Pajak or NPWP) from Tax office.
The regulation of the Central Bank of Indonesia requires that all banking transactions (such as capital injection, administration of loans, payment of capital equipment, raw material, etc.) of a newly established PT. PMA should be administered through a special foreign investment bank account in Indonesia.
Basically, to start a business company should obtain following licenses:
Business licenses can be applied online through OSS except for several business sectors. They are financial, mining (oil and gas, mineral and coal, and geothermal), and property sectors. For these sectors, licenses can be applied through One Stop Service Center (Pelayanan Terpadu Satu Pintu or PTSP Pusat) BKPM.
Foreigners intending to work and stay in Indonesia must get Limited Stay Visa (VITAS). To get VITAS, applicants must have a sponsor both from their home country and in Indonesia. The application should be submitted by sponsor in Indonesia to the Directorate General of Immigration in Jakarta. Once the application is approved, Directorate General of Immigration in Jakarta will give the approval letter to the sponsor or counterpart in Indonesia and to the Indonesian Embassy where the visa will be collected. The embassy will issue the VITAS only after receiving approval from the Directorate General of Immigration in Jakarta. Once the foreigners enter Indonesia by using VITAS, they should apply for Limited Stay Permit Card (KITAS) from the local immigration office.
Another important step is choosing the location of your company. Different regions and types of companies have specific ground rules that you must oblige. Industrial Law No. 3 year 2014 and Government Regulation No. 142 year 2015 has mandated that any industrial activities shall be located in industrial estates.
Today, the Indonesian Industrial Estates Association (Himpunan Kawasan Industri Indonesia or HKI) has 87 company members, in 18 provinces, covering total gross area of about 86,059 hectares. More than 9,950 manufacturing companies are operating and these figures do not include industrial estates non HKI members.
The representative office can only be established in the capital city of a region and must be in the office building. By setting the office location, you can process the domicile letter and other required documents accordingly.
The employers of foreign labor could be able to hire foreign workers only for a certain position and a certain time. Employers of Federal Civil Firm (Firma or Fa), the Limited/Federal Partnership (Commandditaire Vennootschap or CV), Associated Business (Usaha Bersama or UB), Trading Company (Usaha Dagang or UD) are prohibited for employing foreign labor except as provided in the State Law.