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Doing Business in Indonesia for Foreign Enterprises
As one of the fastest growing economies in the world, Indonesia offers investment-friendly regulations, ease of cross-border trade, and a young, English-speaking workforce. As the 16th largest economy in the world, Indonesia is a popular choice for foreign enterprises seeking for a launchpad to grow their business in the ASEAN region.
Company Incorporation in Indonesia
Foreign enterprises looking to set up a local entity in Indonesia can establish either of two business entities:
- Foreign Investment Limited Liability Company (in Indonesian: Perseroan Terbatas Penanaman Modal Asing or PT PMA company); or
- Representative Office (in Indonesian: Kantor Perwakilan Perusahaan Asing or KPPA)
Foreign investors who want to engage in profit-generating business activities in Indonesia can establish a PT PMA company, a business entity that can be either fully or partially foreign-owned. If they only want to conduct non-income generating activities to promote their services, engage in market feasibility studies, or establish a local contact office of their parent company abroad, they can set up a representative office (RO) or KPPA.
Eligibility Requirements for Setting Up a PT PMA Company in Indonesia
To successfully incorporate a PT PMA Company in Indonesia, foreign enterprises must fulfill the following setup requirements:
- minimum capital requirement of IDR10 billion or US$800,000.00 (from which at least 25% should be provided as minimum paid-up capital)
- minimum of 2 shareholders (corporate or individual)
- minimum of 1 local director
- minimum of 1 commissioner (can be a foreign citizen, but if s/he does not have a work permit [abbreviated in Indonesian as KITAS] yet, a local candidate has to be appointed to represent the company during the incorporation process)
Documentary Requirements for Registering a Representative Office in Indonesia
Foreign investors seeking to establish a representative office must submit the following documentary requirements:
- Letter of Appointment from parent company abroad
- Articles of Association of parent company (duly legalized by a public notary and relevant embassy and includes amendment(s) in English)
- Copy of valid passport of foreign national proposed as RO Head or copy of identification card number and tax number of Indonesian national proposed as RO Head
- Copy of Registration at Chamber of Commerce of parent company
- Power of Attorney to sign the application (if being represented by another party)
- Letter of Intent (duly legalized by a public notary and relevant embassy)
- Letter of Statement from the RO Head stating that they are committed to stay and only work in the position as RO Head without conducting other business in Indonesia
Corporate Taxation in Indonesia
The corporate tax rate in Indonesia is generally flat at 25% (22% in 2020), but special conditions apply to resident companies. Companies are taxed as resident or non-resident, depending on whether or not they were incorporated in Indonesia. Foreign companies with permanent establishments (PE) in Indonesia are taxed in the same manner as resident taxpayers.
Tax Benefits in Indonesia
Resident companies can enjoy plenty of tax benefits. If you want to do business in high priority sectors or in certain areas, you can be eligible for income tax relief and reduction in net income up to 30% of the amount invested, prorated at 5% for 6 years of production.
Work Visas and Immigration in Indonesia
Foreign nationals seeking to work in Indonesia must be sponsored by an Indonesian company to become eligible for a Work Visa (IMTA). The petitioning company must prove to the Ministry of Manpower (MOM) that the foreign applicant is required to fulfill certain positions.
Under local laws, foreign nationals are not allowed to apply for work in the following sectors:
- Human resources management
- Health and safety
- Quality control
- Supply chain management
Those seeking to come to Indonesia for business must apply for a Business Visa. This visa is a single-entry visa valid for 60 days upon arrival and can be extended up to four times. This type of visa is intended for business people who want to attend meetings and conferences or undertake market research in Indonesia.