Five business structures in Indonesia.

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Five business structures in Indonesia

This is a list of the five most common business entities in Indonesia.

When setting up a new company in a foreign country, it is important that you know the different types of entities available, their characteristics and requirements.

Business entities available in Indonesia include:

  • Perseroan Terbatas (PT)
  • Private-owned enterprises (BUMS)
  • Sole proprietorship (UD)
  • Representative office
  • Subsidiary company

1. Perseroan Terbatas (PT)

A Perseroan Terbatas (PT) is a limited liability company. A PT is a legal entity whose capital is divided into shares.

The owner’s personal assets are protected if the company faces any financial issues, as the shareholder’s liabilities are limited to the number of unpaid shares in the capital of the company. Shares can be easily sold, and changes in the ownership and shares can be done without needing to dissolve the company.

There are two types of PT in Indonesia:

  1. Local PT company; and
  2. Foreign-owned PT PMA company.

Local PT companies

Local PT companies can only be 100% owned by an Indonesian citizen, but if a foreigner wants to set up this type of entity, they will need resident shareholders.

Resident shareholders are for foreign investors who want to expand their business to Indonesia in sectors that are not open to foreigners; resident shareholders enable foreigners to start a business in any industry they desire.

The basic requirements to establish a local PT company are:

  • One local director
  • Two local shareholders
  • One local commissioner

There are three different sizes of local PT companies, which are based on the amount of capital invested.

Size of local PT companies

SizeInvested capital
SmallAbove IDR 50 million – 500 million
Medium Above IDR 500 million – 10 billion
LargeAbove IDR 10 billion

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Foreign-owned PT PMA

Foreign-owned PT PMA companies allow 100% foreign ownership and do not require a local shareholder in the case that their sector is not listed in the negative investment list.

If their industry is listed in the negative investment list, there is a rule that the foreign-owned company must follow, and may need to be a joint venture with Indonesian individuals or legal entities in order to run their business legally in Indonesia.

The minimum requirements for a foreign-owned company is:

  • Two foreign individuals or corporations, or a combination with local shareholders;
  • At least one local director; and
  • One foreign or local commissioner.

The capital invested must be a minimum of IDR 10 billion. IDR 2.5 billion (25%) must be paid-up capital, and the company has to be categorised as large companies.

2. Private-owned enterprises (BUMs)

Private-owned enterprises or Badan Usaha Milik Swasta (BUMs) can be categorised into three types:

  1. Firma/Firm (FA)
  2. Commanditaire Vennootschap (CV)
  3. Limited company (PT) (see above)

Firma/firm

A Firma (FA) is a form of a private-owned entity and can be established by two or more Indonesian individuals.

FA is not a separate legal entity from its owners; therefore, there is no protection for the individual’s personal assets and the company’s assets, and if the company goes in debt, the partners will be responsible for paying the debt with their personal wealth.

Each partner has the equal authority to manage and make decisions for the company and their responsibilities are not limited for the different partners.

Basic requirements for a FA are:

  • Must have at least two or more company founders;
  • Have goals and objectives that do not contradict with the Indonesian laws and regulations;
  • Have a firm name;
  • Have a place of business; and
  • Have a board appointed by the founders.

Commanditaire Vennonntschap (CV)

A Commanditaire Vennootschap (CV) is a limited liability partnership.

There are two types of partners: 1) active partners who provide capital and run the business; and 2) silent partners who only provide capital.

There is no minimum capital required to set up a CV and it is one of the entities that is the easiest to set up. However, a CV is not a separate legal entity, and does not protect personal assets of the partners.

The requirements to set up a CV are:

  • A minimum of two individuals acting as the founder of the company;
  • The founders must be Indonesian citizens;
  • A notary deed in Bahasa Indonesian; and
  • 100% local ownership.

3. Sole proprietorship (UD)

Sole proprietorships or Usaha Dagang is the simplest form of company in Indonesia as it requires only one person to run the business. There is no legal difference between the owner and the sole proprietorship.

To open a UD you would need:

  • A company name;
  • Employee identification number;
  • Domicile Letter; and
  • Business license.

4. Representative office

A representative office in Indonesia is suitable for foreign companies who want to explore the Indonesian market.

The representative office can only conduct market research, promotional activities and act as buying or selling agents for the foreign parent company. The license for this company will expire after two years and needs to be renewed in order to carry on business in Indonesia.

The office must not produce any profit in Indonesia, and all commercial transactions must be managed by the foreign parent company. There is no minimum capital required, unlike other foreign-owned companies in Indonesia. Representative offices also allow the employment of both local and foreign employees.

There are three types of representative offices in Indonesia:

  1. Foreign representative office;
  2. Foreign construction representative office; and
  3. Foreign trade representative office.

Foreign representative office

Activities include:

  • Role as a supervisor, coordinator and manage the interest of the company in Indonesia or overseas
  • Not conducting activities that earn profits or entering contracts and purchase of goods or services with domestic companies
  • Not participating in another other forms of a company that is in Indonesia

Foreign construction representative office

Activities include:

  • Construction service work
  • Handling construction projects that are high risk, high technology or have high costs through joint operation
  • Conducting construction work with the permission of the Office of Foreign Construction Representatives

Foreign trade representative office

Activities include:

  • Introducing, promoting and improving marketing of products that are produced by foreign companies
  • Providing information or instruction on the usage and import of products to the company or user
  • Conducting market search and supervising the sales of the product regarding the promotion of products in Indonesia
  • Conducting market search concerning the supplying of products from Indonesia
  • Concluding contracts with Indonesian companies on behalf of the principal company

5. Subsidiary company

Subsidiary companies in Indonesia are set up as limited liability companies, and if the parent company is a foreign company, the most appropriate type would be a foreign-owned company (PT PMA).

Subsidiary companies are a separate legal entity. Business owners establish a subsidiary company to gain access to the Indonesian market. It is also considered as a tax resident and will be taxed at a corporate tax rate of 25%.

Conclusion

There are a variety of business entities in Indonesia to choose from if you wish to set up a company there. However, some entities may not permit foreign ownership.

It is advisable to seek guidance from Acclime in order to meet the requirements and successfully establish a company in Indonesia.

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