Did you know that in Indonesia, businesses with even 1% of foreign ownership are considered foreign companies (PT PMA)?
In this article, you will find a full overview of foreign-owned company registration in Indonesia, including:
- Foreign ownership limitations
- Minimum paid-up capital and other requirements
- The step-by-step process of setting up a PT PMA
- Alternatives to registering a company in Indonesia
What is a foreign-owned company in Indonesia?
All foreign companies in Indonesia are PT PMAs (Perseroan Terbatas Penanaman Modal Asing) which stands for a limited liability company with foreign direct investment.
A company is a PMA as long as any of the shares are held by a foreign national or a foreign company. Therefore, it doesn’t matter if it’s 100%, 51% or even 1% – if there are foreign shareholders, you are a foreign-owned company.
However, if you aim to only represent an overseas company in Indonesia, and you will not generate any income from local activities, you can set up a representative office instead. If you only want to hire some employees in Indonesia, you can alternatively use the employer of record service.
Foreign ownership limitations
The maximum allowed foreign ownership depends on your business classification. It can range from 100% open to closed to foreign investment.
The document regulating the restricted industries is the Negative Investment List (DNI), and it is usually revised every three years.
Negative investment list in Indonesia
Although Indonesia occasionally revises the negative investment list, it does not affect the companies that are already registered. Indonesia applies the grandfathering principle, and you don’t have to sell your shares to a local shareholder, should your industry fall under stricter regulations in the future.
Requirements for setting up a PT PMA
#1 Paid up capital
The minimum paid-up capital for a foreign-owned company in Indonesia is Rp. 2,5 billion (~175,000 USD). As part of the incorporation process, there are two ways to demonstrate the paid up capital.
The first one is by signing a capital statement letter. This letter will state that the shareholders have sufficient funds to inject the capital after the incorporation.
The second option is to transfer the money to your company’s bank account. However, since your company is still in the process of incorporation, it does not have a bank account yet. Thus, the only option for new companies would be to sign a capital statement letter.
#2 Structure of a PT PMA
Every limited liability company in Indonesia requires at least two shareholders. Those can be individual or corporate shareholders or both.
Commissioners and directors
Additionally, you will need to appoint at least one commissioner and one director. Commissioner is the supervisor of the director(s) and can be a non-resident.
A director can be either an Indonesian or a foreigner. However, since the director will be responsible for the overall operations of the company, it is advisable to have a resident director.
If the director is a foreigner, you can proceed to a work permit after the incorporation of the company. Therefore, you have an option to either appoint a local director or use a nominee director service until you get your work permit.
Read more about commissioners and directors of a PT PMA
#3 Business location
Indonesia is a decentralized country, and a lot of government’s work takes place at the district level. For you, this means that you need to decide your business location already before submitting the investment application and provide a registered business address.
Company registration in Jakarta
Local regulations vary, and in some regions, such as Jakarta, the domicile letter needs to be from an office building. You cannot use your own house as the official address of the company since residential addresses (such as an apartment or a house) are not allowed.
Thus, make sure that the address has the right building license to operate as an office.
For a new company, you may use a virtual office to lower the initial overhead costs. Once you decide to have a physical office, you can maintain the virtual office as the registered office address or update to your new address.
However, please be advised that by updating your office address, you would need to update most of your legal documents.
Emerhub provides a virtual office service in Jakarta, located in the prime area of Mega Kuningan.
How to set up a PT PMA in Indonesia
In June 2018, the government released a new regulation(No. 24 /2018), which made the incorporation process in Indonesia faster.
Previously, you were required to obtain prior approval from the BKPM to set up a PT PMA. The new regulation, however, eliminated this requirement, and businesses can now start operating immediately.
Furthermore, the establishment process for most business lines will proceed through a centralized system of One Single Submission, instead of several institutions as formerly.
The step-by-step process of PT PMA registration
Step 1: Deed of Establishment
Emerhub will first check your business activities following the Negative Investment List to determine the maximum allowed percentage of foreign ownership in your field.
Your company’s purpose and activities must be stated in its Articles of Association within the Deed of establishment, which must be done in the presence of a notary. The Deed of Establishment must also be ratified by the Ministry of Law and Human Rights.
Step 2: Domicile and Tax Registration
Once your company is established, the next step is to acquire a Domicile Letter from the district government and a Tax Identification Number (NPWP) from your local tax office.
Step 3: Identification Number to Operate/Nomor Induk Berusaha (NIB)
The next step is the registration of your legal entity in the One Single Submission System (OSS) after which you will receive your company’s Identification Number to Operate (NIB).
A NIB is a unique number that identifies your Company Profile in Indonesia, and it also serves as:
- Your import license (previously API-U)
- Customs Identification Number (NIK)
- Your business registry number (previously TDP)
- Automatically registers your PT PMA under Health and Social Security System (BPJS Kesehatan dan BPJS Ketenagakerjaan)
Step 4: Operational License/Commercial License if necessary
Some companies also require additional licenses, based on the type of business activities. For example, fintech companies in Indonesia need an OJK license and an operator business license.
Timeline of foreign-owned company registration in Jakarta
Timeline in working days
Approval of company name
Minute of the Deed of Establishment
Deed of Establishment
Ratification from MOLHR on Deed of Establishment
Domicile letter from the district government
Commercial License/Operating License
The new one submission system (OSS) reduces the establishment time of a PT PMA from previous 3-4 months in Jakarta and 6-12 months in other cities to one month. However, various public holidays and frequent government system downtimes can delay the process so you should expect the entire process to take about 6-8 weeks.
Emerhub also has a special arrangement with several banks, and we will open a bank account for your company as part of the company registration service. Your presence at the bank is not necessary.
After incorporation in Indonesia
After your company is established, you can start running your business in Indonesia and conduct activities such as:
- Buy property and other assets on behalf of your company
- Start other preparations for your operation, such as but not limited to hiring staff, preparing office renovations, etc.
- Proceed to obtain work and stay permits for foreign employees in your company
Alternatives to company registration in Indonesia
Buying a ready-made shelf company
To speed up the process, you can purchase a shelf company which will allow you to issue invoices, sign contracts, or participate in tenders immediately.
However, make sure the shelf company has the necessary licenses for your business classification. Emerhub can provide you shelf companies or verify whether the shelf company you wish to buy has all the required permits.
Learn more about shelf companies in our previous article about buying a shelf company in Indonesia
Nominee company in Indonesia
Foreign companies that cannot or choose not to meet the foreign ownership requirements can set up a nominee company instead.
Using a nominee company enables you to operate in Indonesia without having to comply with the minimum capital requirements for foreign-owned companies.
You can set up a locally-owned nominee company starting with IDR 51 million IDR (~3,500 USD) capital (instead of 10 billion IDR) but still have full control over the company.
A set of legal agreements which will be drafted by lawyers will protect your rights. You will also have the right to change the shareholders whenever you wish.
Outsourcing business processes in Indonesia
Setting up a legal entity is not always the fastest or the most cost-effective way to enter a new market. If you wish to start operating immediately or to test the market first, using an outsourced operations model would be the best option for you.
It allows you to earn revenue, provide services, conduct sales, etc. without establishing a local company or meeting the minimum foreign investment requirements.
Some of our most common services include:
Read more on how to enter emerging markets by using outsourcing services
How to start with company registration in Indonesia
If you have any additional questions, feel free to reach out to our consultants via email@example.com or by filling in the form below. Or proceed straight to company registration. We also set up companies in Vietnam, the Philippines, Myanmar, Bangladesh and Pakistan.