Did you know that in Indonesia, businesses with even 1% of foreign shareholders are considered as foreign-owned companies? Or that you have to choose your office location before submitting the investment application? In this article, we will give you an overview of the process of foreign-owned company registration in Indonesia.
The laws and regulations regarding company registration in Indonesia change often and we are frequently updating this article as the changes happen. Last revision for this article was done in February 2018.
What is considered a foreign-owned company in Indonesia?
All foreign-owned companies in Indonesia are classified as PT PMAs (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 your aim is 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. Or, if you just want to hire some staff in Indonesia then you can alternatively use employer of record service.
Foreign ownership limitations in Indonesia
The maximum allowed foreign ownership depends on your business classification. It can range from 100% open to totally closed to foreign investment.
The document regulating the restricted industries is the Negative Investment List (DNI) and it is usually revised every 3 years.
Negative investment list in Indonesia
Although the negative investment list is revised every few years, it does not affect the companies that are already registered. Indonesia applies a 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 Investment plan
The Investment Coordinating Board of Indonesia (BKPM) requires foreign-owned companies to present an investment plan for at least Rp.10 billion (~750,000 USD) for each applied business classification.
In other words, if you are applying for 2 classifications, e.g import company combined with e-commerce, you need to present an investment plan for Rp. 20 billion (~1,5 million USD).
This plan should demonstrate the sustainability of your company and include working and fixed capital, such as machinery and furniture. The values of land and buildings are, however, excluded from the amount.
Once your PT PMA is registered, you need to start reporting your investment activities every 3 or 6 months, depending on your licenses.
#2 Paid up capital
The minimum paid-up capital for a foreign-owned company is Rp. 2,5 billion (~190,000 USD). As part of the incorporation process, there are two ways to “prove” the paid-up capital.
Firstly, you can sign a capital statement letter. This letter will state that the shareholders have sufficient funds to inject the capital after the incorporation.
Secondly, you can 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 option would be to sign a capital statement letter.
Read our previous article to learn more about minimum capital requirements for foreign-owned companies in Indonesia.
#3 Shareholders of a PT PMA
Every limited liability company in Indonesia needs at least two shareholders. Those can be individual or corporate shareholders or a combination of both.
You will state the number of shares that will go to each of the shareholders in your investment application. The minimum amount each shareholder can hold is at least Rp.10 million (~750 USD).
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 easily be a non-resident.
A director can be either an Indonesian or a foreigner. However, since the director will be responsible for 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 company has been incorporated. 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.
#4 Business location
Since Indonesia is a decentralized country, a lot of government’s work is done at district level. 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 residence 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 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. Consequently, this will cost you legal/restructuring fees.
Emerhub also provides a virtual office service in Jakarta, located in the prime area of Mega Kuningan.
How to set up a PT PMA in Indonesia
The process of foreign company registration in Indonesia can be divided into three main stages:
- Acquisition of permanent business license (Ijin Usaha)
- Acquisition of operational licenses (if necessary)
The incorporation process involves several governmental institutions and is finalized with the issuance of a principal license (Ijin Prinsip) that allows to start operating in Indonesia.
The total time of company registration in Jakarta is roughly 6 weeks. However, note that it will take some additional time if your company also needs specific industry licenses.
The process of foreign company registration in Indonesia
There are two types of PT PMA incorporation processes, depending on your business activities.
In 2017, the BKPM issued a new regulation of Head Regulations (No. 13 2017) which exempts some companies from having to acquire Ijin Prinsip for conducting business activities that do not need a construction period.
This concerns, for example:
- trading companies
- consulting companies
Companies that need a construction or preparation period are still required to acquire an investment approval (SP PMA) prior to incorporation.
This regards companies such as:
- manufacturing businesses
- construction services
Let Emerhub know about your planned activities and we will handle your company registration in Indonesia completely. Your participation is necessary only in the beginning when we determine the business classification and discuss the details.
Timeline of foreign-owned company registration in Jakarta
Prior Investment Approval (SP PMA) is required
Investment Approval is not required
Timeline in working days
Timeline in working days
|1.||Company name approval||
|Company name approval||
|2.||Submission and issuance of SP PMA||
|Deed of Establishment||
|3.||Deed of Establishment||
|Ministry of Law and Human Rights approval||
|4.||Ministry of Law and Human Rights approval||
|Application of Ijin Usaha/ Permanent License||
|8.||Application of Ijin Usaha/ Permanent License||
For example, you can expect company registration to take:
However, note that as Indonesia implements a decentralization system, the incorporation processes in other cities are longer due to local location licenses.
- 3-4 months longer in Bali
- 1-2 months longer in Yogyakarta
- 1 month longer in Surabaya
A detailed timeline will be provided by Emerhub.
Previously, the BKPM also required a presentation in front of the board from service sector companies to prove that they have a plausible business plan. However, it is not necessary anymore.
Instead, the BKPM now requires the company to submit a flow chart of the business flow/ activities/production to determine the sustainability of the business. Emerhub can provide the template for a successful application.
After company registration in Indonesia
After the completion of the process of company registration in Indonesia, you can start running your business and conduct activities such as:
- Open a corporate bank account in Indonesia. Emerhub has a special arrangement with several banks and we provide a bank account opening service where you get a bank account in 1 day and your presence at the bank is not necessary
- Buy property or 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
All companies ready for commercial operations are required to have a permanent business license (Ijin Usaha) and it is necessary to proceed to Ijin Usaha as soon as your incorporation is completed and your operating facilities are ready.
Permanent business license (Ijin Usaha) and operating licenses
The permanent business license enables you to fully run your business and receive supporting licenses and permits such as:
It usually takes up to 10 working days to receive the permanent business license. Read more about the IU.
Each of the licenses has their own requirements which we will go over once we know your planned business activities.
Alternatives to company registration in Indonesia
Buying a ready-made shelf company
To speed up the process, you can also purchase a shelf company which will allow you to issue invoices, sign contracts or participates in tenders immediately.
However, note that shelf companies may not always have the necessary licenses for your business classification. Emerhub can assist you and verify whether the shelf company you wish to buy also has all the required permits.
Learn more about shelf companies in our previous article about buying a shelf 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 and there is also no need for company registration in Indonesia.
You can set up a locally-owned nominee company with only Rp.600 million (~45,000 USD) capital (instead of Rp.10 billion) but still have full control over the company.
Your rights are protected by a set of legal agreements which will be drafted by lawyers. You will also have the right to change the shareholders whenever you wish.
Outsourced operations model
Setting up a legal entity is not always the fastest or the most cost-effective way to enter a new market. For example, 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 are, for example:
Read more on how to enter emerging markets by using outsourcing services.
If you have any additional questions, feel free to reach out to our consultants via [email protected] or by filling in the form below. Or proceed straight to company registration.
For further reading, take a look at our previous articles 10 reasons why to invest in Indonesia and 7 common mistakes to avoid when setting up a company in Indonesia.