Benefits of Opening A Representative Office in Indonesia

Opening a representative office is the fastest and also the easiest way of getting a legal and market presence in Indonesia. Despite having more limitations compared to limited liability companies, it also has its advantages. In this article, we are going to bring out the benefits of setting up a representative office in Indonesia and […]

Opening a representative office is the fastest and also the easiest way of getting a legal and market presence in Indonesia. Despite having more limitations compared to limited liability companies, it also has its advantages.

In this article, we are going to bring out the benefits of setting up a representative office in Indonesia and give an overview of different types of representative offices available.

What is a representative office?

A representative office is an office set up by a company located outside of Indonesia (parent company) to take care of its business in Indonesia.

The main prerequisite for opening a representative office in Indonesia is that you must already have an existing legal entity abroad.

A representative office may act as a supervisor, liaison, coordinator, and also as a representative of the parent company’s interests in Indonesia. However, as representative offices are not allowed to generate any income in Indonesia, all commercial transactions must be handled by the parent company.

Also, note that a representative office is not the same as a branch. Currently, Indonesia does not allow foreign companies to open branch offices in Indonesia.

If you are looking to establish a local entity that can earn revenue, own land and property or import products to Indonesia, you need to set up a foreign direct investment company (PT PMA).

5 main benefits of setting up a representative office in Indonesia

Although a representative office is not a substitute to a limited liability company (PT PMA), there are several benefits of having a representative office in Indonesia for which many foreign companies choose it over a PT PMA.

#1 No capital requirement

Foreign-owned companies are required to have a minimum paid up capital of at least IDR 2.5 billion (~US$ 175,000).

Representative offices, on the other hand, do not have any capital. Therefore, the same capital requirements that bound foreign companies do not apply.

For some investors, this also means that they can establish a market presence in Indonesia at very low costs and still do everything by the law.

#2 Allowed to open a bank account

As soon as your representative office is established, you can open a bank account which will enable a better and faster way of transactions within Indonesia and between the parent company.

#3 Can handle sales and delivery

A representative office is allowed to represent sales of its own products and services. The limitation is that you need to charge your clients under the name of your parent company.

In many cases, your Indonesian clients will accept it and you can delay opening a PT PMA until you have a strong client portfolio.

#4 Allowed to hire employees

Another perk of having a representative office in Indonesia is that in addition to having market presence, you can also hire employees, both local and foreign.

#5 Entitled to a limited stay permit (KITAS)

However, note that in order to be able to legally stay and work in Indonesia, all foreign nationals need a limited stay permit (KITAS).

Just like a PT PMA, a representative office can also apply for a KITAS for its foreign executives.

Types of representative offices in Indonesia

In Indonesia, there are four types of representative offices:

  • KPPA – a general representative office
  • KP3A – representative office for trading
  • BUJKA – representative office for foreign construction companies
  • KPPA Migas – representative office for foreign oil and gas companies

General representative office (KPPA)

The activities of a general representative office are limited to taking care of the interests of the parent company and companies affiliated with the parent company.

Since representative offices cannot earn any revenue in Indonesia, they are not allowed to issue any invoices either.

The office of a KPPA must be located in a commercial high rise building in the capital of an Indonesian Province.

KPPA’s license is valid for up to 3 years and can be extended as per Letter of Appointment.

A general representative office is a suitable option if you would like to conduct feasibility studies in Indonesia to test the market and later set up a PT PMA.

Process of setting up a KPPA in Indonesia

Documents obtained

Timeline in working days

KPPA license

7

Domicile Letter from the local subdistrict

3

Tax registry

2

TDP/Company registry

1

Representative office for trading (KP3A)

A representative office for trading may become the parent company’s selling, manufacturing, and buying agent in Indonesia. It can also handle the establishment of the parent company’s branch offices in any of the Indonesian cities.

However, as also for other types of representative offices, a KP3A is not allowed to issue any invoices and all transactions must be under the parent company’s name.

A KP3A can be located in the capitals of either a province or a regency/city all over Indonesia.

The temporary license of a KP3A is valid for 2 months, permanent license for 1 year. It is also possible to later extend the license and the extended license will be valid as per Letter of Appointment.

A KP3A is a suitable option if the parent company is a manufacturer or a product owner with a plan to establish a network of agents and distributors in Indonesia.

Process of setting up a KP3A

Documents obtained

Timeline in working days

Representative Office of Foreign Trade Company Temporary License/SIUP3A Temporary

5

Domicile Letter from the local subdistrict

3

Tax registry

2

TDP/Company registry

1

Representative Office of Foreign Trade Company Permanent license/SIUP3A Permanent

5

Representative office for foreign construction companies (BUJKA)

A BUJKA is a representative office for foreign construction service companies. Through a BUJKA, you can:

  • contact people, companies, and government institutions and also collect information regarding available construction projects all over Indonesia
  • participate in tenders
  • hire foreign experts and Indonesian staff to support your operation
  • open a bank account in Indonesia

In other words, you can bypass a long and costly bureaucratic process by establishing a BUJKA instead of opening a construction company in Indonesia.

To deliver construction services, however, a BUJKA needs to set up a joint venture with a local construction service company (BUJK). A BUJK must be a limited liability company (PT) and must 100% Indonesian citizens and companies as its shareholders.

Other prerequisites for BUJKAs are:

  • must be classified as a “large” construction service company by the National Construction Services Development Board (LPJK)
  • must have a construction service business license (IUJK) issued by the Department of Public Works.

The location of the office of a BUJKA, however, is not specified by the law. BUJKA license is valid for 3 years and is extendable.

Suitable for foreign construction companies who are planning to expand their activities to Indonesia.

Process of setting up a BUJKA in Indonesia

Documents obtained

Timeline in working days

Initial licenses of SBU, KTA, and SKA from Constructions association

1 month with Emerhub

Review of application and issuance of Government Levy to be paid

10

Representative Office of Construction Company License/ BUJKA

7

Domicile Letter from the local subdistrict

3

Tax registry

2

TDP/Company registry

1

Representative office for foreign oil and gas companies (KPPA Migas)

Foreign oil and gas companies are also allowed to establish a representative office and use it for having a permanent establishment in Indonesia under the subsector of oil and gas.

However, take note that in order to establish a KPPA Migas, you need a recommendation letter from the Ministry of Oil and Gas prior to submitting the application to the BKPM.

The KPPA Migas license valid for 3 years and can be extended afterward. The location of the office is not specifically regulated by the law.

Process of setting up a KPPA Migas in Indonesia

Documents obtained

Timeline in working days

Recommendation letter from the Ministry of Oil and Gas

14

KPPA Migas license

7

Domicile Letter from the local subdistrict

3

Tax registry

2

TDP/Company registry

1

Ready to set up a representative office in Indonesia?

Contact us by filling in the form below. Our consultants will gladly advise you on whether to open a representative office in Indonesia without incorporating or register a limited liability company instead.

Since 2011, Emerhub has helped over 500 companies of all sizes enter Southeast Asian markets.

Get in touch with Emerhub by filling in the form below to discuss how we can help your business thrive in Indonesia.