Embarking on a business venture in Indonesia is exciting for many investors. The country offers many opportunities in a dynamic yet growing market. However, as you may know, navigating the business incorporation process requires careful consideration and adherence to specific legal procedures in Indonesia.
This guide is a compass for entrepreneurs and investors seeking to establish their presence in Indonesia. We provide invaluable insights and step-by-step instructions for handling the complexities of business incorporation.
Indonesia’s business environment
As the country with the largest economy in Southeast Asia, Indonesia has enjoyed consistent annual economic growth. Indonesia achieved approximately 5% of growth over the past decade. The nation possesses abundant natural resources, a sizable domestic market with increasing spending power, and a youthful population.
As the region’s largest economy, Indonesia’s output is over a third of ASEAN’s gross domestic product (GDP), estimated at around USD 1.18 trillion in 2022. This potential positions Indonesia as a strong candidate to become the ASEAN hub shortly.
Private consumption is crucial in propelling Indonesia’s economy, with most economic activities primarily focused on the local market. In 2022, personal consumption generated 51.87% of the GDP; historically, it has averaged 59.1%.
Throughout much of 2022, the central bank (Bank Indonesia) maintained low interest rates, contributing to a robust growth rate in household spending.
Read more: 15 strategies for global business expansion in Indonesia
4 types of business entities in Indonesia
There are several options of legal entities that business owners can opt for company registration in Indonesia. The most common choices for foreign investors are a Foreign-Owned Company (PT PMA) or a Representative Office. Depending on your business expansion goals, one may be more suitable.
Foreign-Owned Company (PT PMA)
This legal entity allows up to 100% foreign ownership, but the specific business activities permitted depend on sector regulations. The Positive Investment List determines the maximum foreign ownership.
General Representative Office (KPPA)
The general representative office is the Ideal choice for foreign investors in the early stages of expanding into Indonesia. It enables businesses to assess the Indonesian market without engaging in commercial operations.
Representative Office for Business Trading (KP3A)
This representative office is intended for business trading and is restricted from generating financial income. While a general RO has geographical limitations, a trading RO can be established anywhere in Indonesia.
Representative Office for Construction Company (BUJKA)
Similar to KP3A, a BUJKA is designed for foreign construction companies. This legal entity allows involvement in large-scale construction projects through joint operations with local PT companies.
Despite some constraints, it is a suitable entry point for foreign construction firms looking to establish a presence in Indonesia, as they can collaborate on building projects without needing a construction license (SIUJK).
How to register a company in Indonesia
Are you ready to take your business to the next level by expanding to Indonesia? If so, there are a few steps you need to take to get your company registration processed. The following are the essential steps you need to understand:
1. Choose the company name
Company names in Indonesia must consist of at least three distinct words, as the Ministry of Law and Human Rights requires. Foreign companies (PT PMA) can use names in English or other languages, while local companies must use Indonesian.
To reserve a company name, apply to the Directorate General of Legal Administration Affairs. They will verify the name in the Legal Entity Information System to ensure its uniqueness.
2. Determine company officers
Indonesian companies require a minimum of two shareholders, one director, and one commissioner. Local-owned companies must have local stakeholders, while foreign stakeholders are permitted in foreign-owned companies.
3. Submit required documents
After securing your company name, proceed to draft the articles of association with the assistance of a notary.
The articles of association should include details on:
- Authorized, issued, and paid-up capital
- Company name and location
- Business objectives and activities
- Capital information
- Board of directors and commissioner details
- Shareholder meetings
- Profit distribution procedures
- Incorporation period
- Share details (classification, rights, nominal value)
- Other relevant details
Every shareholder is required to endorse the articles of association, following which the document is submitted for approval to the Ministry of Law and Human Rights.
4. Obtain a Letter of Domicile
Companies outside Jakarta must obtain a domicile letter from the regional government office in their area. You can apply for a letter of domicile (Surat Keterangan Domisili Perusahaan) from the local government. This document certifies your company’s registered address.
5. Obtain a Taxpayer Identification Number (NPWP)
To fulfill tax obligations, secure licenses, and open a corporate bank account in Indonesia, you must obtain a Taxpayer Identification Number (NPWP). Register for an NPWP online or visit the local tax office in person.
6. Apply for a Business Identification Number (NIB)
You can apply for a Business Identification Number (NIB) through the Online Single Submission (OSS) system. The NIB, a 13-digit identifier, represents your business and is essential for obtaining various commercial and operational licenses. Any activities contradicting the NIB’s terms may result in its revocation.
How long does it take to incorporate a company in Indonesia?
Previously, registering an Indonesian company typically required an average of 2 months to finalize. However, starting from May 2019, there is no longer a need for a Company Domicile (SKDP) for businesses in Jakarta.
Moreover, incorporating an existing business in Indonesia can be expedited, with Indonesia Shelf companies ready to be operational within a week. This swift process offers an efficient solution for promptly establishing an incorporated business.
Can a foreigner set up a company in Indonesia?
To operate a business legally in Indonesia as a foreigner, you must establish a PT PMA. This entity permits you to generate revenue and profit from activities conducted within Indonesia. Registering a PT PMA grants foreign-invested companies the same rights and responsibilities as local Indonesian companies.
This encompasses owning and utilizing land, participating in local bidding processes, and sponsoring visas for foreign employees to reside and work legally in Indonesia.
A company is considered a PMA if it has foreign individuals or foreign companies as shareholders, regardless of the percentage of ownership – whether it’s 100%, 51%, or even just 1%. If foreign shareholders are involved, it qualifies as a foreign-owned company.
What is the benefit of incorporating a business in Indonesia?
Incorporating a company in Indonesia is a confident choice for business owners, with numerous benefits.
1. Free Trade Agreements
Setting up a business in Indonesia can provide access to low taxes and facilitate exports to numerous Southeast Asian nations and other partner countries, such as Australia, New Zealand, China, India, Japan, and South Korea.
2. Land ownership for foreigners
Foreign investors can legally own land and property in Indonesia under three categories: the right to build, cultivate, and use.
3. English business environment
Major Indonesian cities, like Jakarta, commonly use English for business communications, although having a translator can be beneficial.
4. Expanded business opportunities
Indonesia’s Negative Investment List, which dictates foreign ownership limits, has seen increased foreign ownership in various sectors since 2016. This adjustment supports industries that require additional funding and technology.
5. Growing middle-class
Indonesia’s rapidly expanding middle class is expected to include 90 million people by 2030, with greater purchasing power. This scenario presents new business opportunities, particularly in the commodities sector.
Guide to Doing Business in Jakarta
Register your business with InCorp Indonesia
Setting up a company in Indonesia can be easy if you have the proper guidance and support. InCorp Indonesia offers company registration and business licensing services, ensuring a smooth entry into the Indonesian market. To begin your business incorporation process in Indonesia, click the button below.
Daris Salam
COO Indonesia at InCorp Indonesia
With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Frequently Asked Questions
- Import facilities
Investors in Indonesia, particularly in manufacturing, may benefit from import tax exemptions for capital goods and raw materials through the Master List Facility. The imported goods must meet specific criteria, such as not being produced locally or not meeting industry demand despite local production. - Tax holiday
The government offers CIT reductions of 50% or 100% for 5–20 years for listed pioneer industries, based on investment value. After this period, a CIT reduction of 25% or 50% applies for two fiscal years. Non-listed sectors can also apply by meeting criteria demonstrating pioneer industry status. - Tax allowance
For companies in certain designated areas or regions, the government may provide the following tax concessions:
Net income reduction up to 30% of the amount invested, prorated at 5% annually for six years, on condition that the assets invested are retained for the same duration.
Accelerated depreciation and/or amortisation deductions
An extension of tax losses carried forward for a maximum of ten years
A 10% (or lower if treaty relief is available) withholding tax rate on dividends paid to non-residents
The applicant eligible has to meet high-level-criteria for the above tax facilities:
High investment value or for export purposes
High manpower absorption
High level of local content - Investment allowance
The government offers a reduction in net income of up to 60% of the investment, distributed at 5% annually over six years of commercial production, contingent upon the retention of invested assets for the same duration. To qualify, applicants must meet business line eligibility criteria and employ a minimum of 300 Indonesian workers in the project. - Super deduction
This facility could be granted to certain businesses, such as:
60% reduction in net income of the amount of tangible fixed assets invested for labor-intensive industries, distributed throughout a certain time frame.
Up to 200% reduction in the gross income of the amount spent for human resources development in certain competency activities.
Up to 300% reduction in gross income of the amount spent for certain R&D activities in Indonesia.
Indonesian Company Law establishes a two-tier governance system with Directors managing day-to-day operations and representing the company, while the Board of Commissioners supervises and advises them. The articles of association may empower board of Commissioners to provide consent or assistance to Directors for specific legal acts.
A newly established PMA company in Indonesia is typically provided with import facilities, tax holidays, tax allowances, or investment allowances.
Pioneer industries are industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy.
Limited liability company with 100% local/domestic direct investment
Establishing a PMA Company in Indonesia typically takes around two weeks after completing document requirements. Following establishment, additional steps such as obtaining licenses and registering for Tax ID vary based on business type. Last, some licensing processes may take time, necessitating thorough planning and preliminary assessments of the business plan for a smoother process.
