Introduction to the set-up of a local presence in Indonesia

Investors are looking for alternatives to locations in China, and Indonesia has become an increasingly important investment destination for that very reason. This summary is intended to provide a brief introduction to Indonesia's investment environment, while clearing up some common misconceptions about investing in the country.

Generally, foreign investors have two options for establishing a local presence in Indonesia: (i) establishing a Foreign Investment Company (PMA Company); or (ii) establishing a Representative Office.

PMA COMPANIES

The only corporate form available as a vehicle for Foreign Direct Investment (FDI) is the PMA Company, which is basically similar to an LLC as commonly known in other countries in the region.

Business activities in Indonesia are classified according to a specific numerical code known as the Indonesian Standard Business Classification, or its Indonesian acronym “KBLI”.

Investment List

Investors must refer to the “investment list” (i.e. the list of business activities that are open for foreign investment) to ensure that the KBLI for the targeted business activity is open (or partially open) to Foreign Direct Investment. Frequently targeted business activities that are open to 100 percent foreign investment are production, distribution and service, but the list goes on and it is definitely worth checking the specific investment requirements, as the list of open business lines is extensive. Sublicenses and potential additional requirements to each business line might apply.

Corporate Structure

PMA Companies need to have at least two shareholders (individual or corporate entities), and their organs include at least one director and one commissioner, while it is possible to appoint more of both.

Director(s) are responsible for the corporate management whilst the commissioner(s) supervise the director(s). Both, directors and commissioners have to be appointed by the General Meeting of Shareholders.

Investment Requirements

The minimum total investment is IDR 10 billion per KBLI Code per project location (excluding land and building), except if stipulated otherwise. An amount of at least IDR 10 billion (~600.000 EUR) shall be injected as equity, while the remaining balance may be injected as loan.

Establishment Procedure

Foreign investors may establish a PMA company by signing a Deed of Establishment in the presence of a notary in Indonesia. Signatures may be performed by a representative of the investor (commonly the lawyer). Together with other supporting documents, the notary will submit this deed to the Minister of Law for approval. The PMA Company will obtain its legal entity status upon obtaining approval on its Deed of Establishment through the Minister of Law.

Subsequent to the company formation, the PMA Company needs to register itself in the national licensing system and apply for the required business and supporting licenses through the system. It is further required to obtain tax documentation - which includes Corporate Taxpayer Identification Number, tax registration letter and registration as taxable entrepreneur -, open a bank account, receive its capital injection and hold its initial General Meeting of Shareholders.

Ongoing statistical reports are required to be submitted on a regular basis throughout the duration of the operational activity of the PMA Company.

REPRESENTATIVE OFFICE

Foreign companies are permitted to set up Representative Offices of various types, depending on the department or agency issueing the authorizing Representative Office license. These Representative Offices are not permitted to conduct direct commercial activities or to render profits in any other way. They are primarily used for promotional, liaison and market research purposes.

Types of Representative Offices

These are the two most common types of representative offices:

Trading Representative Office (“TRO”)
The TRO describes an Indonesian or foreign national appointed by a foreign company or an overseas company group as representative in Indonesia for promotion and marketing of the company’s products in Indonesia. Such TRO is strictly prohibited to engage in sales activities of any kind.

Foreign Company Representative Office (Kantor Perwakilan Perusahaan Asing/“KPPA”)

Foreign companies not engaging in trading business may set up a KPPA for :

Handling interests of the company or its affiliates; and/or
Preparing the establishment and business development of a foreign investment company operating in Indonesia or another country.

The KPPA is operated by one or more Indonesian or foreign citizens being appointed by a foreign company or an overseas company group as representatives in Indonesia.

Establishment Procedure

A Representative Office is established following a streamlined application procedure - compared to a PMA Company -, and is simply established by submitting a respective application through the national database (“OSS) to obtain the relevant license.