Frequently Asked Questions about Starting a Business in Indonesia

Questions about starting a business in Indonesia

When you get contacted by 5-10 foreign investors every day about starting a business in Indonesia, you’ll quickly see that most of the questions start repeating. Most probably somebody already had exactly the same question that you are having.

That’s why we’ve decided to put together this guide of frequently asked questions about start a business. We’ll briefly answer those questions and provide links to more detailed resources.

As with all of our articles, we’ll keep updating it as new questions arise or regulations change. So if you are still in the early stage of starting a business in Indonesia, I suggest you to bookmark it for quick access.

About setting up limited liability company (PT PMA)

1# What is the exact process of starting a company in Indonesia?

Here are the steps to incorporate a PT PMA:

  1. Name approval
  2. BKPM Investment approval, or Principal License
  3. Article of Association
  4. Approval from Ministry of Law and Human Rights
  5. Tax registry
  6. Tax card
  7. Business registry (TDP)

More resources:

If you want to go straight to setting up your company, start by filling the form here.

2# What kind of investments can go under Investment Plan?

Investments eligible for the Investment Plan fall under two categories:

A. Fixed assets

  • Machinery and equipments
  • Others such as renting office, legal fees, furniture, computers, intellectual property etc.

B. Working capital

  • Salaries
  • Utilities
  • Purchase of tradable goods
  • Any other expenses related to your production

The sum of fixed assets and working capital needs to be above Rp. 10 billion (~770,000 USD with current exchange rate).

Source: BKPM Head Regulation No. 5/2013

While in the past the Investment Plan regulation was enforced rather loosely, it has lately become under higher scrutiny by the BKPM.

3# When can I open corporate bank account?

Bank account can be opened after incorporation process is completed. Most banks require the originals of all incorporation documents: BKPM Principal License, Article of Association, Ministry Ratification, Tax Registry and Tax card, Domicile letter, Business Registry/TDP.

By the way, you don’t need to be physically in Indonesia to open a corporate bank account. Our consultant will advise you on how it works.

Read more about how to open bank account.

4# What is permanent business license? Do I need it?

First of all, yes you will not only need but also want to have permanent business license (IUT).

Once your PT PMA is incorporated, you are given certain time to complete your preparations and launch a full scale business. That time depends on your industry and investment plan but generally is between 1-3 years. Permanent business license represents the completion of your preparations.

Before you receive the permanent business license, you cannot issue work permits to your foreign experts. You also cannot apply for further business licenses or get import license for a trading firm . That’s why in most cases we advise our clients to proceed with IUT as soon as they are eligible for it.

Read more about getting permanent business license.

[Update June 2015]  We have found out that many consultants claim that BKPM requires audited financial statements for getting permanent business license. This information is not correct and there isn’t any regulation requiring it.

5# Do I need local or resident director?

Yes you do. This is one of the regulatory changes from 2013 so if anybody claims otherwise, they have probably not set up a company in a while.

The Taxation Regulation 20/2013 states that at least one of the directors must either have Indonesian tax card or hold a personal domicile letter in Indonesia.

Tax card can be obtained easily by Indonesian nationals or foreigners that have work permit from another company registered in Indonesia.

Personal domicile letter states that a person is living in Indonesia and rents an apartment/house

When you are opening a trading company, you will need at least one director to be the signatory of your import license. Foreign Director is allowed to be the signatory only if he has an IMTA (working permit) and a KITAS (resident card).

More about Shareholders, Directors And Commissioners of  PT PMA.

6# Can I revoke my local director later on?

Yes, it’s easy and commonly practiced. Once your company is incorporated and you’ve managed to obtain work permits for the foreign directors, you can replace any “temporary” directors you had assigned.

The decision needs to be made by the General Meeting Of Shareholders and notarized by public notary. After that the decision becomes an amendment to Articles of Association.

7# How fast can I start importing products to Indonesia?

As you might know, Indonesian government has been battling with trade deficit for a while already. One of the outcomes is that importing process is very bureaucratic.

You can apply for import license after you have received your permanent business license (see above).

In the meanwhile you can use an undername importer which is another company that holds the license for importing that particular product.

In reality finding an undername importer is challenging and works only if your shipments are big and preferably repetitive.

8# Does PT PMA need to be audited?

Limited Liability Company needs to be audited in case it falls under one of the criteria:

  1. The company’s business activities is to collect and manage funds from people
  2. The company issued a promissory note to the public
  3. The company is a Public Listed company
  4. The company assets and/or its revenue are at least RP.50.000.000.000

9# I’m having limited funds – can I get around minimum capital requirements?

[Update June 2015] While it used to be rather easy, it’s no longer so. Now you will have to submit proof of your Investment Plan realization prior to obtaining Permanent Business License.

If you don’t plan to invest Rp. 10 billion (~770,000 USD) or want to explore the market more before making bigger investments, it’s better to start with a representative office or use a nominee company instead.

10# Do I still need to divest my shares?

The regulation was changed in 2013 and now foreign owned companies are no longer required to divest their shares. However, due to the grandfathering principle, companies registered before that might still have to do it in case it was required at the time of registration.

11# Can one company import only one type of product?

There are 21 product classifications and a PT PMA company can acquire all of them as long as they receive Supplier Agreement legalized by the Indonesian Embassy abroad in the country of origin of the supplier.

12# Why a PT PMA is not allowed to be in retail business?

Ministry of Industry and Trade decree (23/ 1998) defines retailers as “factory agents, selling agent, supplier, dealer retailer, retailer without a shop, and not a PMA.”

Negative Investment List however opens an opportunity for foreign owned retailers as long as the floor size is above 1200 m2 for supermarkets and 2000 m2 for department stores.

 

Featured image credit

Indosight

Market entry services in Indonesia

Indosight provides legal and payroll services to companies entering and expanding in Indonesia. Get in touch with our consultants regarding our company registration, payroll, compliance or visa services.


The information provided will remain confidential to Indosight and will only be used to schedule and prepare for the meeting.

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