August 2015 brought several changes to registering a consulting company in Indonesia. While this article is focused on consulting companies, such as management consulting or IT consulting, it applies for most types of service sector companies. For example web portals follow the same procedures.
The objective of BKPM, the authority behind the regulatory changes, is to address the issue that a lot of service sector companies have not been actually meeting the Rp. 10 billion minimum capital requirement. Essentially it means that the loophole of getting around that amount has now been closed.
Note that additional updates are being prepared by BKPM and this article will get updated as they come to life.
1. Principal License (Ijin Prinsip)
The duration of principal license for consulting companies was cut from one year to 6 months. This time is meant for starting the operations in Indonesia and from the investment perspective – to start investing in Indonesia.
During this time you can prepare your operations and hire local staff but you are only able to get work permits to foreign commissioners and directors.
2. Business License (Ijin Usaha)
Business license is granted for 12 months after the company has proved that at least Rp. 2.5 billion (~175,000 USD) was transferred to the company’s bank account. Proof of transfer must be payment slip or equivalent.
Additionally a non-audited financial statement must be provided that also demonstrates the progress towards realizing the Rp. 10 billion investment plan.
Previously companies had to just show in the investment report how the money was invested and no actual proof of payment was requested. This is a big setback for those service sector companies that previously were often planning on putting up significantly less capital.
Once business license is received the company can run full operations and start hiring foreign experts.
3. Business License Amendment (Ijin Usaha Perubahan)
Business license amendment is given to the company once it has completed the Rp. 10 billion (~750,000 USD) investment in Indonesia. So far the implementation of this stage is unclear as the regulation is new and no companies have yet to pass to this stage.
Indosight prediction is that BKPM will start requesting audited financial reports that demonstrate that Rp. 10 billion minimum capital has been put to company.
Once the license is issued, the company is allowed to operate in Indonesia permanently.
What should a consulting company do if they don’t plan to invest at least Rp. 10 billion?
The days when foreign service sector companies could simply provide investment realization reports on paper are now gone. Which leaves foreign investors with essentially three options:
- Comply with the Rp. 10 billion capital. The new regulation actually gives service sector companies a total of 1.5 years to realize it as opposed to the 1 year previously.
- Use a local nominee company to hold shares but make sure to use a solid agreement that actually protects your assets
- Set up a representative office and receive revenue directly to an overseas office