Company registration in Indonesia

If Asian market expansion is on your strategic agenda, Indonesia merits serious consideration. Indonesia stands as the world's 4th largest economy, after China, Japan, and India. Furthermore, it boasts the fourth-most populous nation globally. Therefore, incorporating a business in Indonesia presents access to a substantial consumer base.

As one of Southeast Asia's foremost economic hubs, the Republic of Indonesia has eclipsed the majority of its Asian counterparts, such as Singapore, Thailand, and Malaysia, in terms of entrepreneurial growth. Fueled by sustained economic expansion and a progressive governmental approach, the annual influx of foreign investments into Indonesia continues to escalate.

Nevertheless, incorporating a business entity anywhere in the world presents challenges. Accessing current information regarding the legal prerequisites and potential pitfalls associated with the registration process can have a significant impact on the company formation process. This article explores the opportunities and inherent benefits for foreign contributors when establishing an entity in Indonesia.

Benefits of establishing a company in Indonesia

Besides the wealth of natural resources, there are numerous other reasons to consider launching a startup in Indonesia. Below are some of the key advantages that business owners can leverage:

1. Indonesia possesses the fourth-largest domestic market within the Asian landscape. This positions it as a lucrative proposition for intercontinental business ventures.
2. This is the sole representative from Southeast Asia within the G-20.
3. The cost of living in Indonesia is somewhat lower than in other Western countries.
4. GDP is continuously on the rise. Currently, Indonesia's GDP stands at 6.1%.
5. As per the World Bank's report, Indonesia secured a favorable position of 73rd out of 190 nations in terms of business operational facility in 2020, credited to governmental efforts. Concurrently, the nation boasts a competitive ranking of 34th globally, constituting another compelling factor for entrepreneurs aiming to establish a commercial foothold in Asia.
6. The government has finalized a succession of trade agreements with diverse nations, unlocking avenues for business expansion. Indonesia, a member of ASEAN, has also established free trade agreements with various European countries, such as Norway and Switzerland.
7. The prior limitations on real estate ownership by foreign entities have been lifted in this nation. Overseas investors can now solely obtain property rights by establishing a business entity that is owned by foreigners.
8. Indonesia boasts over 70 bilateral agreements aimed at mitigating double taxation with various nations.

Company registration in Indonesia: what corporate forms are available for foreigners?

Below are the suitable business structures for registering a company in Indonesia.

Company with foreign capital. This legal entity is called "Penanaman Modal Asing (PMA)," and it can be held entirely or in part by a foreign founder. Compliance with the Investment and Foreign Capital Law's requirements governs its activities. The Capital Investment Coordinating Board must grant PMA permission before it may start doing business in Indonesia. All interested parties in PMA service delivery must also submit an investment plan of USD 1.2 million to the Coordinating Board.

Upon registration of PMA in Indonesia, one director must be appointed. Additionally, the company structure must include 2 shareholders and 1 commissioner. Prior to establishment, applicants must peruse the new Positive Investment List to ascertain sectors barred or restricted for foreign ownership. Crucial sectors where prior restrictions on foreign ownership have been lifted include, inter alia:

• Telecommunications.
• Transport.
• Energy.

The branch is an extension of the parent company. The branch in Indonesia will carry out activities overseen by the holding company. The branch does not have a separate legal personality.

The representative office operates as an adjunct of the holding corporation, tasked with performing marketing and research activities within the Indonesian market. However, any revenue-generating sales cannot be executed by the representation.

Joint venture. Establishing a company in Indonesia can also involve partnering with a local entity. The government encourages investments through collaborative ventures in Indonesia. Such partnerships are set up as PMA enterprises. To establish such an entity, a minimum of two founders and directors must be appointed.

Thus, let us summarize the requirements for qualifying to incorporate a company in Indonesia for a non-resident:

• minimum capital requirement of IDR 10 billion or US$800,000;
• at least 2 founders (legal or natural persons);
• at least 1 director;
• at least 1 authorized person (can be a foreign national, but if he does not already have a work permit, then a resident candidate must be selected to act on behalf of the company throughout the enrollment procedure).

Procedure for registering an entity in the Republic of Indonesia

To create an enterprise, you must follow these steps:

1. A company name should be reserved by the Ministry of Justice (MOLHR).
2. Submission of the project and investment plan to the Investment Coordination Council.
3. Drafting the Memorandum and Articles of Incorporation and filing them with the Commercial Registry.
4. Opening a banking account to deposit approved funds (the sum deposited subject to the type of organization).
5. Appointment of founders and director (in some cases an authorized person must also be appointed)
6. The local residence registration (which should also be specified in the corporate founding papers) needs to be updated.
7. Making an application for business licenses to the appropriate authorities.
8. Registration for tax and value added tax (VAT) purposes with the tax authorities.

To establish a business in Indonesia, you're required to furnish a comprehensive array of documents. Typically, this entails an extensive list, comprising:

• Charter and Memorandum of Association.
• Officially certified corporate documents.
• Name approval.
• A copy of the applicant's passport.
• If the directors reside abroad, then copies of their passports are required.
• Director appointment letter from the overseas parent company (for representative and branch offices).

The outlook for establishing a financial technology firm in Indonesia appears increasingly promising in the immediate future. Indonesia boasts one of the most competitive and dynamic fintech landscapes within the ASEAN region, housing a significant 20% of all Southeast Asian fintech companies. The fintech sector represents a heavily invested industry, mirroring e-commerce, with dominance stemming from peer-to-peer (P2P) lending platforms (constituting 50%) and electronic payment solutions (accounting for 23%).

Despite the presence of over 300 fintech firms operating in this jurisdiction, foreign investors may find that the industry has yet to fully actualize its potential. Therefore, feel free to reach out to experts within our company, and we will provide comprehensive consultation and, if necessary, facilitate the launch of fintech projects within this country.

Starting a business in Indonesia: company taxation

The main corporate taxes are corporate income tax (CIT), VAT, and real estate transfer tax.

The standard CIT rate stands at 22%. Companies with annual revenue less than 50 billion Indonesian Rupiah may apply for a reduced tax rate of 12.5%, while small enterprises with annual revenue below 4.8 billion Indonesian Rupiah are eligible for a CIT reduction down to 0.5%.

The VAT Law empowers the authority to adjust the VAT rate within a range of 5% to 15%. Currently, a levy of 11% applies to the domestic supply of goods and services, effective April 1, 2022, with certain exemptions in place. Exports of goods are subject to a 0% VAT rate. The Ministry of Finance retains the discretion to impose restrictions, but exported services also benefit from a 0% VAT rate.

Conclusion

The Indonesian economy is surging ahead at a brisk pace, signaling an auspicious environment for business. The government has implemented relaxations in foreign investment regulations: Regulation 10/2021 has reduced the number of sectors restricted to foreign investors while introducing fiscal incentives and non-fiscal stimuli.

If you intend to establish a company in Indonesia, kindly engage with the experts of our firm, as we shall comprehensively advise on the regulatory regime of this jurisdiction, and furthermore, extend a suite of services for facilitating the initiation of your investment endeavor.