Indonesia is home to more than 3.5% of the world population. It is the sixteenth largest economy in the world based on GDP (World Bank, 2016). In addition, its political stability and focus on the development on infrastructures in recent years have made Indonesia one of the popular destinations for investments.
Setting up a business in Indonesia can be a challenging process since the government regulations change from time to time. Before doing business in Indonesia, it is highly recommended to get familiar with some of the following topics:
To protect the welfare and interest of local citizens, foreign investments in some sectors or industries are restricted or open with certain conditions. The limitations and restrictions are included in the Negative Investment Lists. You can find the list of sectors in which foreign ownership are fully prohibited or limited in the most recent amendment of Negative Investment List, Presidential Decree number 44 year 2016.
Foreign-owned Limited Liability Company (PT PMA)
PT PMA has the same level of rights and responsibility as a locally-owned business. A limited liability company that has a non-Indonesian shareholder is directly regarded as a PT PMA. The entity is allowed to participate in all of the tender in Indonesia and is able to apply for working permits for foreign workers.
In order to establish a PT PMA in Indonesia, you will have to meet requirements set by Indonesia Investment Coordinating Board (BKPM). A foreign investor is required to comply with the minimum capital requirements for foreign investment. Currently the minimum requirement stands at IDR 10 billion or USD 700,000. 25% of the minimum capital, excluding land and buildings, needs to be paid upfront.
An alternative entity to a PT PMA in Indonesia is a Foreign Representative Office. Almost all business sectors are eligible to open a Foreign Representative Office in Indonesia. A Foreign Representative Office also has no minimum investment, shareholder, nor director requirement.
However, according to Ministry of Trade Regulation no 10/2006, a Foreign Representative Office cannot engage directly in sales and is not allowed to gain income from Indonesia. The purpose of the Foreign Representative Office is only limited for market research, promotional and marketing activity purposes.
Type of Representative Office in Indonesia:
- Foreign Representative Office (KPPA)
The purpose of a standard representative office is usually limited to market research purposes. It also serves as a preparation for a business to set up Limited Liability Company in Indonesia. A standard representative office has a limited lifespan of three years with an option to extend.
- Foreign Representative Office for Trading (KP3A)
The main purpose of KP3A is to promote certain products in Indonesia and operate as buying/selling agents of the mother company. KP3A is not allowed to generate any form of income or revenue and all transactions are to be done directly between the customer and the mother company. KP3A license is valid for 3 years with an option to extend.
- Foreign Representative Office for Construction Company (BUJKA)
BUJKA operates 100% outside of Indonesia. Unlike KPPA and KP3A, BUJKA is allowed to generate revenue in Indonesia by participating in projects in Indonesia through a joint operation with a local company. BUJKA has a lifespan of three years. It can be extended, if needed, for a duration of three more years with no limits on the number of extensions.
Work and Residence Permit
Based on data from Ministry of Manpower of Republic Indonesia (2017), there are around 85,974 foreign workers registered in Indonesia. In order for a non-Indonesian to work and reside legally in Indonesia, a complete set of permits and documents have to be obtained from the respective government institutions.
General requirements for obtaining a work permit are:
- Academic background in the related field for the position you are to occupy.
- Minimum of 5-year working experience related to the position.
- Proof of health insurance for your stay in Indonesia.
- Passport must be valid for at least 18 months.
- Must have a company sponsor.
- Last month bank statement from sponsor company with a minimum balance of USD 1,500.
There will be a government levy of USD 100 per month to be paid by the sponsor company. The validity of IMTA ranges from 1 to 12 months, depending on the necessity of the sponsor company.
After the approval of the work permit, foreign workers will have to obtain the residence permit (KITAS). The validity of KITAS will follow the validity of IMTA.
A Multiple-Entry Visa is commonly known as Business Visa. This type of visa allows you to stay up to 60 days per visit. Based on Ministry of Law and Human Rights Regulations number 24/2016, the holder of Visa 212 is allowed to attend business meetings and seminars, as long as the business activities do not involve taking up employment or receiving any payments whilst in Indonesia. To apply for a multiple-entry business visa, the applicant must have a sponsor company in Indonesia.
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