In this section, we discuss the various options that a business has for market entry into Indonesia and overview the entity types, requirements, and processes, as well as some key considerations that will help ensure a company is set up for success.
Also find tips for what the procedures are for opening a bank account, managing IPR or closing a business, should the need arise.
Establishing a company typically requires moderate or greater amounts of investment capital than other entry modes and can require several months to complete all steps in the process before the company becomes operational. This is an expected risk of a fixed investment strategy, and for these reasons, it is important that investors first understand the business, financial, consumer, or local cultural landscapes in the country, and the options that might best help realize the goals of the investment.
Foreign investors may create a legal presence in Indonesia in one of two ways: a Limited Liability Company (PT PMA) or a Representative Office. This is discussed in the choosing a corporate structure section.
Also, prior to deciding upon a company or investment structure, it is important to understand the Positive Investment List (PIL) to verify whether your intended business sector(s) are available and unrestricted for foreign ownership. The general principle under the positive investment list is that a business sector is open to 100 percent foreign investment unless subject to a specific type of limitation. The regulation presents one of the greatest liberalizations in foreign ownership limitations in Indonesia since the negative investment list was first introduced in the 1980s. The positive list and restricted sectors are explained in this section.
Choosing a corporate structure
Establishing a foreign investment company or PT PMA, is the preferred structure for companies looking to have a legal presence in the country. Foreign investors will need to have a minimum paid-up capital equivalent of 10 billion rupiah (US$696,000) currently, which is higher than it was at 2.5 billion rupiah (US$174,135) in previous years, as the government aims to attract more high-value investments into the country.
Alternatively, foreign companies may open a representative office in one of Indonesia's province capital cities. Representative offices in Indonesia are restricted and not permitted to conduct business directly with other companies or people. However, they can serve other important functions, such as supervising and coordinating business activities, and applying for and obtaining a work permit and a visa for the expatriate manager.
Comparing entity types at-a-glance:
Company set up process
A foreign invested limited liability company, or PT PMA, generally requires 2-4 months to set up and be operational.
- Reserve a company name with the Ministry of Law and Human Rights (which should not be similar to the name of other companies or contain vulgar language), Further the company name shall consist of 3 words and can be in English;
- Determine the industrial business classification code (KBLI), based on the intended business activities;
- Establish a legal entity with the company’s activities stated in the Deed of Establishment (this must be done with a local notary and the Deed of Establishment will have to be ratified by the Ministry of Law and Human Rights);
- Obtain a taxpayer identification number from the local tax office and domicile letter from the district government (businesses establishing in Jakarta do not require a domicile letter);
- Obtain a tax registration certificate through the tax office where the business is domiciled;
- Obtain a Business Identification Number (NIB) by applying through the Online Single Submission (OSS) system. The NIB applies as the company’s import identification number, customs ID, and registration certificate. Further, the NIB will also automatically register your company under the government’s health and social security scheme; and
- Some companies may need to apply for additional business licenses (such as for mining and fintech). Business licenses will now be issued based on the assessment of ‘business risk level’ determined by the scale of hazards a business can potentially create.
A Representative Office, on the other hand, is the fastest and simplest way of establishing a legal entity in the country. A Rep Office set up is a temporary arrangement; As mentioned, an RO is not permitted to engage in any commercial activities, issue invoices, sign contracts, or earn any revenue. Foreign investors, however, can own 100 percent of this business entity and don’t have to contribute the same paid-up capital required by PT PMAs.
Requirements for setting up a business
Investors looking to incorporate a PT PMA need to adhere to the following requirements:
- A minimum paid up capital of 10 billion rupiah (US$696,000);
- Appointment of two shareholders (these can be foreign individuals or corporations - the percentage of local involvement will depend on the foreign ownership limitation based on the PIL);
- The appointment of at least one commissioner and a director (these can be held by foreign individuals); and
- The director will be responsible for running the day-to-day activities of the company.
A Representative Office has simplier requirements, two of the main being:
- Can only be set up in the capital of any Indonesian province; and.
- Must be located in an office building.
The simplified procedure for setting up a PTPMA or a RO can be seen below and read about in more detail in our Types of Businesses guide:
Indonesia’s Positive Investment List for Foreign Investment
Further, prior to setting up we also recommend studying the new Positive Investment List (PIL) to see which business sectors are unavailable or restricted for foreign ownership. The general principle under the positive investment list is that a business sector is open to 100 percent foreign investment unless subject to a specific type of limitation. The regulation presents one of the greatest liberalizations in foreign ownership limitations in Indonesia since the negative investment list was first introduced in the 1980s.
The government has classified business fields into four categories:
Business fields that are fully open to foreign investment
The following business fields are open to 100 percent foreign investment.
- Oil and gas construction;
- Onshore upstream oil installation;
- Onshore and offshore distribution pipelines;
- Onshore and offshore oil and gas drilling service;
- Oil and gas well maintenance service;
- Electricity generation;
- Construction of electricity installation;
- Geothermal electricity generation;
- Supermarkets (with areas less than 1,200 sqm);
- Department store (with areas between 400 – 2,000 sqm);
- Ports;
- Airport and airport supporting services;
- Maritime cargo handling;
- Telecommunications;
- E-commerce;
- Pharmaceutical industry; and
- Hospitals.
Priority sectors – 245 business lines open for foreign investment
To classify as a priority sector, business enterprises must meet the following criteria:
- Must be labor intensive;
- Must be capital intensive;
- Must be part of a national project/program;
- Must be export-oriented;
- Must involve a pioneer industry (renewables, oil refining, metals, etc.);
- Must utilize advanced technologies; and
- Must implement research and development and innovation activities.
There are 245 business fields under this category that can be found under Exhibit 1 of the positive investment list. Moreover, businesses in priority sectors are eligible for a range of fiscal and non-fiscal incentives.
Fiscal incentives include a 50 percent corporate income tax reduction for investments between 100 billion rupiah (US$6.9 million) and 500 billion rupiah (US$34.8 million) for a period of five years and 100 CIT reduction for investments over 500 billion rupiah (US$34.8 million) for a period between five and 20 years.
In addition, there are tax allowances available in the form of a reduction in the taxable income of 30 percent of the total investment for six years, a special withholding tax rate on dividends of 10 percent, and tax losses carried forward for up to 10 years.
Examples of non-fiscal incentives are the provision of supporting infrastructure, simplified business licensing procedures, and the guaranteed energy supply or raw materials.
Business fields that stipulate specific requirements or limitations — 37 business lines open
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Business Fields with Specific Requirements |
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Business fields |
Requirements |
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Publishing of newspapers, magazines, and bulletin (press) |
100 percent domestic capital required for establishment, and up to 49 percent foreign capital ownership for business development and expansion |
|
Private broadcasting agency |
100 percent domestic capital required for establishment, and up to 20 percent foreign capital ownership for business development and expansion |
|
Subscription based broadcasting agency |
100 percent domestic capital required for establishment, and up to 20 percent foreign capital ownership for business development and expansion |
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Courier activities |
Maximum foreign capital ownership of 49 percent |
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Scheduled commercial air transportation |
Foreign capital ownership of 49 percent. However, domestic capital ownership needs to be the single majority |
|
Domestic non-scheduled commercial air transportation |
Foreign capital ownership of 49 percent. However, domestic capital ownership needs to be the single majority |
|
Air transport activities |
Foreign capital ownership of 49 percent. However, domestic capital ownership needs to be the single majority |
|
Domestic passenger liner and tramp sea transportation for passengers |
Maximum foreign capital ownership of 49 percent |
|
Domestic sea transport for tourism |
Maximum foreign capital ownership of 49 percent |
|
Pioneer domestic sea transportation for passengers |
Maximum foreign capital ownership of 49 percent |
|
Domestic sea transportation for special goods |
Maximum foreign capital ownership of 49 percent |
|
Pioneer domestic sea transportation of goods |
Maximum foreign capital ownership of 49 percent |
|
Domestic sea transportation using public shipping |
Maximum foreign capital ownership of 49 percent |
|
Overseas liner and tramp sea freights for goods |
Maximum foreign capital ownership of 49 percent |
|
Overseas sea transportation for special goods |
Maximum foreign capital ownership of 49 percent |
|
Public ferry transportation between provinces |
Maximum foreign capital ownership of 49 percent |
|
Public ferry transportation between regencies/ cities |
Maximum foreign capital ownership of 49 percent |
|
Pioneer ferry transportation between regencies/ cities |
Maximum foreign capital ownership of 49 percent |
|
Public ferry transportation within a city/regency |
Maximum foreign capital ownership of 49 percent |
|
River and lake transportation with fixed and regular routes |
Maximum foreign capital ownership of 49 percent |
|
River and lake transportation with non-fixed and irregular routes |
Maximum foreign capital ownership of 49 percent |
|
River and lake transportation with non-fixed and irregular routes for tourism |
Maximum foreign capital ownership of 49 percent |
|
River and lake transportation for general goods and/or animals |
Maximum foreign capital ownership of 49 percent |
|
River and lake transportation for special goods |
Maximum foreign capital ownership of 49 percent |
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River and lake transportation for dangerous goods |
Maximum foreign capital ownership of 49 percent |
|
Primary equipment industries
|
|
|
Pioneer ferry transportation between provinces |
Maximum foreign capital ownership of 49 percent |
|
Traditional medical products (for humans) |
100 percent Domestic capital |
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Wood based building products industry |
100 percent Domestic capital |
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Coffee processing industry that already acquire geographical indications |
100 percent Domestic capital |
|
Ship industry
|
100 percent Domestic capital |
|
Domestic liner and tramper sea transportation for goods |
Maximum foreign capital ownership of 49 percent |
|
Traditional cosmetics industry |
100 percent Domestic capital |
|
Raw materials for traditional medicine (for humans) |
100 percent Domestic capital |
|
Batik industry
|
100 percent Domestic capital |
| Art gallery |
100 percent Domestic capital |
|
Activities of the travel bureau for umrah and special hajj |
100 percent Domestic capital and must be Muslim |
Businesses fields open to large enterprises, including foreign investors, but are subject to a compulsory partnership with cooperatives and micro, small, and medium-sized enterprises (MSMEs)
Business fields under this category are open to foreign investors or large-scale enterprises through a compulsory partnership agreement with an MSME. There are 106 business lines for this category, being:
- Business lines that do not use advanced technology;
- Are labor-intensive businesses, characterized by a special cultural heritage; or
- The capital for the business’ activities does not exceed 10 billion rupiah (US$701,000).
Further, they cover businesses that are commonly carried out by MSMEs and/or sectors that have the potential to enter the larger supply chain. The partnership arrangement can be in the form of operational cooperation, profit sharing, subcontracting, outsourcing, or distribution.
Foreign investors may create a legal presence in Indonesia in one of two ways: a Limited Liability Company (PT PMA) or a Representative Office.
FAQ: Other considerations when setting up a business in Indonesia
How can I choose the right way to enter Indonesia?
Start With the Right Plan and Support. As with any foreign country, Indonesia’s legal entity requirements, options and processes are unique, and establishing a legal entity requires the various costs of such an investment, time, and can bear other investment risks. Once investments are made, reversing strategies can be more challenging so it is vital that a company avoid missteps from the outset.
To optimize the chances for success, a business would do well to have better
- Informed and guided business model;
- Selection of business partners or suppliers to work with;
- Options for initial service lines, products, and pricing models;
- Options to set up in the right locations and more.
Obtaining on-the-ground information and practical experience in the market, can significantly help in these areas, and help position an enterprise for successes in Indonesia. Besides researching this Doing Business in Indonesia guide thoroughly, it is advisable to leverage professional assistance for further guidance with pre-market entry, investment decisions, entity set up, and all business, operational and financial factors that will arise along the path to achieving your investment objectives. In this respect, the contributors of this Guide are available to provide this expertise, via the Chat or Contact us link buttons.
How can I open a bank account?
Corporate bank accounts are essential for any company in Indonesia as it is part of the incorporation process. A company cannot share its corporate account with another company.
In Indonesia, there are various sorts of accounts that can be opened depending on the use but businesses will generally be required to open a corporate bank account. Understanding which actions require the use of a foreign currency account, where restrictions are placed upon these types of accounts, and what documents must be prepared will all ensure that operations are optimized effectively.
How do I manage Intellectual Property in Indonesia?
Indonesia has ratified various international agreements on intellectual property rights such as the Madrid Protocol, the Agreement on Trade-Related Aspects of Intellectual Property Rights, the Berne Convention, the Paris Convention, and the WIPO Copyright Treaty. Indonesia is also a signatory to the ASEAN Patent Examination Cooperation.
The following types of intellectual property are protected:
- Trademarks;
- Patents; and
- Copyrights.
How can I close a business in Indonesia?
The company dissolution process in Indonesia can be voluntary or non-voluntary. Voluntary dissolution occurs when the owners or investors of the business choose to close the business, due to a variety of reasons from low cash flow to the mismanagement of business operations to excessive company liabilities.
According to the Article 142, paragraph 1 of the Company Law, liquidation of the company occurs if one of the following cases is met:
- Based on a resolution of the GMS (General Meeting of Shareholders) – In other words, voluntary winding-up
- Due to the expiry of the company, as prescribed in the articles of association.
- Based on a court order (because of any non-compliance with the law)
- Due to a revoked bankruptcy statement, etc.; or
- Due to the revocation of the company’s business permit, so that the company is obliged to conduct liquidation according to prevailing regulations.
The procedure for winding up of a RO is a much simpler process compared to a limited liability company.
