Expanding Business to Indonesia: Do You Really Need to Establish an Indonesian Company?

Compared to its Southeast Asian rivals, establishing an Indonesian Company, or famously referred to PT (pronounced “pee-tee”) short for Perseroan Terbatas (Limited Liability Company) requires a lot more funds to invest, especially if there is a foreign citizen and/or foreign entity/company involved in directly owning the shares in that Indonesian Company.

This is because an Indonesian Company that is foreign-owned is required to inject at minimum IDR10 billion Rupiah paid-up capital. While the establishment can be completed before the cash is fully injected (after all, that cash needs to go to the Company bank account and the Company can’t open a bank account when it doesn’t exist yet), the minimum IDR 10 billion Rupiah will be recorded as the liability of the shareholders to the Company, as long as they have never injected it to the Company.

Read also: Corporate Social Responsibility Obligation for the Company

For big businesses such as manufacturing or construction, such requirement may not be a big hurdle. However, this requirement applies to all businesses, including technology and/or internet-based start-up businesses, as long as there’s at least 1 share owned by a foreign citizen or foreign entity/company in that Indonesian Company. So not even only having 1% foreign shareholders in the Company will exempt it from the minimum paid-up capital requirement.

So do you really need to establish an Indonesian Company to expand your business in Indonesia?

First Time Expansion

If this is the first time you ever expand to Indonesia, and you have yet to learn about the target market of your business in Indonesia, establishing a Representative Office is probably a better idea.

The Representative Office allows you to do market research and preparation activities in Indonesia for your future business, without having to invest any paid-up capital and your expenses will be limited to operational matters, such as renting an office and hiring employees. The only catch is that a Representative Office is not allowed to do any commercial business activities and transactions and gain any revenue.

Read also: Understanding the Concept of Public-Private Partnership

Well Established Connection in Indonesia

If you already know well the Indonesian market and you already have the resources in Indonesia, both from the human capital side as well as the infrastructure side, establishing a Company is a viable option, especially if you want to start gaining revenue from your business.

Please note that you still have to fulfill the capital requirement and get the applicable operational permits for your license for your business to operate smoothly and legally in Indonesia.

If you need consultation and assistance regarding expanding business to Indonesia, you can contact BPLawyers via ask@bplawyers.co.id or 082112341235.

Author: Sekar Ayu Primandani