Forms of Foreign Business in Indonesia
Selasa, 30 Juli 2024
In general, foreign companies can conduct business activities in Indonesia through the Foreign Investment (PMA) scheme, which is an investment activity to conduct business within the territory of the Republic of Indonesia carried out by foreign investors, either using entirely foreign capital or in partnership with domestic investors.
In principle, PMA must be in the form of a Limited Liability Company (PT) based on Indonesian law and domiciled within the territory of the Republic of Indonesia, unless otherwise stipulated by law, which is done by:
Taking shares at the time of the establishment of PT PMA;
Buying shares; and
Carrying out other methods in accordance with the provisions of the legislation.
A PT itself is a legal entity company established by 2 (two) or more people with a notarial deed made in Indonesian. The term “people” refers to individuals, whether Indonesian or foreign nationals, or Indonesian or foreign legal entities.
With these exceptions, foreign companies wishing to conduct their business activities in Indonesia can choose other foreign business forms whose characteristics can be adjusted to the business strategy of each company. To find out the forms, you can refer to the following review.
1. Foreign Investment Company
Foreign Investment (PMA) is an activity of investing to conduct business in the territory of the Republic of Indonesia which is carried out by foreign investors, both foreign individuals, foreign business entities and/or foreign governments that fully utilize foreign capital or joint ventures with investors in the country.
2. Representative Offices of Foreign Companies (Kantor Perwakilan Perusahaan Asing /KPPA)
Based on Regulation of BKPM No. 4 Year 2021, Representative Offices of Foreign Companies (KPPA) are Indonesian individuals or foreign individuals or business entities which are representatives of foreign business actors with the approval of the establishment of offices in the territory of the Unitary State of the Republic of Indonesia and the following restrictions shall apply:
As supervisor, liaison, coordinator, and take care of the interests of the company or its affiliated companies;
Prepare the establishment and business development of PMA companies in Indonesia or other countries and Indonesia;
Located in an office building in the capital of a province
Must not seek any income from sources in Indonesia, including not engaging in any activities or engaging in any engagements/transactions relating to the sale and purchase of commercial goods or services with domestic companies or individuals; and
Must not participate in any form in the management of any company, subsidiary or branch of a company in Indonesia.
The head of representative of a foreign company must reside in Indonesia, shall be fully responsible for the expediency of the office and is not allowed to conduct activities other than the representative activities of the foreign company and does not have any concurrent position as the head of a company and/or more than 1 (one) representatives of foreign company. If the appointed head of the representative of a foreign company is a foreign citizen (WNA) and/or also employs foreign workers, then the representative of a foreign company must employ Indonesian workers.
Risk-based business licensing for representative offices of foreign companies is included in the low-risk level and is valid as long as the representative offices of foreign companies carry out activities.
3. Representative Offices of Foreign Trade Companies (KP3A)
Representative Offices of Foreign Trade Companies (KP3A) is as described in Regulation of the Minister of Finance of the Republic of Indonesia No. 10/M-DAG/PER/3/2006 is a representative of foreign trade company which may perform the following activities:
Introduce, promote and advance the marketing of goods produced by foreign companies or by associations of foreign companies which appoint them, as well as to provide information or instructions for the use and import of goods to domestic companies/users;
Undertake market research and supervision of domestic sales in relation to the marketing of goods from foreign companies or jointly appointed foreign companies;
Conduct market research for goods required by foreign companies
Close contracts for and on behalf of the appointing companies with domestic companies for export purposes.
Representatives of foreign trade companies are prohibited from engaging in trade and sales transactions, whether submitting tenders, signing contracts, settling claims and the like.
Representatives of Foreign Trade Companies in Indonesia may take the form of selling agents and/or manufacturers' agents and/or buying agents.
Foreign companies or joint ventures abroad may appoint Indonesian Citizens or Foreign Citizens as the head of the representative headquarters of a foreign trade company or the head of a branch office of a representative of a foreign trade company in Indonesia.
Representative offices of foreign trade companies may be opened in the Capitals of provinces and regencies/cities throughout the territory of the Republic of Indonesia, while branch offices for representatives of foreign trade companies may be opened in the capitals of provinces and regencies/cities throughout the territory of the Republic of Indonesia outside of the domicile of their head offices.
Every representative of a foreign trade company that employs 1 (one) foreign citizen must employ at least 3 (three) experts and/or an administrative worker for Indonesian citizens.
If a KP3A has arranged for licensing through the OSS RBA, then the KP3A will obtain an NIB and a Trade Business License as a Representative Office of a Foreign Trade Company (Surat Izin Usaha Perdagangan sebagai Kantor Perwakilan Perusahaan Perdagangan Asing/SIUP3A).
4. Representative Offices of Foreign Electricity Support Service Companies (JPTLA)
Representative Office of Foreign Electricity Support Service Company is a foreign representative office established by business entities or individuals of foreign electricity support services as regulated in Government Regulation No. 25 Year 2021.
Business licensing for foreign electricity support services shall be granted for the following types of businesses:
Consultancy in the field of Electricity Installation
Construction and installation of Electricity Installation; and
Maintenance of Electrical Installations
Applications for business licensing of electricity support services for foreign representative offices shall be subject to administration fees in accordance with provisions of laws and regulations in the sector of non-tax state revenue. Foreign representative offices for the JPTL are only permitted to undertake high-cost electrical power support services in the form of:
Construction work and installation of electrical power with a minimum value of IDR100,000,000,000 (one hundred billion rupiahs); and
Consultancy work in the field of electricity installations or maintenance of electrical installations shall be at least Rp10,000,000,000 (ten billion rupiahs).
Other obligations for foreign representative offices for electricity support services are:
Possess large qualifications
Establish of joint operations with domestic JPTL business entities
Hire more Indonesian workers than foreign workers
Place indonesian citizens as persons in charge of representative office business entity
Prioritize the use of domestic products
Have high technology, are up-to-date, efficient, environmentally friendly, as well as pay attention to local wisdom
Implement the transfer of technology
Implement other obligations in accordance with provisions of laws and regulations
Specifically for the use of foreign workers, guidance and supervision shall be carried out by the Minister or governor (in accordance with their authority). Foreign representative offices of electricity supporting services are required to obtain a business license for business activity of supporting electricity services if they do not have the business license then they will be subject to a fine of 20% (twenty percent) of all contract values. Meanwhile, foreign Engineering personnel who do not have a certificate of competence in the electricity sector will be subject to a fine amounting to:
IDR90,000,000 if working in an electricity supply company
IDR150,000,000 if working in an electric power support service business entity.
5. Representative Offices of Foreign Construction Service Business Entities (BUJKA)
Another representative office as regulated under PP No. 5 Year 2021 is the Representative Office of Foreign Construction Service Business Entity (BUJKA) which is a representative office in the form of a legal entity from abroad with the approval of the establishment of office in the territory of the Unitary State of the Republic of Indonesia in the field of construction business.
BUJKA may carry out construction activities in the field of construction consultancy services, construction works and integrated construction works, but must meet the requirement of large qualifications.
The senior executive of a BUJKA representative office, who is technically responsible, shall be occupied by an Indonesian citizen, while the highest head of a BUJKA representative office who is responsible for the implementation of construction for the purpose of technology transfer process may be held by a foreign citizen.
6. Representative Offices of Foreign Trading Companies in the field of trading through Electronic Systems (KP3A PMSE)
Through the Regulation of the Minister of Trade Number 50 Year 2020 it is clarified that a Representative Office of Foreign Trading Company in the trade sector through Electronic System (KP3A for the PMSE sector) is an office which is led by 1 (one) person or more individuals of Indonesian citizen or foreign citizen appointed by the Organizer of Trade through Electronic System (Penyelenggara Perdagangan Melalui Sistem Elektronik/PPMSE) abroad as their representatives in Indonesia who may act as and on behalf of the foreign PPMSE. Foreign PPMSEs must meet certain criteria, as follows:
Have conducted transactions with more than 1,000 (one thousand) consumers within a one-year period; and/or
Have delivered more than 1,000 (one thousand) packages to consumers within a one-year period.
In the event of a unilateral termination of the representative relationship, the foreign PPMSE must appoint a new representative within a period of 14 (fourteen) days and if it fails to be carried out, it will be subject to an administrative sanction in the form of written reprimand which will be given a maximum of 3 (three) times with a grace period between respective reprimand for a maximum of 14 calendar days. After the 3rd (third) reprimand, a foreign PPMSE still fails to appoint a representative, it will be subject to an administrative sanction in the form of temporary blocking of PPMSE services by the authorized agency based on the request of the Director-General of Consumer Protection and Trade Order (Perlindungan Konsumen dan Tertib Niaga/PKTN).
KP3A in the PMSE sector shall be located in the capitals of provinces and/or regencies/cities throughout the territory of the Unitary State of the Republic of Indonesia. KP3A may also open branch offices with the approval of the represented foreign PPMSE. A KP3A in the PMSE sector may only represent 1 (one) foreign PPMSE.
A KP3A in the PMSE sector is required to secure a SIUP3A for the PMSE sector, which can be obtained by submitting an application to the OSS Agency.
An application to obtain an SIUP3A for the PMSE sector shall be submitted by completing the following requirements:
proof of appointment of a KP3A in the PMSE sector as a representative by a foreign PPMSE that has been validated by a Notary Public and a Certificate from the Trade Attaché of the Republic of Indonesia or an official of the representative office of the Republic of Indonesia in a foreign PPMSE country (should be translated into Indonesian language by a sworn translator) at least containing the authority of the KP3A in the PMSE sector to represent the foreign PPMSE in fulfilling consumer protection obligations, conducting guidance to improve competitiveness, and resolving disputes.
recording of the articles of association/incorporation of the foreign PPMSE (should be translated into Indonesian language by a sworn translator).
proof of identity of the head of the KP3A in the PMSE sector as proven by a Residential Identity Card for an Indonesian citizen and a passport for a foreign citizen;
the use of manpower in order to enclose an affidavit on the number of manpower employed along with a record of identity and employment statement letter;
submit the website address and/or the name of the application from the represented foreign PPMSE; and
submit the contact number and/or email address of the Consumer complaint service from the represented foreign PPMSE.
SIUP3A for the PMSE sector shall be used by a KP3A to represent the foreign PPMSE and is prohibited from taking actions other than for the interests of consumer protection, guidance to improve domestic competitiveness, and dispute resolution. The SIUP3A for the PMSE sector shall be valid as long as the KP3A carries out its business and/or activities as a representative.
7. Permanent Establishments
Permanent Establishment is a foreign individual or a legal entity that operates business in Indonesia and is a foreign tax subject or non-resident taxpayer. One example of a foreign business entity with a permanent establishment is a representative office that is established to conduct business activities in the oil and gas sector.
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