Setting Up a Company in Indonesia

Setting up a Company in Indonesia 

Setting Up a Company in Indonesia: A Comprehensive Guide

Indonesia, Southeast Asia’s largest economy, is an attractive destination for businesses looking to expand into the region. With a growing middle class, a young workforce, and a strategic location, the country offers ample opportunities for investors. However, setting up a company in Indonesia requires navigating complex regulations and processes. This guide will walk you through the steps, requirements, and considerations to establish your business successfully.

Why Invest in Indonesia?

Before diving into the setup process, it's essential to understand why Indonesia is a favorable business destination.

1. Rapid Economic Growth

Indonesia is one of the fastest-growing economies in the world, with a GDP of over $1 trillion. The government actively supports foreign investments through various incentives and policy reforms.

2. Large Consumer Market

With a population exceeding 270 million, Indonesia offers a massive consumer base. Urbanization and rising incomes contribute to increasing demand for various products and services.

3. Strategic Location

Situated between Asia and Australia, Indonesia is a key hub for regional trade and logistics. The country is part of ASEAN, which provides access to a broader market through trade agreements.

4. Government Incentives

The Indonesian government offers tax incentives, relaxed regulations for certain industries, and a streamlined process for setting up businesses under its Omnibus Law.

Types of Business Entities in Indonesia

Before registering a company, you need to choose the right type of entity. The most common options include:

1. PT PMA (Foreign-Owned Company)

A Perseroan Terbatas Penanaman Modal Asing (PT PMA) is a limited liability company where foreign investors can hold shares. It is the most common structure for international businesses.

Key features:

Requires at least two shareholders (can be individuals or corporations)

Minimum investment of IDR 10 billion (around $700,000), depending on the industry

Must have a physical office address in Indonesia

Can provide visa and work permit sponsorship for foreign employees.

2. Local PT (Domestic Limited Liability Company)

A Perseroan Terbatas (PT) is a company fully owned by Indonesian citizens. Foreigners cannot hold shares in a Local PT unless through a nominee arrangement.

Key features:

Minimum two shareholders

Lower capital requirements than PT PMA

Restricted for certain foreign investors unless structured legally

3. Representative Office (KPPA)

A Kantor Perwakilan Perusahaan Asing (KPPA) allows foreign companies to establish a presence in Indonesia without conducting commercial activities.

Key features:

Cannot generate revenue in Indonesia

Acts as a liaison office for market research and business development

No minimum capital requirement

Step-by-Step Guide to Setting Up a Company in Indonesia

Step 1: Check the Negative Investment List

Indonesia regulates foreign ownership in certain sectors through the Positive Investment List (Daftar Positif Investasi). Some industries allow 100% foreign ownership, while others require local partnerships.

Check if your business falls under restricted or open categories before proceeding.

Step 2: Choose a Business Structure

Based on your investment goals and ownership preferences, decide whether a PT PMA, Local PT, or Representative Office is the best fit.

Step 3: Reserve a Company Name

Ensure your company name is distinct and doesn't create confusion with existing businesses.

It must consist of at least three words in Indonesian.

The name reservation is done through the Ministry of Law and Human Rights (Kemenkumham).

Step 4: Prepare the Company Deed and Articles of Association

A notary public must draft the company’s Deed of Establishment (Akta Pendirian).

The Articles of Association must outline shareholders, management structure, and business activities.

These documents must be notarized and submitted to the Ministry of Law and Human Rights for approval.

Step 5: Obtain Business Licenses and Permits

Your company must be registered with several government agencies, including:

1. NIB (Business Identification Number) – Registered through the OSS System (Online Single Submission)

2. SIUP (Business License) – Required for trading and service businesses

3. TDP (Company Registration Certificate) – Proof of business registration

4. Domicile Letter – Issued by the local government for the company’s address

5. Tax Identification Number (NPWP) – Required for tax compliance

Step 6: Open a Corporate Bank Account

To operate legally, you must open a corporate bank account in an Indonesian bank. Requirements typically include:

Company Deed and Business License

Tax Identification Number (NPWP)

Identification of company directors and shareholders

Step 7: Fulfill Capital Requirements

A PT PMA must deposit at least IDR 10 billion as investment capital. Some industries may require additional funds.

Step 8: Obtain Work Permits and Visas (If Hiring Foreigners)

In the event that you plan to hire foreign employees, they must acquire:

IMTA (Work Permit)

KITAS (Temporary Stay Permit Card)

Only certain positions (such as directors and technical experts) qualify for work permits.

Challenges of Setting Up a Business in Indonesia

While Indonesia offers many opportunities, foreign businesses face several challenges:

1. Bureaucracy and Regulatory Complexity

The registration process involves multiple agencies, and obtaining approvals can be time-consuming. The government has improved procedures through the OSS system, but delays still occur.

2. Local Partnership Requirements

Certain industries require foreign investors to partner with a local Indonesian company, which can complicate decision-making.

3. Language Barrier

Most official documents and legal procedures are in Bahasa Indonesia, so hiring a local consultant or legal advisor is recommended.

4. Tax and Compliance Regulations

Indonesia has a complex tax system, with corporate income tax at 22% and additional sector-specific taxes. Proper accounting and compliance are necessary to avoid penalties.

Final Remarks 

Setting up a company in Indonesia can be a rewarding investment if you navigate the process correctly. The country’s large consumer market, economic growth, and government incentives make it an attractive destination for businesses.

To ensure a smooth registration process, it’s advisable to work with a local consultant or business services firm that understands Indonesian regulations. With careful planning, your business can thrive in one of Southeast Asia’s most dynamic economies.

Would you like help with a specific industry or investment plan in Indonesia? Let us know in the comments!