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Types of Business Entities You Can Set Up in Indonesia

Choose from Three Popular Entity Options and Get Your Business Going

While there are several types of business entities to set up in Indonesia, three options remain the most popular among foreign investors; foreign investment company (“PMA”), local company (“Local PT”)and foreign representative office (“Rep Office”).

The Indonesian government recognises the importance of foreign investment in the country. As such, they are continuously trying to make the setup process as easy as possible. Part of those efforts includes minimising the bureaucracy and introducing a wider scope of activities.

Among the measures that have been taken in order to encourage foreign investment are:

• Regional incentives
• Industry incentives
• Tax concessions
• Free trade zones

 

Types of Business Entities in Indonesia

Divided into 2 main categories i.e. legal entity and non-legal entity, legal entity are as mentioned below:

a. PT / limited liability company
This type of legal entity constitutes an alliance of capital established pursuant to a contract to carry on business activities with authorised capital which is divided into shares and which fulfils the requirements stipulated in the Act and its implementing regulations. There were 2 types of PT:

• PT PMA
  Commonly known as a Foreign Limited Liability Company, this type of entity allows 100% foreign ownership. The maximum ownership will be based on the business sector you’re involved in. It will also depend on your business activities. Activities in the country are regulated and limited by the Indonesian Negative Investment List. The minimum paid-up capital for this entity is IDR10billion. This also includes the authorised capital to establish a local bank account once the company is registered.
• Local PT
  Only 100% of local ownership is allowed. Foreign investors get involved in this entity through a nominee arrangement. There is no minimum capital that needed to set up this entity. However, the authorised capital is determined by the size of the company. Small companies require between IDR51 – 500million. Medium companies need between IDR500million – IDR10billion and large companies need more than IDR10billion.

If you’re not ready to open full force, then Representative Office (“Rep Office”) is the answer. There are 2 types of Rep Office:

1. A Foreign Representative Office (“KPPA”) is your way of easing into the local market. This is a branch of the parent company. The main purpose of a representative office is for marketing activities and market research. You cannot engage in revenue generation or direct selling under this entity. No minimum capital is needed with this entity. To do the activity requires you to obtain the KPPA License.
2. Foreign Trade Company Representative Office (“KP3A”) is used to promote certain types of products and market research. Acts as the “selling agent” of the parent company. Must obtain the trading license (SIUP3A). Not allowed to carry out sales transactions. This includes settling claims, submitting tenders or signing contracts.

b. Foundation / Yayasan

A foundation is a legal entity consisting of assets separated and destined to achieve certain objectives in the social, religious and humanitarian fields which do not have members.

c. Cooperative / Koperasi

A business entity consisting of individuals or cooperative legal entities by basing their activities on the principle of cooperatives as well as a people’s economic movement based on the principle of kinship.

Business type that were non-legal entity:

• Persekutuan Perdata / Civil Partnership
  An agreement whereby two or more people commit themselves to include something in a partnership with a view to sharing the profits that result from it;
• CV(Commanditaire Venootschnap / Limited Partnership)
  Consists of active pesero and pasif pesero. Active Pesero is responsible for personal property, whereas passive Pesero is only responsible for the amount of capital that has been deposited in the CV.
• Firma / General Partnership
  A company established to conduct business under one common name. Members have joint responsibilities towards the firm.

 

The following are the types of business entities in Indonesia as in general:

1) BUMN (State-Owned Enterprise)
BUMN is actually a business entity owned by the state and takes care of vital interests in people’s lives. BUMN is an important asset owned by the state, especially in terms of income of state money. At present the BUMN is divided into three business entities namely:

a. Perjan

Perjan is a form of BUMN in which all capital belongs to the government without exception. This business entity focuses on community service. Example: PT KAI

b. Public Corporation

A corporation, owned and operated by a government, established for the administration of certain public programs.

c. Persero

The form of BUMN that focuses on seeking profit or maximum profitability by providing services for the public interest. For example Jasa Raharja, PT BRI, PT Telkom and others.

2) BUMS (Private-Owned Enterprises)

a. Firma
As explained above

b. CV
As explained above

c. PT

As explained above

3) Cooperative

• Consumption cooperative
• Credit cooperatives
• Service cooperatives
• Production cooperative
• All-round cooperatives

Foreign investment is only possible with PT and Rep Office.

 

What Are the Pros and Cons of Privately Owned Companies?

The main reason investors choose a certain type of entity is for the advantages that the entity can offer. What if you wish to set up a sole proprietorship? Perhaps an FA or a CV entity, for example? What are the pros and cons to be expected with these types of business entities in Indonesia?

Entity	Pros	Cons
Sole Proprietorship (Perusahaan Perorangan)	Simple to establish and dissolve. Minimal legal restrictions involved. You have the freedom to decide what minimum capital to pay. The best option if your start-up has a small capital to work with. Easy transfer of ownership whenever you want. The owner is the only one who enjoys the benefits.	Smaller profits compared to owning larger entities. The owner bears the losses and debts that may be incurred.
Commanditaire Venootschnap (Limited Liability Partnership)	Easy to establish. Greater potential for expansion. Better credibility. Several partners mean larger capital. Getting loans are easier.	Uncertainty when it comes to the survival rate of the business. Withdrawing your deposited capital is difficult. Responsibilities among partners might not always be fair.
Firma (FA)	A permanent entity. Better expansion opportunity. Better financial stability because of the large initial capital. Staff can be categorised based on their skills and experience.	New partners are only allowed with the consent of all existing partners. Every partner must be responsible for debt payments using their personal property. Any internal conflict between involved partners could threaten the survival of the company.

 

Ready to Start Your Indonesian Business Dream?

Let 3E Accounting help you decide on the best business entity. For more information about our Indonesia Company Incorporation Services, contact us today.