How to Set Up a Representative Office (KPPA) in Indonesia

What is a KPPA and how do I set it up?

If you’re planning to explore investment opportunities in Indonesia, a simpler and relatively inexpensive way to start would be through a general foreign representative office or Kantor Perwakilan Perusahaan Asing (KPPA) in Bahasa.

This option is popular among businesses who are still exploring their prospects or don’t plan any direct business activities but still need to become a legal entity in Indonesia. Below, we’ll discuss all the basics of how rep offices or KPPAs work, the legal benefits, and what you’ll need to establish one.

What exactly is a representative office in Indonesia?

According to the Indonesian Investment Coordinating Board, a KPPA or representative office – rep office for short – is a local branch of a foreign parent company that has two main responsibilities:

  • Representing the parent company’s interests in Indonesia, and/or
  • Preparing the founding of a Foreign Investment Company (PT PMA).

On the flip side, regulations also state that rep offices aren’t allowed to:

  • Do anything related to selling goods or services, and
  • Participate in any form in the management of another company, a subsidiary or branch office in Indonesia.

In short, this means that representative offices in Indonesia can’t engage in commercial activities or transactions that directly generate revenue. To be able to actually sell products and services, you’re going to need a PT PMA which has its own requirements like a minimum capital investment.

Who uses representative offices?

Businesses that set up representative offices in Indonesia usually fit one of four personas:

  • They’re new to Indonesia’s market,
  • Still evaluating the prospects of their product, service or project,
  • Want to limit their financial expenses, or
  • Not planning to generate profit from the beginning.

Some companies use rep offices in Indonesia to explore the market, promote their products, find business partners, and get to know Indonesia’s consumers and culture. As mentioned before, they usually move on to setting up a PT PMA once they’re more confident about their prospects.

However, rep offices aren’t just stepping stones towards PT PMAs. It’s also a viable option for companies who don’t plan on handling direct business transactions in Indonesia.

What can I do with a representative office?

According to the Indonesian Investment Coordinating Board, the activities of a general foreign representative office or KPPA are limited to:

  • Taking care of the interests of the foreign parent company or its affiliated companies, and
  • Preparing the establishment and development of a foreign investment company (PT PMA) in Indonesia.

A strategy often used by foreign companies is using the rep office to promote the parent company’s products to Indonesian clients. The actual transactions are handled by the parent company abroad. After a strong client portfolio has been established, the foreign company would open a PT PMA in Indonesia.

Does the rep office have to pay taxes?

Since the rep office isn’t allowed to sell anything, it doesn’t have to pay corporate income or value-added taxes.

However, you’re still going to face income taxes for individual employees. You’ll have to report the amount of income tax deducted from each employee’s salary every month along with any insurance or social security.

There’s also a specific regulation for rep offices in Indonesia that generate indirect profit for their parent company abroad. Even if the Indonesian rep office doesn’t accept any money in the process, authorities can still impose a tax liability.

If the rep office is guiding profits for the parent company through their Indonesian activities, then it must apply the special metric of gross export value when calculating corporate income tax.

In this case, the income tax will be 0.44 percent. However, in the case of a tax treaty between Indonesia and the country abroad, the corporate income tax rate follows the tax rates as set in the tax treaty.

What is a Chief Representative Officer?

The Chief Representative Officer is the head of the representative office in Indonesia. They can be either an Indonesian national or an expat, and they need to be appointed by the director of the parent company abroad.

Note that the same person can’t fill both positions; the foreign director needs to appoint someone else as the Chief Representative for their KPPA office.

Alternatively, the director of the parent company abroad needs to step down from their position first, appoint a new director for the foreign parent company, and then can become the rep office head in Indonesia.

What documents do I need to open a rep office?

You’ll need the following documents to establish a representative office in Indonesia:

  • Articles of Association of the foreign parent company including amendments in English
  • Power of Attorney to sign the application
  • Letter of Appointment (LoA) from the foreign parent company
  • Letter of Reference from the Indonesian embassy in the parent company’s origin country
  • Letter of Intent  (LoI) and Letter of Statement (LoS) concerning the willingness of Chief Representative Officer to stay and only work in the Representative Office without doing any other business in Indonesia
  • Copy of valid passport of the director of the parent company
  • Copy of valid passport (for foreign Chief Representative Officer) or copy of the identification card number and tax ID (for Indonesian Chief Representative Officer)

The Letter of Appointment (LoA), Letter of Intent (LoI), Letter of Statement (LoS), Power of Attorney (PoA), Letter of Reference, and Articles of Association (including amendments) need to be legalised by a public notary and an Indonesian Embassy in the country of the foreign parent company.

The license of a KPPA is valid for three years. You can extend it twice, each for a period of one year, to a total of five years. After that point, it can’t be extended unless the representative office can prove that its activities are different from its earlier activities.

Generally, after five years, rep offices have the choice between setting up a PT PMA or exiting Indonesia.

So, how do I set up a representative office in Indonesia?

Establishing a rep office or KPPA is a relatively simpler process than a PT PMA, but it’s still better for you to connect with a consultant who can help guide and manage everything for you.

If you’d like help with that, Greenhouse can aid you in every step of the process like providing legal advice and preparing all the necessary paperwork to set up a KPPA.

Greenhouse offers an online platform that allows you to book business incorporation services and connect with market entry consultants in your target markets.

We’ll connect you with experienced consultants on the ground who can help answer your questions about doing business in Indonesia.