- What is a local company in Indonesia?
- What is a foreign company in Indonesia?
- What are representative offices?
- Final Thoughts
There are several types of legal entities that foreign or domestic businesses can use to set up a company in Indonesia. However, the three most common types of companies are:
- Local companies (PT PMDN),
- Foreign investment companies (PT PMA), and
- Representative offices (KPPA).
These three types come with their requirements, benefits, and drawbacks. Below, we’ll outline each of them.
Furthermore, minimum investment values are regulated in Indonesian rupiah (IDR) by the government. As such, the US dollar (USD) amounts in this article are approximate references to give you a better idea based on general conversion rates and not exact values.
|Local company||Foreign investment company||Representative office|
|Indonesian legal term||PT PMDN||PT PMA||KPPA|
|Can generate revenue||Yes||Yes||No|
|Allowed activities||Any commercial activity, in allowed business fields||Any commercial activity, in allowed business fields||Market research and corporate communications|
|Ownership||100% local||Up to 100% foreign, depending on business field||No restrictions|
|Minimum investment value||• ±USD 3.500 - ±USD 35.000 (small)|
• ±USD 35.000 - ±USD 700.000 (medium)
• > ±USD 700.000 (large)
|±USD 700.000||No restrictions|
|Can use virtual offices||Yes||Yes, with conditions||Yes|
|Benefits||• Smaller capital requirement|
• Faster set-up time compared to foreign companies
|• Legal way for foreign-owned businesses to operate and generate revenue||• No minimum capital required|
• Faster set-up time compared to foreign companies
|Disadvantages||• No percentage of foreign ownership allowed||• Higher investment value required|
• Not available for all business fields
|• Not allowed to generate revenue|
• Only valid for max. 5 years
|Approximate time to set up||±8 weeks||±10 weeks||±8 weeks|
|Best for||Local businesses not planning to involve foreign investors||Foreign investors or companies who plan to operate businesses in Indonesia||Foreign investors or companies who are still evaluating the market or don't plan on seeking revenue|
What is a local company in Indonesia?
A local company, or PT PMDN in Bahasa, is the most common form of business entity in Indonesia. This type of company is roughly similar to limited liability companies (LLCs) in terms of structure and function.
Setting up a local company in Indonesia requires at least the following people:
- Two local shareholders,
- One local or foreign director with a tax ID, and
- One local commissioner.
Keep in mind that to get a status as a local company, the shareholders, commissioner, and investment all need to be entirely domestic. However, the director can be foreign as long as they have an Indonesian tax ID number (NPWP).
Furthermore, a local company in Indonesia can fall under three categories based on their total projected investment value. These are:
- Small companies, valued at IDR 50 million or ±USD 3.500 to IDR 500 million or ±USD 35.000.
- Medium-sized companies, valued at IDR 500 million or ±USD 35.000 to IDR 10 billion or ±USD 700.000.
- Large companies, valued at more than IDR 10 billion or ±USD 700.000.
So, depending on the business field, setting up a local company generally requires a cheaper investment size and paid-up capital than a foreign company.
Local companies are allowed to operate a wider variety of business activities than foreign companies. Many more – but not all – business sectors in Indonesia are open to investment from domestic-owned companies compared to foreign-owned ones.
As a bonus, most local companies are freely allowed to use virtual offices or business address services. On the other hand, a better option for foreign companies and representative offices are physical spaces in registered office buildings.
- Which local companies can use a virtual office in Indonesia?
- What are the steps to register a local company in Indonesia?
What is a foreign company in Indonesia?
A foreign investment company, or PT PMA in Bahasa, is the standard way for foreign investors to operate a company in Indonesia. Like a PT PMDN, a PT PMA’s structure and function are roughly similar to LLCs.
Setting up a foreign company in Indonesia requires at least the following people:
- Two local or foreign shareholders,
- One local or foreign director, and
- One local or foreign commissioner.
Although the director can technically be a foreigner, it’s better to have a local director to represent the company during the registration process.
According to Indonesian regulations, both local and foreign companies fall under the “PT” category. In other words, they have roughly the same rights and responsibilities, with a few key differences:
Unlike a local company, foreign investors can wholly or partly own a foreign company depending on the business field. However, any amount of foreign shareholders – whether 100 percent, 50 percent, or even 1 percent – means that the company can’t be classified as local anymore. You’ll need to register it as a PT PMA.
Minimum investment value
While local companies can be more flexible, a foreign company needs to have an investment plan valued at minimum IDR 10 billion or about USD 700.000. To be exact, 25 percent of this – IDR 2,5 billion or about USD 175.000 – needs to be paid-up capital upfront. In other words, foreign companies have to be categorized as large companies.
Restricted business fields
For foreign companies in Indonesia, some business fields are available for 100% foreign ownership, while others are capped at lower percentages. If you want to learn more, the full list of business fields that are restricted to foreign ownership is outlined in the Indonesia Negative Investment List.
Unlike local companies, foreign companies can only use virtual offices offered by vendors with specific qualifications. For a simpler and faster way to set up, a PT PMA needs to register their location with a physical space in an office building.
- Where can I learn more about foreign companies in Indonesia?
- What are the steps to register a foreign company in Indonesia?
- Which business fields are open to foreign companies in Indonesia?
- What’s the minimum capital for foreign companies in Indonesia?
- Can foreign companies use a virtual office in Indonesia?
What are representative offices?
A representative office, or KPPA in Bahasa, is a simpler way for foreigners to establish a presence in Indonesia. However, an important difference is representative offices are not allowed to generate revenue.
In exchange, however, a representative office has no restrictions about business field, foreign ownership or minimum capital. Basically, this means that any business entity can open a representative office in Indonesia.
So, this makes it perfect for foreign investors who want to evaluate the market or communicate with Indonesian stakeholders.
Which option to choose?
In conclusion, these three options have very different benefits and considerations depending on your needs. Therefore, we advise that you connect with professional consultants to help evaluate your options and choose the best one that fits your business goals in Indonesia.
On that note, Greenhouse has experience in handling all processes related to local company, foreign company, and representative office registration. We’re happy to help you start incorporating your business in Indonesia.
Greenhouse empowers 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.