how to establish a company in indonesia

The primary law governing limited liability companies (Perseroan Terbatas or PT) in Indonesia is Law No. 40 of 2007 concerning Limited Liability Companies, as amended by Government Regulation in lieu of Law No. 2 of 2022 concerning Job Creation (also known as the Omnibus Law). For foreign investment, Law No. 25 of 2007 concerning Investment, also amended by the Omnibus Law, is crucial, along with regulations issued by the Investment Coordinating Board (BKPM). The entire process for obtaining business licenses is now largely integrated through the Online Single Submission Risk Based Approach (OSS-RBA) system, as stipulated in Government Regulation No. 5 of 2021 concerning Implementation of Risk-Based Business Licensing.

How to Start a Company in Indonesia (PT - Limited Liability Company)

I. General Principles Applicable to Both Local and Foreign Companies

Legal Entity Type: The most common and recommended legal entity for commercial activities in Indonesia, for both local and foreign investors, is the Limited Liability Company (Perseroan Terbatas or PT). This entity provides limited liability to its shareholders, meaning their personal assets are generally protected from business debts and obligations.

Minimum Shareholders: A PT, whether local or foreign-owned, generally requires a minimum of two shareholders. These can be individuals or legal entities.

Management Structure: A PT must have:

Board of Directors (Direksi): Responsible for the day-to-day operations and management of the company. At least one Director must be appointed.

Board of Commissioners (Dewan Komisaris): Responsible for overseeing the management policies and providing advice to the Board of Directors. At least one Commissioner must be appointed.

Company Name:

Must be in Latin alphabet.

Consist of at least three words (for local PT, usually in Bahasa Indonesia; for PT PMA, English names are permissible).

Must be unique and not already used by another company.

Cannot contravene public order or morality.

Cannot be the same or similar to a state, government, or international authority's name without official approval.

Must not consist of numbers or series of numbers/letters that do not form a word.

Must begin with the phrase "Perseroan Terbatas" or "PT".

Business Activities (KBLI - Klasifikasi Baku Lapangan Usaha Indonesia): Companies must clearly define their business objectives and activities, which must align with the Indonesian Business Classification (KBLI). The latest prevailing KBLI is KBLI 2020. The KBLI code is crucial as it determines the maximum foreign ownership percentage allowed (for foreign companies) and the risk level of the business, which in turn dictates the licensing requirements.

Registered Office Address: Every company must have a registered business address in Indonesia. This can be a physical office or a virtual office, provided it aligns with the company's business activities.

Online Single Submission (OSS-RBA) System: The majority of the company registration and licensing process is now conducted through the OSS-RBA system managed by BKPM. This integrated system issues a Business Identification Number (NIB), which serves as the primary business license for low-risk businesses and as a registration number for higher-risk businesses requiring additional permits.

II. Starting a Local Company (PT Lokal)

A local PT is a company primarily owned by Indonesian individual(s) or Indonesian legal entity(ies).

Key Requirements:

Shareholders: Minimum of two Indonesian citizens or Indonesian legal entities.

Capitalization: The Law on Limited Liability Companies stipulates minimum authorized, issued, and paid-up capital. However, for Micro, Small, and Medium Enterprises (MSMEs), the capital requirements are more flexible, potentially allowing for lower capital for certain business activities. For larger local PTs, generally, the issued and paid-up capital must be at least 25% of the authorized capital.

Director and Commissioner: Can be Indonesian citizens.

Steps to Establish a Local PT:

Company Name Reservation: Reserve your desired company name through the Ministry of Law and Human Rights (MOLHR) system.

Deed of Establishment:

Draft the Deed of Establishment (Akta Pendirian) with an Indonesian public notary. This document outlines the company's articles of association, including its name, domicile, business activities (KBLI codes), capital structure, and details of shareholders, directors, and commissioners.

All shareholders (or their proxies) must sign the Deed of Establishment before the notary.

Approval from Ministry of Law and Human Rights (MOLHR): The notary will submit the Deed of Establishment to the MOLHR for approval. Upon approval, the MOLHR issues a decree, legally recognizing your company as a legal entity.

Taxpayer Identification Number (NPWP): Register for a company Taxpayer Identification Number (NPWP) with the local tax office. This is essential for all financial transactions and tax compliance.

Business Identification Number (NIB) and Business Licenses (via OSS-RBA):

Register your company on the OSS-RBA system.

The NIB will be issued, serving as your company's business identity.

Based on your KBLI and the associated risk level:

Low-risk businesses: The NIB itself may be sufficient to commence operations.

Medium-low and Medium-high risk businesses: Will require a NIB and "Standard Certification" (Sertifikat Standar) which can often be self-declared or verified through the OSS system.

High-risk businesses: Will require a NIB and additional sector-specific licenses/permits from relevant government agencies or ministries (e.g., environmental permits, specific operational licenses).

Corporate Bank Account: Open a corporate bank account in Indonesia.

Other Registrations (as applicable): Depending on the business activities, further registrations may be needed, such as:

Registration with the Ministry of Manpower (for employee social security, etc.).

Product registration (e.g., BPOM for food, beverages, cosmetics).

Intellectual property registration (trademarks, copyrights).

III. Starting a Foreign Company (PT PMA - Perusahaan Penanaman Modal Asing)

A PT PMA is a limited liability company with foreign shareholding, whether fully foreign-owned or a joint venture with Indonesian partners. Foreign investment in Indonesia is regulated by the Investment Law and the Positive Investment List (formerly Negative Investment List).

Key Requirements (Differences from Local PT):

Shareholders: Minimum of two shareholders, at least one of whom is a foreign individual or foreign legal entity.

Minimum Investment Plan: Generally, a PT PMA requires a minimum investment plan of IDR 10 billion for each business activity (KBLI). This is a commitment for the total investment, not necessarily paid-up capital initially. However, the paid-up capital for a PT PMA must be at least IDR 2.5 billion, and at least 25% of the total authorized capital.

Positive Investment List (Presidential Regulation No. 10 of 2021 as amended by Presidential Regulation No. 49 of 2021): Before establishing a PT PMA, it is crucial to check the Positive Investment List to determine if the intended business activity is:

Closed for investment: Prohibited for foreign investment.

Open with conditions: May have limitations on foreign ownership percentage (requiring a local partner), specific location requirements, or other conditions.

Open for 100% foreign investment: No foreign ownership restrictions.

Director and Commissioner: While a PT PMA can have an all-foreign board, it is generally advised that at least one Director resides in Indonesia to manage daily activities. Foreign directors/commissioners residing in Indonesia will need to obtain a Taxpayer Identification Number (NPWP) and a limited stay permit (KITAS).

Business Address: Must be a registered business address, often in a commercial building. Certain KBLI codes may require specific zoning (e.g., industrial zone).

Steps to Establish a PT PMA (Similar to Local PT but with Foreign Investment Considerations):

Feasibility Study and KBLI Check: Thoroughly assess your business activity against the Positive Investment List and choose the correct KBLI codes to determine foreign ownership limitations and investment requirements.

Company Name Reservation: Reserve the company name through the MOLHR system.

Deed of Establishment:

Draft the Deed of Establishment with an Indonesian public notary. This will include details specific to foreign shareholders (e.g., passport scans for individuals, articles of association for legal entities).

The deed must explicitly state the foreign ownership percentage and the commitment to the minimum investment plan.

Approval from Ministry of Law and Human Rights (MOLHR): The notary submits the Deed of Establishment to MOLHR for approval.

Taxpayer Identification Number (NPWP): Obtain the company's NPWP.

Business Identification Number (NIB) and Business Licenses (via OSS-RBA):

Register on the OSS-RBA system. The NIB will be issued, serving as your company's business identity and potentially an import license and customs identification number.

Based on your KBLI and risk level, obtain any required "Standard Certification" or additional business licenses/permits through the OSS-RBA system. High-risk businesses will require further verification or permits from relevant ministries.

Corporate Bank Account: Open a corporate bank account. This is crucial for demonstrating the investment realization.

Investment Realization Report (LKPM): PT PMAs are required to submit regular Investment Realization Reports (LKPM) to BKPM to track the progress of their investment.

Work Permits (KITAS) and Stay Permits: If foreign employees will be hired, the company will need to sponsor their work permits (IMTA) and limited stay permits (KITAS). Indonesian manpower regulations often require a certain ratio of Indonesian employees for each foreign employee.

Other Sector-Specific Permits: Depending on the nature of the business (e.g., construction, manufacturing, finance, tourism), additional permits from relevant ministries or government bodies will be required.

Important Legal Considerations and Tips:

Due Diligence: Always conduct thorough due diligence, especially when considering local partners for a joint venture.

Professional Assistance: The company registration process in Indonesia, particularly for foreign investments, can be complex and involve navigating various regulations. It is highly recommended to engage experienced legal and company consultants (like myself!) or a reputable corporate secretarial service provider. This will ensure compliance, efficiency, and avoid potential pitfalls.

Language: All official documents in Indonesia must be in Bahasa Indonesia. While English translations may be provided for convenience, the Indonesian version is legally binding.

Regulatory Changes: Indonesian law and regulations are subject to change. It's crucial to stay updated with the latest amendments, especially those related to the Job Creation Law and BKPM regulations.

Tax Compliance: Understand your company's tax obligations from the outset, including corporate income tax, VAT, and withholding taxes.

Labor Law: Familiarize yourself with Indonesian labor laws, including minimum wage, employee benefits, and social security contributions.

Environmental Compliance: Depending on your business, environmental licenses or statements on environmental management may be required.

By meticulously following these steps and adhering to Indonesian legal requirements, both local and foreign investors can successfully establish and operate their companies in Indonesia.