Foreigners aiming to conduct business, hire personnel, acquire property, or work individually in Bali or elsewhere in Indonesia, must establish an Indonesian legal entity, known as a PT PMA. This is crucial for adhering to regulations and optimizing corporate and personal taxes. The incorporation of a PT PMA typically takes around 14 - 30 days, with the help of SAS's legal advisory services.
This article outlines the steps and requirements for establishing a foreign-owned Indonesian legal entity.
Understanding Foreign-Owned Indonesian Legal Entities
- PT PMA: PT PMA, short for Perseroan Terbatas Penanaman Modal Asing (limited liability foreign owned company), is the primary legal entity utilized by expatriates for investing and conducting revenue-generating commercial activities in Indonesia. It is the best and most common route for investors as it allows complete control of the management of the company.
- Representative Office: However, if you are a foreigner and your objective is only to explore business opportunities without creating any revenue or conducting any business transactions, we recommend you set up a Representative Office, as this type of entity will be more suitable to conduct your activities.
Determine Business Activities
The Positive Investment List, formerly known as the Negative Investment List or DNI, outlines foreign ownership percentage share, entity types, business sectors, and business lines (locally referred to as KBLI). You can register several activities for your PT PMA, but we recommend carefully selecting them to ensure the Ministry of Investment approves your business model. Please note that if your PT PMA does not conduct one of its activities for 2 years, it is susceptible to have it deleted by the Investment Coordinating Board.
Establish a Legal Entity
- Minimum Capital Requirement: Generally, the minimum investment for a PT PMA is IDR 10 B, but this can vary based on the business sector.
- Shareholders: A PT PMA needs at least two shareholders (individuals or legal entities), and at least one of the shareholders must be foreign. The liability of the shareholders is based on the number of shares they own. They can attend and vote in the General Meeting of Shareholders (GMS), receive payment of dividends, and exercise multiple other rights defined in the company’s statutes.
- Directors and Commissioners: Appoint at least one director and one commissioner. These can be foreigners or locals, but the director must reside in Indonesia and be an Indonesian Tax Resident with a Tax ID (NPWP). For a foreigner to obtain a NPWP, they will first need to obtain a KITAS. The director oversees daily management and legal representation, while the commissioner supervises and holds veto power over the director’s decisions.
Prepare and Submit Documents
- Deed of Establishment: Create the company’s Articles of Association with a local notary.
- Legalization: Get the Deed of Establishment approved by the Ministry of Law and Human Rights.
- Business Identification Number (NIB): Register with the Online Single Submission (OSS) system to get the PT PMA’s NIB.
Set Up a Local Office
- Physical Address: Secure a local office address. Keeping in mind that a residential address is unacceptable as a business address.
- Virtual Office: If it lacks a commercial address, our Virtual Office Services can fulfill this requirement for establishing the PT PMA.
- Domicile Letter: A Domicile Letter is legal proof that the PT PMA has registered its company’s office or address. To obtain a Domicile Letter, all that is required is an office lease agreement and the Building Approval (PBG), formerly known as the Building Permit (IMB). If opting for a Virtual Office, our Virtual Office Services can provide this document.
Obtain Necessary Licenses
- Business License: Apply for the appropriate business licenses through the OSS system.
- Sector-Specific Licenses: Depending on the industry, additional permits for licenses may be needed. Our in-house legal team can advise you on this matter.
Open a Bank Account and Deposit Capital
- Bank Account: Open an Indonesian bank account in the company’s name, in most cases, the bank will require a director of the company to sign in person.
Tax Registration
- Taxpayer Identification Number (NPWP): Register your company with the local tax office to obtain an NPWP.
- Pajak Bangunan 1 (PB1): PB1 is a local tax imposed on services provided by businesses operating in the hospitality sector (restaurants, bars, villa rentals, etc.). If applicable, you will need to register a regional taxpayer identification number (NPWPD) at the local tax office.
- VAT Registration: If applicable, register for Value Added Tax (VAT).
Social Security System
- Social Security System: Employers are responsible for ensuring that their employees are covered by a social security program (BPJS). Employees’ contributions are collected by the employers through payroll deductions. These must be paid together with the employer’s contributions. All employees, including expatriates who have been working in Indonesia for more than six months, are required to join the social security system.
Employing Foreign Employees
- Work Permits: Obtain work permits (Working KITAS) for foreign employees, including the foreign director if applicable.
- Investor KITAS: We recommend the shareholders of the future company seize the opportunity to get an Investor KITAS. An Investor KITAS is a visa specifically designed for business investors in Indonesia. It allows them to live and manage their business within the country with relative ease.
- Expatriate Manpower Utilization Plan (RPTKA): A PT PMA must apply for a RPTKA to employ expatriates and follow prevailing procedures to obtain work and stay permits (IMTA). It is important to note that not all work positions are open to foreigners. Submit RPTKA applications via the OSS system.
- Minimum Wage: The minimum wage for Indonesian workers in Bali is between IDR 2.8 M – 3.5 M, depending on the regency. Concerning foreign workers, the suggested minimum wage is IDR 8 M.
Legal, Accounting, Tax, and Payroll Compliance
Following incorporation, PT PMAs must submit monthly financial and tax reports, and quarterly investment reports to the Ministry of Investment. SAS offers comprehensive maintenance compliance services to ensure compliance.
For further information or consultation booking, reach out to one of our expert consultants via email or via WhatsApp.
