Indonesia is becoming increasingly attractive to foreign entrepreneurs looking to expand or start their business from scratch. The main reasons for this are the large, economically active population and a rapidly developing economy. Given this potential, for those planning to start a business in Bali, we will explain the types of legal entities available in Indonesia.
Private enterprises, also known as Badan Usaha Milik Swasta (BUMs), can be divided into three types:
1. Firm (FA)
2. Limited Partnership (CV) Commanditaire Vennootschap
3. Limited Liability Company (PT) Perseroan Terbatas
A firm can be established by two or more Indonesian individuals. Since an FA is not a separate legal entity from its owners, there is no protection for personal assets, and in the event of company debts, partners are responsible for repaying the debt from their personal funds.
All partners have equal rights to manage the business and make decisions, with duties and responsibilities evenly distributed among them.
Main requirements for establishing a firm:
• Two or more company founders
• Business objectives that do not contradict Indonesian laws and regulations
• A company name
• A business location
• A board of directors appointed by the founders
This is the easiest type of company to establish. A CV does not require minimum capital; however, it is not a separate legal entity and does not protect the personal assets of the partners.
There are two types of partners:
1. Partners who provide capital and manage the company.
2. Partners who only provide capital.
The requirements for establishing a CV are as follows:
• Two individuals acting as founders
• Founders must be Indonesian citizens
• A notarized deed in the Indonesian language
• 100% local ownership
This is a form of business organization in which capital is divided into shares, granting shareholders ownership. Currently, there are two types of PT in Indonesia:
• Local PT company
• Foreign PT company (PT PMA)
Only Indonesian citizens can own a local PT, but foreigners can create such a company with the help of local shareholders. To establish a PT, a local director, at least two local shareholders, and one local commissioner are required.
These PT companies are divided into three categories based on the amount of invested capital:
1. Small (capital over 50–500 million IDR)
2. Medium (capital over 500 million–10 billion IDR)
3. Large (capital over 10 billion IDR)
Foreign investors who own PT PMA companies in Indonesia can fully own them (without shareholders) if their activities do not fall under sectors with investment restrictions. If the company’s activities are restricted, certain rules must be followed: for example, creating a joint enterprise with Indonesian partners may be required to operate legally in the country.
A foreign company must fall into the category of large companies and meet the following minimum requirements:
• Two foreign individuals or companies, or a partnership with local shareholders
• At least one local director
• One foreign or local commissioner
• Paid-up capital of 2.5 billion IDR (25%)
• Minimum invested capital of 10 billion IDR
A sole proprietorship, known as Usaha Dagang, is the simplest and most accessible business structure in Indonesia. The main advantage is that only one person is required to start and run the business. Legally, there is no distinction between the owner and the sole entrepreneur.
The requirements for establishing a UD are:
• A company name
• An employee identification number
• A business license
• Proof of residence letter
A representative office in Indonesia is ideal for foreign companies looking to explore the local market. It is limited to marketing and research, acting as an intermediary for the parent company, without the right to earn profit in the country. All commercial operations must be managed by the foreign parent company. The license is valid for two years, with the option to renew. Unlike other foreign enterprises, representative offices are exempt from minimum capital requirements and can hire both local and foreign employees.
There are three types of representative offices in Indonesia:
• Foreign representative office: Manages and coordinates the interests of the parent company, without engaging in profit-making activities, making deals, or purchasing goods and services from local firms. It also cannot participate in the activities of other companies in Indonesia.
• Foreign construction office: Provides construction services, manages complex and costly projects, and operates with permission from the Foreign Construction Companies Office.
• Foreign trade representative office: Engages in the promotion of foreign products in the Indonesian market, explores opportunities, provides information, and advises on the use and import of goods. It can also enter contracts with local companies on behalf of the parent company.
In Indonesia, subsidiary companies are established as separate legal entities with limited liability. For foreign parent companies, the preferred form is PT PMA. These companies have the rights of tax residents and are subject to corporate taxation at a rate of 25%.
If you want to start a business in Indonesia, there are many legal entities you can choose from. However, not all organizations allow foreign ownership. To make the right choice and ensure compliance with legal requirements, you can seek advice from our company, Good Luck Group. We have been successfully helping foreign investors set up businesses in Indonesia for several years.
