When you decided to expand your business or just starting a business in Indonesia, it's crucial to choose the right business entity that suits your needs. The most common type of business entities in Indonesia run by foreigners is Perseroan Terbatas (PT).
A PT is differentiated into two types, PT Penanaman Modal Asing (PT PMA) and PT Penanaman Modal Dalam Negeri (PT PMDN) - most expats refer this to PT Local. Though the term can be very confusing because both are locally established company.
A PT is the equivalent of a limited liability company (LLC) or Private Limited (Pvt Ltd) in other countries and is the most common form of business entity in Indonesia. A PT requires at least two shareholders and can be established by both individuals and legal entities. It offers limited liability protection for shareholders, flexibility in ownership structure, and ease of raising capital.
The main differences are as shown in the following table below:
| PMA | PMDN |
Shareholders (min. 2) | Can be up to 100% owned by foreign individuals or legal entities or a combination of both. | 100% owned by Indonesian individuals or legal entities (PMDN) or a combination of both. |
Size and Capital | PMA is classified as large scale business. Hence, the capital written down in the deed must be more than IDR 10 billion or USD 625,000 (feel free to contact us to hear the explanation regarding this). | PMDN can be classified as micro – small – medium – large business scale. The capital follows the classification of the business. Though, for some business activities the min. scale are determined by the ministries. |
Director (min. 1) | Foreigners are allowed with valid work and stay permit (KITAS). Additional note: can process an Investor KITAS if owning at least 10% shares in the company (equals to IDR 1 billion) . | Foreigners are allowed only if the min. requirements determined by the ministries are met. Else, it must be Indonesian. |
Commissioner (min. 1) | Can be foreigners | Must be Indonesian nationality |
Company name | Must have at least three words and each word consists of at least three letters. Notes:
- Symbols and numbers are not allowed.
- Can be in any language
| Must have at least three words and each word consists of at least three letters. Note: - Must be in Indonesian (Bahasa Indonesia) |
Other types of business entities in Indonesia are as follows but there are more complications and restrictions for foreigners, which we do not recommend going this path.
Commanditaire Vennootschap (CV): This is a limited partnership where there are at least two types of partners: general partners (who have unlimited liability) and limited partners (whose liability is limited to their investment). CVs are often used for small businesses and family-owned enterprises.
Firma: This is a partnership scheme where all partners have unlimited liability for the company's debts and obligations. Firma is suitable for small businesses with a few partners who wish to have direct involvement in managing the business. This type of business entity is commonly used by law firms.
Perusahaan Perorangan (Sole Proprietorship): This is the simplest form of business entity, owned and managed by a single individual. However, this type of business entity is only allowed for local individuals (Indonesian nationality only).
When choosing the right business entity, consider the following factors:
Liability: If you want limited liability protection for the owners, a PT is suitable.
Ownership and Management: Determine the number of shareholders and their involvement in the management of the company. PTs offer flexibility in ownership structure and can easily attract investors. Shareholders in a PT can also become a director or commissioner of the company. So, you own your business and run the business. Although, some would like to keep things separate so each party will only focus on the responsibility assigned.
Future Expansion and Investment: Consider whether you plan to raise capital or seek investments in the future. PTs are generally more attractive to investors due to their corporate structure and legal framework.
Administrative and Compliance Requirements: Different business entities have varying administrative and compliance requirements. If you plan to established a PT, feel free to consult with us on the requirements.
Tax Considerations: Consult with a tax advisor to understand the tax implications of different business entities and choose the one that aligns with your business's tax planning strategies. We highly recommend you to also check with your tax consultant in your home country if you plan to bring a foreign entity as shareholders in the PT.
It's important to consult with a legal advisor or a professional service provider in Indonesia to ensure compliance with local laws and regulations when establishing your business entity. Our consultants can guide you through the registration process and help you make an informed decision based on your specific business needs.
WhatsApp: (+62) 859-3323-1567
Email: contact@lglbee.com
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