When incorporating a company in Indonesia, it's crucial to understand the legal aspects involved to ensure compliance with local regulations. Here are the key legal considerations for company incorporation in Indonesia – specifically for a foreign investment company ("PT PMA") establishment.
The Basic Requirements
Company Name
Choose a unique name for your company that complies with the Indonesian Company Law. A company name consists of at least three words and each word consist of at least three letters. A company cannot share the same or similar name that is already registered in the system. The name should not be misleading, offensive, symbols and numbers are not allowed. Further, a company which consist of foreign shareholders is allowed to use English wording (e.g. PT Maximum Running Indonesia, PT Beauty Cosmetics Technologies, etc)
Shareholders, Directors and Commissioners:
A minimum of two shareholders is required for a PT (limited liability company) in Indonesia. The shareholders can be individuals or legal entities or a combination of both.
At least one director and one commissioner are required, who can be a local or foreign national. Both director and commissioner must be at least 18 years old. And at least one director must have a valid stay and work permit (KITAS).
Business Activity (KBLI)
The KBLI or the business classification code differs for each business activity and must be included in the company's article of association. Therefore, it is important that you have the correct KBLI included in the company deed. The KBLI also determines the restrictions and requirements for your business operations, such as the size of the company or any specific licenses required to run the business.
A company is not restricted to include only one KBLI. However, there are additional compliances and requirements a PT PMA has to follow. Based on the latest BPKM regulation, a PT PMA must show at least IDR 10 billion investment for each KBLI (business activity). Hence, if you plan to have multiple business activities, you will have to multiply the investment for each business activity.
Minimum Capital Requirement:
With the latest BKPM regulation no. 4 /2021 the minimum capital requirement for a PT PMA has changed. PT PMA is classified as a large scale business. Hence, the company deed must show more than IDR 10 billion as paid up capital.
Registered Address:
The address seems like an easy requirement compare to the other points mentioned above. However, the address can be very tricky. Address used as your company registered address must be in a commercial zone. In big cities finding the a commercial address won’t be an issue. Also, it is not mandatory for your company to own a building for the address, leasing an office is sufficient.
Please note that Indonesia as a country is very big and infrastructure wise is underdeveloped in some areas. So, if you are thinking to build your company in some rural areas, the zoning part could be tricky. There is a high chance that it is not yet registered in the spatial planning of the Ministry or Local Government. And for some business activities, there are restrictions and limited quota/ ratio determined by the Ministries. So, getting approval on the address is the first thing to be solved before moving forward with anything else.
The Minimum Legal Aspects and Documentations
Deed and Articles of Association:
Any established legal entity (including a PT) will be having Articles of Association (AoA), which outline the company's objectives, share structure, corporate governance, and operational details. In Indonesia, the AoA is included in the company deed of establishment (Akta Pendirian).
The deed is drafted, notarized and registered by a notary to the Ministry of Law and Human Rights (MOHLR). Hence, the deed is the most important document and is the foundation of your company establishment. In summary, the deed includes the company's name, domicile, objectives, capital, shareholders, and other relevant information.
Approval Decree from the MOHLR:
Upon submission and registration to the MOHLR by the notary, your company will obtain a approval decree (SK HAM). The SK HAM is a certified document from the MOHLR and proves that your company is already established and registered. The deed and SK HAM are two documents that are inseparable.
Tax ID and OSS registration:
Your company is already established and registered legally with the ministry but it is not yet ready for operation. In order to do so, your company must obtain a tax ID (NPWP). Any established entity in Indonesia must have an NPWP, which is issued by the tax office.
Next to NPWP, your company will have to go through a few more registration process with the OSS (Online Single Submission) system from the Ministry of Investment. The OSS system is linked with other corresponding Ministries and depending on the nature of your business, you may need to obtain additional licenses and permits from relevant ministries or government authorities.
Upon registration in the OSS system your company will obtain the Business Registration Number and other documentations. The documentations vary based on the industry and can include business-specific permits, location permits, environmental permits, and more.
The Basic Compliance to Note
Reporting and filing:
After incorporation, companies must adhere to various reporting and compliance obligations. This includes regular financial reporting, LKPM report, annual general meetings, maintaining company books and records, and submitting annual financial statements to the Ministry of Finance.
Employment Regulations:
Familiarize yourself with Indonesian labor laws and regulations. Ensure compliance with employment contracts, employee benefits, termination procedures, and other labor-related requirements.
It's important to consult with a legal advisor experienced in company incorporation in Indonesia. Feel free to contact us and our consultants to guide you through the legal process, help you complete the necessary paperwork, and ensure compliance with Indonesian laws and regulations.
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