Establishing a Company in Indonesia
With the recent implementation of the Omnibus Law on Job Creation jo. the Perppu, Indonesia has taken significant strides towards improving its business climate. This article aims to provide an overview of how to establish a company in Indonesia post-implementation of the the Omnibus Law on Job Creation jo. the Perppu highlighting the key steps and benefits.
First, it is important to develop a comprehensive business plan that outlines the company’s goals, target market, products or services, and financial projections. Next, you need to decide on the legal entity type suitable for your business, with a a limited liability company/Perseroan Terbatas (“PT”) being the most common form in Indonesia. The establishment of PT is regulated by the Law Number 40 of 2007 on Limited Liability Companies. The law regulates the requirements for establishing a PT, the process of application and registration, authorized and issued capital, shareholder composition, company management, and other requirements related to the establishment and management of PT.
The next step is to choose a unique company name that complies with the regulations set by the Ministry of Law and Human Rights. Identifying the shareholders and directors is another crucial step, and which foreign individuals and entities are allowed to hold these positions under Indonesian law.
Obtaining a company domicile letter from the local administrative office or leasing an office space and obtaining the necessary documentation is required. Depending on the nature of the business activities, additional licenses or permits from relevant government agencies, such as the local government, Ministry of Trade, or specific sector authorities, may be necessary.
Registering the company and employees with the Ministry of Manpower and the Social Security Agency for employee benefits and social security is important. Finally, complying with other operational requirements, such as opening a bank account, obtaining insurance coverage, and setting up an accounting system, completes the process of building a company in Indonesia.
It is important to note that the process of establishing a company in Indonesia may vary depending on various factors, including the nature of your business, industry-specific regulations, and location. In Indonesia, the laws governing company formation and operations include:
- After the Constitutional Court Decision Number 91/PUU-XVIII/2020, which declared certain provisions of Law No. 11 of 2020 on Job Creation (also known as the Omnibus Law on Job Creation) to be unconstitutional, the Indonesian Government took steps to address the issue. In response, they issued a Government Regulation in lieu of law, specifically Government Regulation No. 2 of 2022 on Job Creation (referred to as the “Perppu”). It is a comprehensive labor and business regulatory reform law in Indonesia. It was enacted to streamline regulations, improve the investment climate, and promote economic growth by simplifying various legal provisions and reducing bureaucratic burdens. Here are some key areas addressed in the Omnibus Law:
- The simplification of the establishment process under Government Regulation in Lieu of Law No. 2 of 2022 focuses on reducing excessive administrative requirements and bureaucracy associated with establishing a PT (Limited Liability Company). The objective is to streamline and expedite the process, making it more efficient for business owners. By reducing administrative burdens, the regulation aims to eliminate unnecessary paperwork and procedures that may have previously caused delays or inefficiencies in the PT establishment process. This includes simplifying document requirements, minimizing redundant forms, and streamlining approval processes
- Flexible Authorized Capital: Under Government Regulation in Lieu of Law No. 2 of 2022, PTs are granted the flexibility to determine their authorized capital according to the specific needs of their business. This allows PT founders to set the capital amount based on factors such as the scale of their business operations, industry requirements, and projected financial needs. This flexibility enables businesses to adapt their capital structure to better align with their business plans and optimize their resources.
- Easier Foreign Investment: The regulation aims to facilitate foreign investment in Indonesia by removing certain restrictions on foreign shareholders’ ownership in PTs. With the updated regulation, foreign investors have the opportunity to increase their ownership percentage in the PT they establish.
- Integrated Licensing: The regulation introduces an integrated licensing system, which simplifies the process of obtaining licenses and permits related to PT establishment. This means that businesses no longer need to navigate through multiple agencies or departments to acquire various permits separately. Instead, the integrated licensing system allows businesses to obtain the necessary licenses and permits through a single point of access, often through an online platform.
- Indonesian Company Law (Undang-Undang Nomor 40 Tahun 2007 Tentang Perseroan Terbatas): The Indonesian Company Law serves as the primary legislation governing the establishment, organization, and dissolution of companies, including PTs. The law provides comprehensive regulations and guidelines for various aspects of company operations, ensuring legal certainty and protection for both shareholders and stakeholders. It covers a wide range of topics related to PTs.
- Investment Law (Undang-Undang Nomor 25 Tahun 2007 Tentang Penanaman Modal): The Investment Law regulates foreign investment in Indonesia and provides guidelines and regulations for establishing and conducting business activities, including foreign-owned PTs. The law aims to create an attractive investment climate, promote economic growth, and protect the rights and interests of investors.
To establish a foreign-owned company (known as a “PT PMA”) in Indonesia, the capital requirements depend on the business sector and are regulated by the Investment Coordinating Board of Indonesia (BKPM). The capital requirements can vary significantly. In general, the minimum capital requirements for a foreign-owned company in Indonesia is a minimum investment of IDR 10 billion is required.
These figures are general guidelines and can vary depending on the business sector, location, and other factors. Some sectors may have additional requirements or specific capital thresholds.
In light of the above, with the implementation of the Omnibus Law on Job Creation jo. the Perppu, establishing a company in Indonesia has become more streamlined and investor-friendly. Foreigners now have greater flexibility in choosing business entities reduced capital requirements. However, it is crucial to conduct thorough research seek professional assistance and comply with all legal and regulatory frameworks to ensure a successful business venture in Indonesia. The vast potential of the Indonesian market awaits those willing to embrace these opportunities and contribute to the Indonesia’s economic growth.
Written by: R. Bayu Perdana, Muhamad Destianto, and Raisa Safina
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