[Indonesia] Setting Up a Limited Liability Company in Indonesia

Key Legal Requirements and Considerations for Investors

Overview

Indonesia continues to attract foreign investment due to its large consumer market, strategic location, and regulatory reforms aimed at improving ease of doing business. This newsletter provides an overview of the process for setting up a company in Indonesia, specifically the requirements applicable for Limited Liability Company (Perseroan Terbatas).

General Overview of Types of Business Entities in Indonesia

1. Limited Liability Company (Perseroan Terbatas or PT)

A PT is the primary legal entity for conducting business activities in Indonesia and is the only structure permitted for foreign investment. PTs are categorized into:

● Local PT, owned entirely by Indonesian individuals or Indonesian legal entities.

● PT PMA, a PT with partial or full foreign ownership.

2. Foreign Construction Services Entity (BUJKA)

A BUJKA (Badan Usaha Jasa Konstruksi Asing or Foreign Construction Services Entity) is a special form of foreign construction services entity permitted to operate in Indonesia without establishing a PT PMA. A BUJKA may only operate in the construction sector and is subject to strict limitations. BUJKA may only undertake large scale or high technology construction projects, and its operations must be conducted through a joint operation with an Indonesian construction company. BUJKA structures are therefore suitable only for foreign contractors executing specific projects and not for long term business presence in Indonesia.

3. Representative Offices

Foreign companies may also establish representative offices for limited non-commercial activities. These entities may not generate revenue or issue invoices in Indonesia, are generally restricted to liaison, coordination, or market research functions, and cannot engage in operational or trading activities. Representative offices are often used as an initial market entry tool but must be converted into a PT PMA if commercial activities are intended.

4. Other Business Forms

Indonesia also recognizes other forms of business entities, including Commanditaire Vennootschap (CV), Firm (Fa), and Sole Proprietorship (Usaha Perseorangan). These entities do not have separate legal personality equivalent to a PT and are not regulated under the foreign investment regime. Therefore, they cannot be used by foreign investors to conduct business in Indonesia.

Key Steps/Requirements to Establish a PT in Indonesia

Step 1: Determine Business Activities

All companies must identify their business activities using the Indonesian Standard Classification of Business Fields (KBLI). The selected KBLI codes determine the eligibility for foreign ownership, applicable foreign ownership limitations, licensing requirements, and minimum capital and investment thresholds. The complete list of KBLI codes can be found here.

Step 2: Capital Structure and Minimum Investment Requirement

A PT must have authorized capital, issued capital, and paid-up capital. The issued and paid-up capital should be at least 25% of the authorized capital.

- For local PT companies, there is no minimum authorized capital requirement.

- For PT PMA companies, the minimum fully issued/paid-up capital equity should be IDR10billion (approx. USD 630k) per KBLI number.

Specific Considerations for Foreign Owned Companies (PT PMA)

- The regulations also require PT PMA companies to have minimum capital investment greater

than IDR10billion (approx. USD630k) (excluding land and building cost) per KBLI number and

per project location.

- Indonesia applies a Positive Investment List regime. Depending on the relevant KBLI

classification:

● Certain business sectors are fully open to foreign investment (eg. software development and IT consulting services, management consulting and professional advisory services).

● Some sectors are subject to foreign ownership caps (eg. sea transportation for tourism is capped at 49% foreign ownership).

● Certain sectors are reserved or restricted (eg. traditional cosmetic manufacturing is completely closed for foreign investment).

● Foreign ownership limitations must be assessed on a case-by-case basis.

Step 3: Considering the Corporate Governance

A PT must have:

● At least one director and one commissioner

● Directors and commissioners may be foreign nationals, subject to immigration and employment regulations

Indonesia adopts a two tier governance structure, separating management functions from supervisory functions.

Step 4: Creation of Deed of Establishment

The company is established through a Deed of Establishment executed before an Indonesian notary and written in the Indonesian language. The deed must be approved by the Ministry of Law and Human Rights (MOLHR) for the company to obtain legal entity status. The company is deemed as a legal entity once the MOLHR approval is obtained but may not commercially operate before the NIB and/or the relevant business license is obtained.

Step 5: Applying for the Business Identification Number (NIB) and Business Licenses/Approvals

All companies, including PT companies, are required to obtain a Business Identification Number or NIB through the Online Single Submission system. The NIB functions as:

● Company registration certificate

● Importer identification number where applicable

● Customs access number

Under the risk based licensing framework, some business activities can be performed once the NIB has been obtained, however additional licenses or approvals may be required before a company can commence commercial operations, depending on the risk level of its business activities.

Step 6: Bank Account Opening

Following incorporation, the company must open a corporate bank account with a bank licensed in Indonesia.

Other Matters for Consideration

● Office Address Requirement

A registered office address in Indonesia is mandatory. In practice, virtual offices may be acceptable for certain low risk service activities. Meanwhile, physical office premises may be required for higher risk or regulated sectors.

● Foreign Directors, Commissioners, and Employees

If the company appoints foreign members of the Board of Directors or Board of Commissioners, or employs foreign workers, it must comply with Indonesia’s expatriate employment requirements, including obtaining an approved foreign manpower utilization plan (RPTKA) and the relevant stay and work permits.

● Ongoing Compliance Obligations

Following establishment, companies must comply with ongoing obligations, including:

- Periodic investment activity reporting (Laporan Kegiatan Penanaman Modal or LKPM) to BKPM;

- Tax registration and regular tax reporting;

- Employment and social security registrations. Companies must register its employees with Indonesia’s social security programs, including BPJS Ketenagakerjaan for employment related benefits and BPJS Kesehatan for healthcare coverage, and ensure ongoing compliance through timely contributions and employee data updates.

- Manpower-related obligations. Companies are also required to prepare and implement internal employment regulations (Peraturan Perusahaan) setting out key terms and conditions of employment, which must be registered with the local manpower office if the company does not have a collective labor agreement. In addition, the company must complete and maintain mandatory manpower reporting (Wajib Lapor Ketenagakerjaan or WLKP), including periodic updates on employment data, to ensure ongoing compliance with Indonesian manpower laws.

Non-compliance may result in administrative sanctions or suspension of business licenses.