Forming a company in Indonesia – How can foreigners play a role?

If your dream as a foreigner is to start a company/corporation in Indonesia, take a deep breath! There is a lot you will need to learn. This article addresses one of the basic questions you’ll need to answer: what type of legal entity should you choose?

Three types of companies are open to foreigners, assuming certain conditions are met. These are:

  • Usaha Dagang (UD)
  • Commanditaire Vennootschap (CV)
  • Perseroan Terbatas – Penamanan Modal Asing (PT PMA)

The first two, UD and CV, are possibilities if you have an Indonesian spouse. Foreigners are allowed to be involved in a UD or CV if they are married to an Indonesian citizen and hold a KITAS/KITAP visa sponsored by their husband or wife.

Option 3, PT PMA, is your only choice if you are not sponsored by an Indonesian spouse.

An overview of the pluses and minuses of each type of company follows:

Usaha Dagang (UD): This is the least complicated, easiest to establish type of company, and is essentially a sole proprietorship. Without too great an expense, any notary can draw up the papers you need; help you obtain a Surat Ijin Usaha Perdagangan, or business permit; and – if you don’t have one yet – assist you to apply for a tax identity number (the NPWP, Nomor Pokok Wajib Pajak). As an example of what this might cost, a notary in Denpasar Bali in 2014 charged about Rp 1.5 million. Only an Indonesian citizen can form the UD, but the UD can then legally employ the foreign spouse. Note that the UD cannot employ unrelated foreigners.

Advantages of the UD are that it is fairly inexpensive, easy, and free of complex paperwork. Disadvantages are that the owner bears all the risks. There are no separation of assets between the company and the individual owner. And of course, the UD option is not available if you don’t have an Indonesian spouse who is able to form the company and employ you.

Commanditaire Vennootschap (CV): The CV is very common in Indonesia, and is basically a limited liability partnership. A CV requires two individuals (both Indonesian citizens): a managing partner and a limited partner. The former is in charge of day-to-day activities, while the latter is responsible for providing general oversight and capital. While incorporation is not as inexpensive or easy as a UD, it is still relatively straightforward and not too costly. Moreover, it enables the managing partner’s non-Indonesian spouse to be employed while on a spouse-sponsored KITAS/KITAP visa, without any added paperwork.

In addition to the fact it is a relatively inexpensive and hassle-free option, the main advantage of a CV is that it is a good way to organize if you need capital from another partner. It also provides separation of assets for the limited partner.

However, it doesn’t provide separation of assets for the managing partner, and it still requires that the persons establishing the CV be Indonesian citizens.

Perseroan Terbatas – Penaman Modal Asing (PT PMA): This is a limited liability partnership that can be owned by a foreigner who is not on a spousal KITAS/KITAP visa. The percentage of the company that the foreigner is allowed to own is set forth in Presidential Instruction no. 44/2016 (Perpres No 44 Tahun 2016).

The PT PMA is a major undertaking in terms of the required paperwork, and should most likely only be attempted with the services of a law firm specializing in PT PMA formation. It calls for a hefty capital requirement of IDR 10 billion (at November 2016 rates, this is approximately USD 765,000), with paid capital of IDR 2.5 bn (about USD 191.2 thousand).

Advantages of the PT PMA are that it can sponsor the KITAS and IMTA of the foreign owner. Also, it separates assets between the owner and the company. The company can hire other foreigners, as long as they qualify for the proper permits. The PMA can own assets such as property with an HGB (Hak Guna Bangunan) title, not a freehold title. Indonesian businesses also use HGB for their properties.

The disadvantages of the PT PMA are obvious: the set-up is time-consuming, costly, and complex. Further, there is a “negative investment list,” subject to periodic change, by which the Indonesian government restricts the areas where PT PMAs are allowed to operate. A copy of the list, current in November 2016 and in English, is available here.

Usual legal disclaimer: While every effort has been made to this article as accurate as possible, the writer is not a lawyer, nor is this article intended legal advice. Readers are advised to recall that Indonesian laws, regulations, and procedures can change at any time. This page was last revised in November, 2016 and was accurate to the best of the writer’s knowledge at that time.

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About dafluff 33 Articles
Dafluff is a second generation expat in Indonesia. His parents, being a mixed WNA-WNI couple, moved the entire family to Bali in the early 80s. He was educated in the Indonesian national school system, then obtained engineering degrees in the US and lived in the US and Canada. A relatively recent returnee to Indonesia, he has benefited greatly from the online expat community, and is working hard to return the favor.