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DOING BUSINESS IN INDONESIAHOW TO DO INVEST IN INDONESIA
cekindo.com
Since 2012
Investment in Indonesia
Indonesia has one of the most regulated markets in the world. Despite the recent improvements, it is still relatively hard for foreigners to fully capitalize on market potential.Our mission is to make investment in Indonesia easier for foreigners. There are two legal entities that can be chosen for your investment in Indonesia: Foreign Representative Office and PT. PMA.
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Investment in Indonesia
A foreign company may establish a representative office in Indonesia in one of the province capitals. Its activity is limited to supervising and coordinating the business of its principal and branches but representative office in Indonesia is not allowed to make any business transaction with companies or persons in Indonesia either for export or import or domestic trading, but the representative office can:
• Obtain work permits for expatriate managers• Obtain multiple entry visas for its expatriate personnel as well as
exemption from exit-tax (SKFLN).
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Investment in Indonesia
For foreign investors interested in exploring business opportunities in the Indonesian market, a representative office might be an efficient way to begin. Basically, it helps your company set up a branch, but with some major restrictions. This form of business entity does not allow you to generate revenues or do business directly under the name of the representative office. To open a representative office, you should have an existing parent company overseas to manage the representative office in Indonesia. The majority of representative offices focus on conducting market research activities as well as marketing and promotion through selling or buying agents. Some foreign investors prefer to set up a representative office first to grow the market in Indonesia before establishing a PT. PMA.
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The representative office is led by one or more foreign or Indonesian citizens who are appointed by a foreign company or joint foreign companies as their representatives with the intention of:
• Handling the company or its affiliates concerns, and or• Preparing the establishment and development of foreign direct
investment companies, in Indonesia or in other countries and Indonesia.
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Investment in Indonesia
Advantage of Representative Office in IndonesiaIf you do not have prospective clients yet in Indonesia and want to explore your business perspectives in this country (through conducting market research), it might be better to open a representative office first (instead of a company). There are various advantages and disadvantages of opening a representative office in Indonesia.Advantages• It is relatively easy and quick to set up• No need for large investments or paid up capital• Less paperwork; you only need to report income tax for the employees as
well as (rented) office space taxDisadvantages• You are not allowed to generate revenues, profit or engage in sales
directly
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Four Types of Representative OfficeAlthough the revenue restrictions seem like a major disadvantage, you can still pursue other activities with an agent for the parent company, supervise the activities of your subsidiary/distributor, or simply do market research before deciding to enter Indonesia and set up a PT. PMA. It actually depends upon the type of representative office.There are 4 options to consider:
1. Foreign Representative Office2. Foreign Trade Representative Office3. Foreign Construction Representative Office4. Foreign Bank Representative Office
While the first two options are used by vast majority of the companies, we also provide information about Foreign Construction Representative Office. The Foreign Bank Representative Office is a very rarely selected option.
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1. Foreign Representative Office (KPPA)
Establishing a foreign representative office (Kantor Perwakilan Perusahaan Asing – KPPA) allows you to basically create a market presence without almost any money. A Foreign Representative office is more general than a Foreign Trade Representative office and is usually set up for management reasons. The role is limited to: Supervising, managing, liaising, coordinating, and representing the parent company.From a legal point of view, it is relatively simple to establish such a presence in Indonesia. You must submit an application to the Indonesian Investment Coordinating Board (BKPM). This can be done either by the director or manager of the foreign company, or by the director candidate in Indonesia on behalf of the foreign company of the new representative office, who must be appointed prior to establishing a presence in Indonesia. Another option could be a power of attorney.
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This process may look simple, but there are several steps considered to be a part of the application that will certainly take you some time. Make sure you review the following points completely:1. Appoint a business representative (expatriates are acceptable)2. Collect all the documents needed
• Notarized letter of intent• Notarized letter of appointment• Letter sof reference• Resume and work permit of the company representative
3. Submit application to BKPMAfter all of the paperwork is complete, BKPM will issue the license, usually within one month. The license is valid for three years and until September 2013 could be extended for a maximum of two years. With the new regulation BKPM 12/2013, there are no limitations on extension of the license.
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1. Foreign Representative Office (KPPA) …the continuation
2. Foreign Trade Representative Office (SIUP3)
In accordance with the Minister of Industry and Trade Decree No.: 402/MPP/Kep/11/1997. All foreign Trade Companies or Joint Enterprise (Association) of foreign companies that are willing to open their representative office in Indonesia, are required to obtain a license SIUP3A (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing) from the Ministry of Industry and Trade of the Republic of Indonesia.Only Foreign individuals or Indonesian individuals with high educational background and experience are eligible to manage the Representative Office.The function of this individual is to serve as Head of Representative Office or Assistant to Representative and the educational background must be at least university graduated or equal to university graduate with 3 years experience in the field where she/he will be posted.
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The Representative Office can act as selling agent and/or manufacturing agent and/or buying agent of their principal. In which the detail of their activities should be applied in accordance with article 3, The Minister of Industry and Trade Decree No. 402/MPP/Kep/11/1997 that is for the promotion and market research of import or export products.Foreign expatriate who is intended to work at the Representative Office either as Head of Representative or as Assistant to representative are subject to The Minister of Man Power Decree No. Kep 682/MEN/85 regarding his/her working permit.
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2. Foreign Trade Representative Office (SIUP3) …the continuation
As the name already implies, this kind of representative office is used for trading as well as marketing. The permitted activities of a Foreign Trade Representative office with an active permit SIUP3A (Surat Izin Usaha Perwakilan Perdagangan Asing) are as follows:
1. Act as a buying or selling agent2. Conduct market research and create promotional materials
It is necessary to understand that neither a Foreign Representative office, nor a Foreign Trade Representative office allow you to really do business. You are not permitted to sign or enter into any contracts, generate revenues or even engage in the management of a company in Indonesia.In order to establish a Foreign Trade Representative office, you follow the same process as for Foreign Representative office (KPPA). The difference is that in this case, all documents such as the Letter of Intent or Letter of Appointment must be signed by a notary in the country of origin and legalized by the Indonesian Ministry of Foreign Affairs.
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2. Foreign Trade Representative Office (SIUP3) …the continuation
3. Foreign Construction Representative Office (SIUJK)
Unlike the previous two cases, the construction sector is regulated by Ministry of Public Works and also partially by BPKM. A permit (surat izin usaha jasa konstruksi – SIUJK) is required to operate in the construction area. It is important information to note that only large companies can qualify for the license, which is issued for three months with the possibility of extension. In late September, the Minister of Public Works (Minister) issued Minister Regulation number 10/PRT/M/2014 regarding Guideline Requirements for Giving Permission Foreign Construction Service Representative Office (New Regulation). The New Regulation for construction representative offices in Indonesia replaces the old Minister regulation 05/PRT/M/2011 (Old Regulation) which had a similar title. The New Regulation has become more comprehensive than the Old Regulation. The New Regulation sets clear requirements for the distribution of work between the Foreign Construction Representative Office and the Indonesian construction company.
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Unless regulated differently by a related authority, for construction work the distribution of work in a Joint Operation is as follows:1. At least 50 percent of the value of construction work is performed in
Indonesia; and2. At least 30 percent of the value of construction work is performed by the
Indonesian construction company.For construction planning work, the distribution of work in a Joint Operation is as follows:1. The entire technical planning work is performed inside Indonesia; and2. At least 50 percent of the value of construction planning work is performed by the Indonesian construction company.The Foreign Construction Representative office allows you to:3. Do market research and contact institutions and companies4. Be involved in procurement of construction services5. Appoint local and foreign manpower to head the office
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3. Foreign Construction Representative Office (SIUJK) …the continuation
What is needed to establish a Foreign Construction Representative office in Indonesia?First, the application and all the necessary documents, must to be submitted to the Ministry of Public Works and the administration fee must be paid. The fee can amount to either $5,000 in the case of construction consultancy services sector, or $10,000 if target sector is construction implementation services.The company applying for an SIUJK licence also has to do a lot of paperwork. Apart from the same requirements as for a KPPA, several items must be submitted along with the application to prove that the company setting up the office has a good reputation, is big enough etc.
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3. Foreign Construction Representative Office (SIUJK) …the continuation
4. Foreign Bank Representative Officein Indonesia
A foreign bank can open a representative office in Indonesia to act as a liaison office between the foreign bank and its customers in Indonesia. This type of representative office is regulated and monitored by Bank Indonesia, the Indonesian central bank. As a liaison office, the representative office cannot conduct banking activities in Indonesia, and is only allowed to:1. Provide information to third parties within Indonesia on requirements and
procedures for establishing relations with its principal office/branch offices outside Indonesia
2. Assist its head office/branch offices outside Indonesia in supervising credit collateral in Indonesia
3. Act as proxies in making contact with institutions/agencies to represent the interests of its head office/branch offices outside Indonesia
4. Act as supervisors of projects within Indonesia which are partially or wholly financed by its head office/branch offices outside Indonesia
5. Undertake promotional activities6. Provide information on Indonesian trade, economic matters, and finance for foreign
parties or vice-versa; and · assist Indonesian exporters in obtaining market access outside Indonesia through international network of banks affiliated with the representative office or vice-versa.
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The procedure for opening a representative office in Indonesia refers to Decree of Director of Bank Indonesia No. 32/37 /KEP/DIR dated 12 May 1999. Here are the highlight guidelines of the procedure: The opening of a representative office must have permission from Board of Governor of Bank Indonesia. Bank that intends to open a representative office in Indonesia should have total asset which ranks top 300 in the world, which could be refer to the bank rank’s that issued by credible international agency. The application letter should be signed by the Director of the bank and addressed to the Board of Governor of Bank Indonesia.
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4. Foreign Bank Representative Officein Indonesia …the continuation
The application letter should also mention the reason to open a representative office in Indonesia. The application should be accompanied by: a copy document that mentions total asset of banks is ranks top 300 in the world, the letter of assignment from Head office to the candidate of head of representative office in Indonesia, the curriculum vitae of the candidate of head of representative office in Indonesia, the letter that stated the candidate of head of representative office will work exclusively for the bank (no double position in any other companies), the letter that stated no objection from banking authority where the head office located, to open a representative office in Indonesia. The letter of objection / no objection to open a representative office in Indonesia will be given by Bank Indonesia within 30 days after all complete application is received by Bank Indonesia.With regard to the application process, Bank Indonesia will 1) check the completeness and accuracy of the documents 2) conduct interview with the candidate of head of representative office.
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4. Foreign Bank Representative Officein Indonesia …the continuation
Investment in Indonesia
Cekindo registers dozens of foreign-owned companies every month and our legal team is ready to assist you!
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PT. Cekindo Bisnis GrupMenara BCA Grand Indonesia 50th fl
Jl. MH. Thamrin No. 1Jakarta Pusat 10310, Indonesia
[email protected]/ +6221 580 6889cekindo.com
Why Cekindo?
PT. Cekindo Bisnis Grup is a market entry consulting firm in Central Jakarta, providing one-stop services to assist foreign companies from various industries in expanding to Indonesia
and beyond
Our main services, include Business Set Up, Business Process Outsourcing, and Local Representation; more info
on www.cekindo.com
Our dynamic multinational team based in Jakarta to understand the local market and utilize our extensive network
to support our client’s business and operation in Indonesia
PT. Cekindo Bisnis GrupMenara BCA Grand Indonesia 50th fl
Jl. MH. Thamrin No. 1Jakarta Pusat 10310, Indonesia
[email protected]/ +6221 580 6889cekindo.com
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