Unlike other countries, such as Thailand or Malaysia, which allow foreign companies to create subsidiaries, branch offices and representative offices, Indonesia is slightly different. Foreign companies are allowed to establish subsidiary companies and representative offices in this country. In order to compensate for the lack of an Indonesian branch structure, the government has created another type of company – the foreign-owned limited liability company (PT PMA). This business form can be employed by foreign companies seeking to have a subsidiary or a branch office in Indonesia.
If expanding to the Indonesian market in 2024 through the equivalent of a branch is a suitable business option for your company, our team is ready to assist you throughout the registration process. Read below to find out more about this business form.
| Quick Facts | |
|---|---|
| Applicable legislation |
Indonesian law |
|
Best used for |
Banks and other financial institutions |
|
Minimum share capital |
No |
| Time frame for the incorporation (approx.) |
30 days |
| Management |
Foreign |
| Legal representative required |
Local representative appointed for the branch |
| Local bank account |
Yes |
| Independence from the parent company | No. It performs the same business activities. |
| Liability of the parent company | Fully liable for its Indonesian branch |
| Corporate tax rate | 22% (an additional 20% branch profits tax is levied in certain cases) |
| Possibility of hiring local staff | Yes |
Our company formation agents in Indonesia can offer information on all the structures available for foreign companies interested in doing business in this country.
Our immigration lawyers in Indonesia can also answer questions about your relocation to the country for business purposes.
Table of Contents
Laws governing the establishment of fully-owned foreign companies in Indonesia
There are two main laws that provide for the establishment of a structure fully owned by a foreign company, which could cover the creation of a branch office in Indonesia. These laws are:
- the Capital Investment Law;
- the Company Act.
While the first law provides for foreign investments made in the country, the share capital required to set up a business in Indonesia and the requirements applied to foreign investors, the second one covers the company registration procedure in this country.
These types of companies are required to obtain special approvals before starting their activities in Indonesia, particularly in controlled business fields. The foreign-owned limited liability company needs to have at least one resident director and two shareholders (who may or may not be residents) as well as one commissioner. When the company is full-foreign owned, special provisions apply for selling shares in the company to a certain percentage to an Indonesian citizen or legal entity within a given time period. Foreign investors are not obliged to follow this requirement when the company is set up as a joint venture with local shareholding.
Foreign investors in Indonesia should keep in mind that certain business fields are restricted to foreign investments and others have special requirements.
For taxation purposes, the foreign company’s PE (permanent establishment) in Indonesia is subject to the regular corporate income tax rate of 22%, however, it will also be subject to a branch profits tax (for which the usual rate is 20% unless reduced by a tax treaty). This profits tax on the profits of the branch is not applicable when all the permanent establishment’s net profits after tax are reinvested in the country. Our team can give you more details about branch taxation in 2024.
Our company registration consultants in Indonesia can assist with the incorporation of any business form chosen by a foreign company.
How to register a foreign-owned company in Indonesia
If it were acknowledged, the Indonesian branch office would be registered just like a subsidiary company. This would imply the parent company filing its certificate of incorporation and other relevant information about it with the Business Register, as well as an investment plan with the Capital Investment Coordinating Board. However, the process for registering a foreign-owned company in Indonesia does not rely on the same documents, as this company will not be directly linked to the parent company abroad, as if it were the case when opening a branch.
From a taxation point of view, a foreign-owned company can benefit from various incentives granted by the government. Also, Indonesia has several special economic zones in which foreign-owned companies equivalent with branch offices can operate under very advantageous conditions.
The documents required to open a PT PMA in Indonesia are:
- copies of the incorporation documents of the foreign company setting up the local entity;
- power of attorney to the person carrying out the company registration process in Indonesia;
- information about the representative appointed for the Indonesian company; a foreign national can, but is not constrained to observe the process for immigration to Indonesia for this purpose;
- information about the activities which will be undertaken by the Indonesian company.
Foreign companies that set up their business operations in Indonesia can request a branch accounting package from our team of Indonesian accountants. Our services focus on accounting solutions such as financial statement preparation, income tax compliance, bookkeeping and general ledger review. As part of our additional solutions, we also offer tax planning and financial strategy solutions.
We invite you to watch our video on the creation of a branch in Indonesia:
Comparison between the local company and the foreign investment company in Indonesia
While a branch is not recognized in Indonesia in the same way it is possible in other jurisdictions, the main difference between a subsidiary (which functions as a local resident company wholly or partially owned by a foreign entity) and the branch are most significant in terms of liability: in the traditional sense, the parent company that opens a branch is fully liable for the debts and liabilities of the branch it chooses to open in another jurisdiction.
Foreign investors who wish to know more details about liability can reach out to our lawyers in Indonesia. We are a full-service law firm that offers legal services to both individuals and businesses. Our experience allows us to find optimal solutions and help our clients work towards achieving their goals, all while resolving any legal concerns you might have. You can reach out to us and talk to our attorneys if you have questions about our services.
For the purpose of our comparison, our team of company formation agents in Indonesia presents a short comparison between a local company and a foreign one:
| Local Company | Foreign investment company |
| Can derive income. | Can derive income (unlike the representative office). |
| It is 100% a local company. | It allows for 100% foreign ownership, depending on the chosen industry. |
| It is easy to incorporate. | Has higher investment requirements. |
| Suitable for local businesses. | Suitable for foreign investors who wish to be involved in their Indonesian business. |
The choice between opening a local company and a foreign investment company can depend on the available capital and, most importantly, the business field in which the investment will take place. Special consideration is due given the fact that full foreign ownership is not permitted in the case of a local company. In this case, a foreign national can act as a company director (provided that he satisfies certain conditions), however, the company will need to have local shareholders. Therefore, the local company is indeed a domestic one.
Foreign entrepreneurs who wish to start a business and opt for the foreign investment company can reach out to our team if they wish to open a foreign investment company, the business form that can be used as a manner of setting up activities in the country, even if it does not share all characteristics with a branch.
Other options for foreign investors in Indonesia in 2024
The representative office is another manner in which a foreign company can do business in Indonesia. However, the foreign legal entity will not be able to engage in trading as this type of establishment is only limited to promotional activities, market research, and acting on behalf of the parent company as a buying or selling agent. Nonetheless, companies that wish to perform thorough market research before opening a foreign-owned company can choose to open a representative office.
While the office will not be able to engage in commercial activities (or be transformed into a branch as this business form controlled by a foreign entity is not permitted), foreign investors will be able to register a foreign-owned LLC with the help of our agents.
Foreign investors who wish to know what type of visa they need before they can enter the country can reach out to our immigration lawyers in Indonesia.
Indonesia business overview
Indonesia is a country with a large economy and one that shows potential for growth as it is one of the fastest developing countries of ASEAN-6 (The 10 original ASEAN countries plus sex more such as Australia or New Zealand).
Statistics Indonesia offers part of the data presented below by our team of company formation experts:
- Indonesia’s GDP per capita in 2023 reached IDR75.0 million (approximately US$4,919.7);
- The recorded economic growth was of 5.04 percent in the fourth quarter of 2023, compared to the 4th quarter of 2022;
- The most significant economic growth was recorded in the Transport and Storage sector, with a 10.33% year-on-year increase;
- On a quarterly basis, the growth from Q3 to Q4 2023 was of 0.45%;
- The country’s economy continued to develop throughout 2023, with the most significant economic growth rates recorded in the provinces of Maluku and Papua, as well as Sulawesi;
- Current statistical data on exports show that exports had a value of US$20.52 billion in January 2024.
Foreign companies that wish to open the Indonesian equivalent of the branch can reach out to our company formation agents. We can present the advantages of the foreign-owned company as well as the possibilities that may be in place when opening a representative office, depending on the chosen business field. Our team can be your trusted partner while you do business in Indonesia.
Foreign companies interested in doing business in this country can obtain more information on the types of structures available from our Indonesian company formation advisors. You can also contact us if you want to open a company in Indonesia.
Our team also assists clients with other matters, such as immigration to Indonesia. If you have questions about visa applications, or medium to long-term stays, followed by permanent residency, you can discuss your options with our team. Lawfully living in the country for a number of years will allow the foreign national to become a permanent resident and our team can assist you during the application process.