Establish a Branch in Indonesia

Updated on Tuesday 04th January 2022

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Unlike other countries 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.

Our company formation agents in Indonesia can offer information on all the structures available for foreign companies interested in doing business in this country.
 

Laws governing the establishment of fully-owned foreign companies in Indonesia


There are two main laws which 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.

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 to file 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 immigrate to Indonesia for this purpose;
  • information about the activities which will be undertaken by the Indonesian company.

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.
 
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

 
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.
 

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:
  • Population: 263,510,000 (according to 2017 estimates);
  • GDP by sector: agriculture is the leading sector in Indonesia, with 13.7% of the GDP in 2014;
  • Labor force: 123.7 million (according to data from 2016), with 38.9% of the individuals activating in agriculture (according to a 2012 estimate);
  • Trade: Exports: USD 144.4 Billion (in 2016) and Imports USD 135.6 Billion (in 2016).
 
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.

We can also assist those who wish to immigrate to Indonesia for the purpose of company creation.