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At-a-glance: A comparison of various entity types in Indonesia, the pros and cons, set up requirements and more.

Comaprision: Representative Office vs Foreign Limited Liability Company (PT PMA)

 

Foreign Limited Liability Company (PT PMA)

Representative Office

Type

Establishing a foreign investment company or PT PMA, is the preferred structure for foreign investors looking to have a legal presence in the country.

Foreign investors will need to have paid-up capital of 10 billion rupiah (US$697,000)

Opening a representative office (RO) is the fastest and simplest way of establishing a legal entity in the country. This set up is a temporary arrangement – ROs are not allowed to engage in any commercial activities, issue invoices, sign contracts, or earn any revenue.

Foreign investors, however, can own 100 percent of this business entity and don’t have to contribute the same paid-up capital required by PT PMAs.

There are four types of ROs:

  • General representative office (KPPA) - A KPPA is a general RO, ideal for investors who are still exploring opportunities in Indonesia;
  • Representative office for a foreign trading company (KP3A) - A KP3A is similar to a KPPA but is more ideally suited for manufacturers or product owners looking to establish a network of distributors in the country;
  • Representative office for a foreign construction company (BUJKA) - A BUJKA is an RO for foreign construction companies, and unlike the KPPA and KP3A entities, a BUJKAs can undertake projects in Indonesia through a joint venture with a local construction company; and
  • Representative office for a foreign oil and gas company (KPPA MIGAS) - Foreign oil companies can set up a representative office through a KPPA MIGAS permit.

 

Activities

There are no restrictions on where the PT PMA can set up in the country, but the business can only focus on one specific sector or area. Moreover, all applicants will need approval from the Indonesian Investment Coordinating Board (BKPM)

The business activities of ROs are limited to:

  • Market research activities;
  • Obtaining information on potential clients;
  • Developing trade contacts; and
  • Gather information on regulations and laws.

Criteria for eligibility

  • A total paid-up capital of 10 billion rupiah (US$697,000). (excluding land and properties);
  • Appointment of two shareholders (these can be foreign individuals or corporations);
  • The appointment of at least one commissioner and a director (these can be held be foreign individuals);
  • Obtain a tax number;
  • Obtain a business license which will now be issued based on the assessment of ‘business risk level’ determined by the scale of hazards a business can potentially create;
  • The director will be responsible for running the day-to-day activities of the company.
  • The parent company’s Article of Association legalized by a notary and the Indonesian Embassy of the parent company’s country of origin;
  • Letter of Appointment by the Indonesian Embassy located in the parent company’s country of origin;
  • Register with the Online Single Submission (OSS) system;
  • Latest financial statements of the parent company.
  • Letter of intent legalized by a notary and the Indonesian Embassy located in the parent company’s country of origin;
  • The number and details of local workers to be hired;
  • Certificates demonstrating competency in the relevant industry or sub-sector;
  • Recommendation letter from the Ministry of Energy and Mineral Resources (for KPPA MIGAS applicants;
  • Lease agreements;

 

Liabilities

Liability limited to the company’s assets

Parent company bears liability for the activities and is responsible for financing operations.

Tax exemptions

Can benefit from tax incentives available

Representative offices are not permitted to generate income and thus are not eligible for tax exemptions.

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