Indonesia is one of the developing countries which attracts a lot of foreign investors. For a foreign investor to start a business here and incorporating company in Indonesia, he needs to identify the right business entity. This is very critical as it depends on the number of employees, stalk holders, capital investment, and so on.
There are different types of legal entities that foreign or domestic businesses can use to set up a company in Indonesia. The three most common types of companies are:
- Local companies.
- Foreign investment companies.
- Representative offices.
These three come with different requirements. Before registering a company, you have to check your company’s status, which type of company it will be. Here we will outline each of them and know about these companies’ requirements and conditions.
1. A local company in Indonesia:
A local company is the most common form of business entity in Indonesia. This type of company is approximately similar to limited liability companies (LLCs) in terms of structure and function.
Setting up a local company in Indonesia requires at least these people:
- Two local shareholders.
- One local or foreign director with a tax ID.
- One local commissioner.
To get a status as a local company, the shareholders, commissioner, and investment all need to be from Indonesia. However, the director can be from foreign, but they should have an Indonesian tax ID number. Further, a local company can be divided into three categories:
- Small company: Valued at IDR 50 million(+3,552.74 USD) to IDR 500 million(+ 35,528.00 USD).
- Medium company: Valued at IDR 500 million(USD 35, 528) to IDR 10 billion(±USD7,10,562).
- Large company: Valued more than IDR 10 billion(±USD7,10,562).
Generally, a local company requires cheaper investment and paid-up capital compared to other companies.
The benefits of a local company are that it requires a smaller amount of capital and faster setup compared to a foreign company. Most local companies are freely allowed to use virtual offices or business address services.
2. A foreign company in Indonesia:
A foreign investment company is the best way for foreign investors to run a company in Indonesia. As a local company, a foreign company’s structure and function are also similar to that of a limited liability company (LLCs).
Setting up a foreign company in Indonesia requires at least the following people:
- Two local or foreign shareholders.
- One local or foreign director.
- One local or foreign commissioner.
A director can be from foreign in a foreign company, but it’s still better to have a local director during the registration process. A foreign company’s benefit is that it opens a legal way for foreign-owned businesses to operate and generate revenue. Similar to local companies, foreign companies can only use virtual offices offered by vendors with specific qualifications.
The minimum investment value for a foreign company is Valued more than IDR 10 billion(±USD7,10,562). And 25% of the investment amount should be taken as a paid-up capital. So, foreign companies have to be categorized as large companies.
3. Representative Office:
A representative office is a branch of the overseas parent company. It is a way for foreigners to establish their presence in Indonesia. It also is the first step for investors who want to enter the local market. So any business entity can open a representative office in Indonesia.
The benefits of a representative office are there is no minimum capital requirement, no shareholder and director required, no commissioner required. So this offers a perfect chance for foreign investors to evaluate the local market.
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All these business entities have their own benefits and require capital investments accordingly. Therefore, you must connect with professional consultants to help evaluate your options and choose the best one that fits your business goals in Indonesia.
On that note, 3E Accounting has experience in handling all processes related to a local company, foreign company, and representative office registration. They provide tips on how to register business in Indonesia