Expanding business in other countries is a significant step to gain more reward and revenue for the company. The right choice of location plays a vital role while considering this matter. Among other developed cities in the Asia continent, Indonesia is viewed as a valuable location for both business expansion and investment.
Various types of Indonesia company offer their own advantages for foreign investors and companies. What should be done is getting to know the types of available companies, the benefits of expanding the business in the country, and how to get through the procedures of foreign company registration.
Types of Foreign Business in Indonesia Company
There are several types of Indonesia company which have different purposes, the field of services, and establishment forms.
Foreign Direct Investment
PT (Perseroan Terbatas) or also known as a limited liability company is one of the most common types of Indonesia Company. Along with Foreign Direct Investment program (Penanaman Modal Asing/PMA), PT gives the opportunity for foreign companies to invest their business fund, thus, allowing the liability company to broaden and expand its services within the country or overseas. This kind of arrangement creates another type of company which is known as PT PMA.
Through Foreign Direct Investment, the investors are given the choices whether they want to fully establish the whole sectors of PT PMA in a self-funded system or to cooperate and form a partnership with Indonesian investors. Either case of establishment form can be adjusted to the companies’ vision and target consumers.
According to the official Coding System set up by the Indonesian government, the import/export company funded or incorporated by foreign companies is limited to the international trading of goods category. This is in line with the government’s vision which aims to protect the local entrepreneurs as well as the regional market.
Despite its restricted regulation, an import/export company in Indonesia is still a worthy option for foreign business expansion. This type of company is advantageous regarding demographic and resources. Indonesia is also known as one of the Southeast Asian countries with a large economic growth due to its domestic consumption and emerging middle class.
In Indonesia, a foreign representative office can be established by an international company or a group of companies. Its purpose is to manage as well as enforce the company’s interest with the aim of developing the business in the country. Representative office comes in different types, including general representative office, trading general representative office, and representative office for construction services.
It is important to note that business and official activities of a foreign representative office is limited to several circumstances. For instance, the foreign company is not permitted to involve in sales purchase or the transaction of products and services with regional as well as the national company. In other words, all types of business transaction may only be handled by the foreign company. The limited work also deals with management participation and generating revenue.
A broad Indonesian market allows the foreign companies to form a market partnership with the local companies. While this business venture is closely linked to the import or export company, it has different types of partnership, such as a distribution company, franchise, e-commerce, and joint venture.
Each partnership type has different purpose and specialty. A distribution company, for example, deals with foreign products which are imported to the local agents in the country. This business arrangement does not necessarily require the companies overseas to build a new company branch. Instead, it only needs several registration documents or certificates from the Ministry of Trade and other related legal entities. The similar concept also applies to the expansion of an e-commerce business.
Franchises, on the other hand, give legal permission to the business practitioners in Indonesia to develop and manage a company branch under the foreign trademark. This is beneficial for the parent company of the franchises since it can gain additional earnings while expanding its business. Another type of market partnership, joint venture, involves two different parties—local and foreign—in one enterprise to exchange resources and divide rewards.
The Benefits of Business Expansion in Indonesia Company
Indonesia company, and Indonesia in general offers various advantages for foreign companies that want to develop or expand their business. The following is some of the beneficial points offered by the companies in the country.
Benefits of the country’s geographical location
Indonesia is well-known as an ideal location for business. The archipelago consists of more than 17,000 islands, providing various options to locate the business expansion. Additionally, the country is located near several other countries, such as Malaysia, Singapore, and Australia, which become another great potential to develop the business or expand the company.
Benefits of the country’s growth and demography
The demographic situation in Indonesia also has its own advantage. Cited as one of the most populous countries in the world, Indonesia experiences a relatively rapid economic growth and the increment of per capita income. As a result, the situation opens a great opportunity for foreign companies since the citizens are starting to hunt international products and services in addition to their local goodies.
Following China and India, Indonesia is considered as a country which provides a broad domestic market in Asia. This will surely attract investors and companies overseas that are looking for the right country for their business expansion.
Numerous business classifications for foreign companies and investors
The Investment of Coordinating Board in Indonesia determines the maximum allowed portion of foreign investment to the local companies and corporation. The portion statistic is based on the Negative Investment List, providing the limit of the foreign companies’ investment or ownership in the percentage scale of 0-100 percent.
Since 2016, the percentage of this allowance has been revised. It increases the portion of maximum foreign investment and ownership in several business classifications. Property companies are the great example of this arrangement. Before the revision is legalized, this type of company provides zero percent for foreign investment, or in other words, gives no allowance for foreign companies to join. However, the latest regulation currently provides 100 percent for foreign companies that want to invest in the property business.
The fast growth of the country’s middle classes
Foreign companies which are looking for the potential consumers, as well as valuable target groups, will find the benefits of their business expansion in Indonesia. This is because the country’s middle classes start to grow rapidly, bringing the increasing number of the consumer class. The growth of middle classes in Indonesia provides a higher chance of success for foreign investors that expand the business in several types of Indonesia company.
The advantage of competitive entries
Without careful consideration and the right legal advisors, expanding business in Indonesia might be challenging because of the country’s restriction and relatively complicated procedures. Nevertheless, this challenging situation can be turned into a new opportunity. Once a foreign company enters the Indonesian market or invests in the local companies, it will be rewarded by a low competition that results in the increased revenue.
Good preparation is the key to overcome the procedural barrier of business application and registration in Indonesia. In addition to the required process of business set up, the cost and the licenses for the process become another important point that should be prepared.
How to Set Up Business in Indonesia Company
The process of setting up business in Indonesia Company is differentiated according to the type of company. Therefore, it is necessary for foreign investors to understand the particular procedures and requirements which apply to each company type.
1. Investing in Foreign Direct Investment
Before setting up a PT PMA or participating in the program of Foreign Direct Investment, the companies overseas should plan several investment plans, including business agenda and target operation area. The plan is then submitted to the Investment of Coordinating Board of Indonesia to get the application permit for principle license.
Several Indonesian legal boards are involved during the procedure of this investment programs. In addition to the Investment of Coordinating Board, the foreign company that intends to expand its business should get the approval letter from the Ministry of Laws and Human Rights, get the certificate of domicile letter from the local government where the company is located, as well as obtain the company registry from the registration office.
2. ArrangingImport/Export and Distribution Company
The procedures and requirements of import, export, or distribution arrangement in Indonesia company are technically similar to the application process of PT PMA. The only difference is that it requires a warehouse agreement and location setting since this type of company revolves around goods trading category. The documentation of warehouse setting and location is needed to obtain the Principal License, while the warehouse agreement becomes one of the requirements to apply for the Permanent Business License.
In addition to the Principal License and the Permanent Business License, foreign companies or investors that wish to arrange an import/export/distribution company in Indonesia should obtain other required documents. These include the General Import License, the recommendation letter from the Ministry of Law and Human Rights, and the approval letter from the Ministry of Trade. In some cases, an approval from the National Agency of Drug and Food Control is also needed.
3. Setting Up a Foreign Company Representative Office
Compared to a limited liability company or PT PMA, the procedure of setting up a representative office for foreign companies in Indonesia are considered faster and easier. In the initiated procedure, the parent companies abroad need to appoint the representative company office in Indonesia to expand their business. By providing the required legal documents, the procedure can be preceded with the help of a professional business representative.
The documents that should be prepared when establishing a representative office in Indonesia include an application document (containing monetary commitment or the investment plan), the tax registry application, the company registry application, and a domicile letter. The license obtained by the application process will be valid for three years with possible extension of two years. During the establishment period, the annual report of the company must be submitted to the Investment of Coordinating Board of Indonesia.
4. Operating Joint Venture and Market Partnership
Cooperating with local partners of Indonesia company is an essential step to expand the business through joint venture or other business operation types in the market partnership. To do so, both local and foreign parties should arrange a Joint Venture agreement. For a start, the procedure of this agreement requires a copy of valid identification card and the tax registration code of the companies’ representatives.
In term of legality, the agreement should also include the contract law which has been certified by the government, the arbitration clauses, as well as the terms and conditions of Joint Venture which refer to the Indonesian Civil Code.
For both parties, conditional matters in the legal written form are necessary as well. These include the provisions about possible change or option of the contract, the transferability of share management, the arrangement of profit percentage, and the description of management procedure. The issues around intellectual property and company confidentiality should also be discussed to prevent any misleading action in the future operation.
Slightly different from the arrangement of other company types which deal with various legal and national boards, Joint Venture relies greatly on the cooperation and commitment between the local and foreign companies which form the partnership.
When expanding business in various types of Indonesia company, the procedures to obtain licenses or legal documents might be overwhelming for some. Therefore, the help of a trustworthy and experienced company which provides the services of document legality is needed to make the procedures easier. In this regard, Company Registration Co. ID is the most suitable answer and solution for any difficulties that may be faced by the foreign investors who want to develop their business in Indonesia.
The services provided by this company include company registration or establishment, business licensing, immigration arrangement, as well as corporate accounting and tax reporting. Through those excellent services, the process of your business expansion in Indonesia will go as planned without any serious difficulties.