Incorporating a Foreign-Owned Limited Liability (PT PMA) company in Indonesia may seem a daunting task as the procedures and paperwork involved are definitely not as straight-forward as some countries like Singapore.
However in recent years, the Indonesia government has drastically improved the process required for company incorporation as well as licensing.
Now, to incorporate a PT PMA company and to have it ready to commence business operation, you will just need to prepare the following:
1. Name of the company
There must be at least 3 (three) words. For example, PT [first word] [second word] [third word].
2. Office address of the company
Remember that office address needs to be supported with lease agreement as the licensing system (OSS) requires upload of the lease agreement as basis for license document issuance.
3. The line of business of the company
Tell us your proposed line of business – we will identify the corresponding KBLI (Klasifikasi Baku Lapangan Usaha / Industrial Standard Classification of Business Field) codes for you!
4. Authorized capital amount and paid-up capital amount
For the PMA company, the minimum paid-up capital amount required is IDR 10 (Rupiah Ten) billion.
The maximum amount of the authorized capital can only be 4 (four) times the paid-up capital amount.
For example:
Authorized capital- Anywhere from IDR 40 (Rupiah Forty) billion to IDR 10 (Rupiah Ten) billion; and
Paid-up capital- IDR 10 (Rupiah Ten) billion.
5. Identities of the shareholders and the shareholding structure
There must be a minimum of 2 (two) shareholders under the law.
For individuals, you will need to provide scanned copies of the passports and ID cards. Note that if the residential address is not stated in the ID card, you will be required to provide other documentary proof such as utility bill.
For corporate entities, you will need to provide copies of the articles of association, certificate of incorporation, list of directors and the passport and ID card of the director who will be signing the incorporation documentation.
6. Identities of the directors and commissioners
Under Indonesian laws, a minimum of 1 (one) director and 1 (one) commissioner will be required and it cannot be the same person (must be a natural person).
There is no requirement under Indonesia law that the director and/or commissioner must be local – in other words, both director and/or commissioner can be a foreigner. However, for tax administration and especially registration purposes, the Indonesian tax office will typically require the director / commission’s NPWP (Tax ID) card. As such, unless the foreigner has a work permit and Tax ID in Indonesia, it may be difficult for the company to get the tax registration / administrative procedures done which can become quite a hassle later. As such, the company needs to consider if there is no local director or commissioner, will its foreign director or commissioner be getting a work permit in Indonesia? If not, we highly recommend the company to appoint a local director (nominee) for the purpose to avoid the bottleneck later at tax administration.
Once the above is determined, you will need to provide the personnel’s (i) passports, (ii) ID cards and (iii) NPWP cards. You will also need to confirm the duration of their respective term of office. Under normal circumstances, a period of 5 (five) years will be used.
Do note if there are 2 (two) or more directors and/or commissioners, a president director/commissioner will need to be selected among them.
7. Financial year end date
In market practice, 31 December is used. However, you are free to use other than 31 December if it is deemed more appropriate for the company.
8. Corporate Income Tax Regime
Upon the company’s incorporation, it will need to apply for NPWP (Tax ID).
There are two options to consider in respect of the company’s corporate income tax regime for the initial 3-year:
- Option 1 : Final Tax
- your company will require to pay the final tax on gross monthly revenue at the rate of 0.5%.
- Final tax status will only be applicable for the first three (3) years, or until your annual revenue exceeds IDR 4,800,000,000; whichever is earlier.
- Option 2 : Corporate Income Tax
- your company will be required to file the corporate income tax return on an annual basis on the taxable income of the company for a financial year.
- the corporate income tax rate is presently at 22%.
The general point of view is that the above should be decided based on your company’s financial forecast. For example, if a loss position will be recorded on the company financial statement for the first year, then it may be beneficial to select option 2 whereby the loss may then be carried forward to the next fiscal year. On the other hand, if the company will be generating profit quite early on then naturally the lower tax rate would be preferable.
If the Company does not select the option above, it will be automatically registered under Option 1, i.e., Final Income Taxpayer scheme – this scheme is essentially a tax incentive scheme introduced by the government to provide reduced corporate income tax rate for newly established entities.
