Foreign-Owned (PMA) Company Registration in Indonesia: 8 Mistakes to Avoid

Every country has its own set of rules and culture. If you are a foreigner planning to establish a company in Indonesia, you must first gain a general understanding of the regulations and culture of the country. A discussion with a reputable and trusted local consultant about PMA company registration in Indonesia is strongly advised, as you will require assistance with local law and bureaucracy. However, to avoid fraud and mistakes during the incorporation process, you must first understand how the entire process works.

This article will provide examples of 8 common mistakes that many foreigners make during the PMA company registration process in Indonesia.

1. Uncertain about Business Activities 

When it comes to establishing a company in Indonesia, the first question that comes to mind is: What will my business activities be?

Your business activities are critical in determining your company’s classification (KBLI). Some business classifications are completely open to foreign investment, whilst others on the negative investment list are completely closed, and others are partially restricted or prohibited from foreign ownership. See the latest update of negative investment list.

2. Uncertain about your office address

The letter of domicile, which specifies the location of your PMA company office, is one of the required documents to register your PMA company. This document is later used to obtain the Tax Identification Number (NPWP) for the company.

If you are unsure where you want to run your business, you will run into a number of issues in the future. To begin, you will need to invest additional time and money because you will be changing the location of your office. Second, if your head office is in a different district, you must close your previous office’s NPWP and declare a new one in the new location.

You will also need the building permit, or IMB (Izin Mendirikan Bangunan). You can read Things to Consider Before Purchasing Land in Indonesia to learn more about the IMB.

3. Starting the PMA company with too little capital investment

In April 2021, Indonesia’s Investment Coordinating Board (Badan Koordinasi Penanaman Modal BKPM) — the government agency responsible for spurring foreign and domestic investment — issued BKPM Regulation 4 of 2021 (BKPM Reg 4/2021) regarding an increase of paid-up capital requirements that foreign investors have to pay when establishing a company in Indonesia.

4. Not considering the requirements for the Stay Permit and Work Permit (KITAS) application

This is the most common mistake that many foreigners make, particularly those who are establishing their first PMA company in Indonesia. A foreign individual shareholder who invests at least IDR 1 billion in capital and holds a director position is eligible for a two-year stay permit, known as the Investor KITAS, which enables him or her to stay in Indonesia and run their business. If you are a director but not a shareholder, you must still apply for a work permit in addition to a stay permit. A work permit allows you to work legitimately in Indonesia for up to 5 years.

Related Article: Different Types of KITAS for Foreigners

5. Losing control of your PMA Company by making risky nominee arrangements

Foreigners who want to quickly establish a local company (PT PMDN) in Indonesia to operate business activities that are closed to foreign investment frequently choose a nominee arrangement with local people. These locals are appointed as shareholders and/or directors of the company, despite having made no contribution to the company’s formation. A nominee agreement with a proper structure is a safe solution for this issue.

An agreement like this also reduces the risk of a nominee fleeing with your assets or being unable to handle the business in the future without the nominee’s support. Using a nominee company rather than an individual eliminates risks such as death, divorce, or marriage, all of which can have an impact on a nominee arrangement.

6. Not reporting your tax obligations 

From the beginning, always file your taxes on time. Regardless of whether you had any activity or otherwise, you must report tax as soon as you receive your tax card. The officials in Indonesia are keeping a close eye on this matter. Tax reporting is not difficult and can be quickly outsourced if you do not have an accountant on staff. There is no reason to skip a report and draw the attention of the tax office.

If your company already has staff members, you must also comply with the BPJS Health and Social Welfare programs. It is mandatory to provide healthcare coverage to your employees. Another critical compliance is the LKPM – every foreign-owned company is required to report its investment activity. There are various deadlines based on the stage of your business.

According to BKPM, you must appoint a responsible person to report. This does not have to be a company employee.

7. Underestimating the Indonesian law and bureaucracy system

No matter how skilled you are at business or how well you know the law, you must understand that each country has its own nature and culture when it comes to business and legal matters. You can read the Indonesian Company Law No. 40 Year 2007 and try to meet every detail of it in order to establish your company in Indonesia, but you may still be puzzled when it comes time to deal with the bureaucracy.

There are numerous files and permits that you must prepare in order to register your company, and completing them all on your own will be a difficult task. Don’t put your PMA company application at risk of being denied or delayed due to a lack of knowledge and understanding of Indonesian Company Law.

8. Involving an unprofessional consultant in your PMA company incorporation

Appointing a consultant is critical for the incorporation of your company in Indonesia. Choosing an untrustworthy one means losing not only your money but also your time and effort. You must ensure that the local consultant you choose to register your PMA company with knows the Indonesian laws and foreign company registration by doing the following:

1. Check their website for a list of previous clients. Request references from the local consulting firm. Call them to find out if they are pleased with the consultant’s services. Do not be afraid to request multiple references and then contact them all.
2. Ensure that your consultant will request you to sign a Power of Attorney at some point in the process. If they do not request your signature on this document, they will most likely forge it, making it illegal.
3. The consultant will report on the status of the registration process to you, even if you don’t ask for it. When communication fails, you must be aware that something has gone wrong. You have the right to be informed about everything.

Conclusion

Registering a PMA company without a consultant is possible, but consultants can offer valuable guidance and expertise, especially for those unfamiliar with Indonesia’s regulatory landscape. It’s wise to seek professional assistance to navigate the registration process smoothly.

For assistance, consider engaging the services of professional consultancy firms experienced in company registrations. Remember to check their track record, request references, and ensure they understand the intricacies of Indonesian laws and foreign company registrations.

Photo by Priscilla Du Preez on Unsplash

Any questions? Contact us!