Indonesian corporate law is based on the old Dutch Commercial Code of 1847. Although this law has been largely amended in the Netherlands (especially in respect to limited liability companies), very few amendments have been made in Indonesian companies laws to date.

Perseroan Terbatas - private limited company
Koperasi - limited liability cooperative

Companies of various organizational and legal forms may be established in Indonesia; potential foreign investors’ interest may be attracted by a private limited company (Perseroan Terbatas) and a limited liability cooperative (Koperasi). Those are the most common forms of Indonesian businesses operating in the entire spectrum of Indonesia's trade and industry.

To start business in Indonesia, foreigners must obtain an approval for the establishing of a company with foreign investments - Penanaman Modal Asing (RMA) - in the Indonesian Capital Investment Co-ordinating Board (BKPM).

Company with foreign investments

By definition, a company with foreign investment (PMA) in Indonesia is either a joint venture where at least 5% of shares are held by Indonesian residents, or a company with 100% foreign capital.

In both cases, a company with foreign investments has to transfer a part of its shares to Indonesian residents within 15 years from the date it started operations; this is recorded at the time of incorporation.

Indonesian law contemplates that companies with foreign investments should be focused predominantly on the local market, and although almost all types of operations in Indonesia are open to foreign investors, there are some areas where investments are on a so-called negative list for a foreign investor.

At least two persons are required to establish a company or a cooperative in Indonesia.

Any capital may be denominated in either convertible foreign currency or Indonesian Rupees (US$1 is approximately equal to IDR 10’000). Although the law does not set a minimum or maximum amount for the capital of a company or a cooperative, however, 25% of the capital must be paid up at the time of incorporation.
Limited company may not publicly transfer its shares and offer them to third parties without the members majority’s approval.

A company or a cooperative are managed by the board of directors.

A company or a cooperative are required to obtain a business license in the Ministry of Indonesia which they are related to.

Foreign investors may decide to open a representative office (RO) for providing informational and other support to the head foreign company (representative offices may not generate a profit in Indonesia) or to establish a joint venture, a so-called Venture Capital Company, acting as a holding. The Representative Office is not an independent legal entity in Indonesia. A joint venture is an independent legal entity in Indonesia and may be established either in the form of a company or in the form of a cooperative.

All Indonesian companies with foreign participation have to submit reports each year on their compliance with the status of a company with foreign investments, and in particular:

• financial statements audited by independent certified accountants of Indonesia;
• minutes of the shareholders’ meetings on the capital increase, reduction or transfer, if any;
• minutes of the shareholders' meetings on dividend distribution and due tax payment;
• dividends transfer notice.

It takes up to two months to register a company in Indonesia.

Indonesia has various taxes at different levels but generally speaking, the uniform corporate income tax rate varies from 10% on the net profit not exceeding US$5’000 up to 30% on the profit exceeding US$10’000.

All holding companies’ securities operations are subject to taxation at a rate of 0.1% on the sales volume.

VAT, on average, is 10%.

Dividends, interest and royalties paid to foreign participants are subject to taxation at a flat rate of 20%.

There is no export tax in Indonesia.

Indonesia is not a tax heaven or offshore jurisdiction, and a concept of Indonesian tax exempt company (and/or Indonesian international business company (IBC), offshore company, trust, foundation etc. registration) does not exist in Indonesia as such. A company formation in Indonesia could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in Indonesia. To set up a company in Indonesia is possible by correspondence, but to open a bank account in Indonesia will, most probably, require a personal visit.

Indonesia Double Taxation Agreements

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