How to Set Up a Representative Office in Indonesia
- Establishing a representative office is the fastest and simplest way to establish a legal entity in Indonesia. Further, the government has simplified the business licensing process.
Opening a representative office (RO) is the fastest and simplest way of establishing a legal entity in the country. This setup is a temporary arrangement – ROs are not allowed to engage in any commercial activities, issue invoices, sign contracts, or earn any revenue. Foreign investors, however, can own 100 percent of this business entity and don’t have to contribute the same paid-up capital required by PT PMAs.
Indonesia’s Government Regulation in Lieu of Law No. 2 Year 2022 has made amendments to ROs and introduced four types:
- Foreign representative office (FRO);
- Representative office for a foreign trading company (TRO);
- Representative office for a foreign construction company (BUJKA); and
- Representative office for a foreign electricity company (JPTLA).
In addition, the law has simplified the process of establishing an RO in Indonesia.
The business activities of ROs are limited to – market research activities, obtaining information on potential clients, developing trade contacts, and gathering information on regulations and laws.
Foreign representative office (FRO)
A FRO is ideal for investors who are still exploring opportunities in Indonesia. The FRO is limited to non-commercial activities and there are no restrictions on the employment of foreign nationals. However, if a FRO does employ foreign workers, then it is also obligated to employ Indonesian citizens.
FROs are limited to:
- Acting as a liaison, coordinator, or supervisor to the foreign parent company;
- Preparing for the incorporation of a foreign investment company in Indonesia;
- Not participating in the management of the parent company’s branch office or subsidiary in Indonesia; and
- Not seeking revenues from Indonesia.
The FRO must be incorporated in an office building in the capital city of any province in Indonesia. Further, FROs are classified as low-risk business entities and thus only require a business identification number (NIB) and a FRO registration to begin operations.
Representative office for a foreign trading company (TRO)
A TRO acts as a selling, buying, or manufacturing agent for the foreign parent company and is prohibited from engaging in any trade or sales activities. To establish a TRO, a NIB, and a TRO Business License for the Trade Sector (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing Bidang Perdagangan Melalui Sistem Elektronik – “SIUP3A Bidang PMSE”) is required.
Each TRO must have a SIUP3A, and if the TRO wants to conduct imports, then must be done through a local company holding a business license or a foreign investment company holding a general import identification number.
Foreign e-commerce organizers must establish a TRO if they fulfill the following criteria:
- Having more than 1,000 transactions with customers within a one-year period; and/or
- Delivered over 1,000 packages for customers within a one-year period.
Representative office for a foreign construction company (BUJKA)
A BUJKA is an RO for foreign construction companies, and unlike the KPPA and KP3A entities, a BUJKA can undertake projects in Indonesia through a joint venture with a local construction company. the BUJKA entity is required to obtain a NIB and a business entity certificate (Sertifikat Badan Usaha) (SBU).
In addition to making a joint venture with a local construction firm, the BUJKA is also required to adhere to the following:
- Fulfill all business licensing requirements;
- Hire an Indonesian as head of the BUJKA representative office;
- Utilizing sophisticated, efficient, and environmentally friendly technology;
- Prioritize the use of local construction materials;
- Employ more Indonesian workers than foreign workers at the expert level; and
- Carry out the transfer of knowledge and technology to Indonesian workers.
The joint venture with the local construction firm must also fulfill the various technical criteria such as stating the rights, responsibilities, and obligations in a written agreement between the cooperating businesses.
Further, at least 50 percent of the cost value of any construction work undertaken by the joint venture must be done onshore, and at least 30 percent of the cost value of the project shall be borne by the BUJK entity.
Representative Office for foreign electricity supporting services (JPTLA)
A JPTLA is a representative office for businesses in the field of electricity supporting services. The JPTLA must obtain a NIB and a business entity certificate.
The JPTLA business licensing is granted to the following activities:
- Construction of electricity installation;
- Consultation for electricity installation; and
- Maintenance of electricity installation.
The JPTLA can undertake high-cost electricity-supporting services with the following threshold:
- Projects for the construction and installation of electricity infrastructure worth at least 100 billion rupiah (US$6.9 million); or
- Projects for consultation in the field of electrical maintenance and installation worth at least 10 billion rupiah (US$696,000).
Further, the JPTLA representative office must appoint an Indonesian citizen in charge of the office and conduct technology and knowledge transfers to Indonesian workers. The JPTLA must prioritize the utilization of domestic products as well as the use of high-tech and environmentally friendly technology.
General set-up requirements for ROs
Foreign investors looking to open general RO will need to fulfill the following requirements:
- Register through the OSS online system;
- The parent company’s Articles of Association legalized by a notary and the Indonesian Embassy of the parent company’s country of origin;
- Letter of Appointment by the Indonesian Embassy located in the parent company’s country of origin;
- Latest financial statements of the parent
- Letter of intent legalized by a notary and the Indonesian Embassy located in the parent company’s country of origin;
- Certificates demonstrating competency in the relevant industry or sub-sector;
- Lease agreements;
- Must be located in the capital of a province; and
- A letter that states the RO will not engage in any commercial activities in Indonesia.
As mentioned above, those seeking to open a BUJKA or JPTLA representative office will require to obtain additional licenses.
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