There are several ways for foreign investor to setup business in Indonesia. If the investor wishes to sell its product or service without the need to have their own presence in Indonesia they may choose to appoint an Agent or Distributor. However, should they like to have own presence in Indonesia they may choose to register business entity such as Representative Office (RO) and/or Foreign Investment Company (FDI Co./ PT. PMA).
Following are the brief reference for each ways as mentioned above.
Appointment of Agent or Distributor
Foreign company may enter to an agency or distributorship appointment agreement with Indonesian company to have its product or service marketed and/or distributed in Indonesia. The said appointment need to be registered to the Ministry of Trade subject to its Regulation No. 11 of 2006 (MoT 11 of 2006). Failure to comply with such stipulation may result in the business license of the local counterpart being revoked.
The said regulation stipulates that the appointment can be in the form of general appointment (agent/ distributor) or exclusive appointment (sole agent/ sole distributor). further it also stipulates that the appointment may be made by the followings.
- Supplier (based on Principal approval);
- PT. PMA (in wholesaler/ distributor activity); or
- Trade RO (Kantor Perwakilan Perusahaan Perdagangan Asing/ KP3A).
The said regulation also stipulates that the PT PMA in wholesaler/ distributor activity must appoint local company as its agent or distributor to do its activity in Indonesia.
Having the stipulation above, a PT. PMA in wholesaler/ distributor is required to have distributorship appointment by its principal (e.g. parent company or group company) in order to distribute its product in Indonesia. This is required due to PT. PMA as an entity registered under Indonesian Company Law which is also categorized as local company. However as a PT PMA, it need to appoint other Local Entity as its agent or distributor. In practice the second appointment is made by a PT. PMA to a 100% Local Company.
Kindly note that the said appointment agreement above is required to be legalized by the notary. By the notary of the principal’s home country if it’s made made outside Indonesia or by Indonesian Notary if the agreement is made in Indonesia.
Registration of Representative Office (RO)
The regulation of RO is similar with PT. PMA, it’s complexly regulated by many regulation and have many authority in charge depends on type of the RO. However in brief the RO is categorized based on conditions below.
- Marketing RO
- Income Generation RO
The first RO is only authorized to do market research, acting as liaison between local and its principal, and/or organizing principal affiliation in Indonesia. It is prohibited to generate any income in Indonesia. ROs that fall into this category are Trade Representative Office (Kantor Perwakilan Perusahaan Perdagangan Asing/ KP3A), Foreign Representative Office (Kantor Perwakilan Perusahaan Asing/ KPPA), Foreign Airline Representative Office (Kantor Perwakilan Penerbangan Asing), etc.
The second RO may generate income under some condition. Foreign Public Work Representative Office/ Construction Representative Office (Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing/ BUJKA) is the only RO that fall into this category. It may generate income under the condition that it has joint operation with local company when delivering its service.
As mentioned above, the regulation and the authority in charge is different for each RO types. However after obtaining the delegation, now Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/ BKPM) have the authority to issue the license for KP3A, KPPA, and BUJKA. Those three are the most types of RO applied registered in Indonesia.
Registration of Foreign Investment Company (PT. PMA)
In brief PT. PMA is the main way to do business in Indonesia. It may do marketing and deliver service directly to its customer (allowed to generate income). The entity is registered as a legal entity therefore it separates and distinct liability of the company from its owners (i.e. foreign investor).
The company is required to have a minimum two shareholders and minimum total investment of IDR 10 Billlion. The maximum foreign ownership is regulated in Presidential Regulation 44 of 2016 (Negative List of Investment).
Kindly see the previous article for further discussion of PT. PMA.
Reference (downloadable via Google Drive)
- Law 25 of 2007 (Penanaman Modal/ Direct Investment Law)
- Law 40 of 2007 (Perseroan Terbatas/ Company Law)
- Law 20 of 2008 (UMKM/SME Law)
- Presidential Regulation 44 of 2016
- MoT Regulation 11 of 2006
- BKPM Regulation 14 of 2015