Set up a representative office in Indonesia
Some foreign companies at the early stage of entering the Indonesia market choose to set up a representative office.
A Representative Office can be established depending upon the line of business and the necessary licenses issued by the related government department.
What is a Representative Office?
Representative office is an office of a foreign company in Indonesia. The main activities of Foreign Representative Office are limited to its role as a supervisor, liaison, coordinator and representative of the interest of the parent company.
The critical limitation of a Representative Office is that they are not allowed to generate income, conduct direct sales and cannot issue Bills of Lading, all transactions will be handled by the parent company.
Representative offices are generally easier to establish than setting up a company or subsidiary, as they are not permitted to earn profits. So if you are looking to establish a local entity that is free to earn revenue, import products etc, then you need to set up a foreign direct investment (PT PMA) company
Representative Offices are set up primarily for marketing, market research, or as buying or selling agents. Most businesses quickly find the Representative Offices very limiting. It's often more time and cost effective to form an Indonesian company right from the start.
Type of Representative Office in Indonesia
All type of representative office can be opened in certain domestic situations, but it has a specific legal definition in international trade relations that is recognized in most countries around the world.
The following are three of the most common types of representative office allowed to be set up in Indonesia:
Foreign Representative Office
A foreign company representative office (KPPA) is open to all kinds of business activities outside the financial sector and should be established with the approval of the Head of BKPM.
Trade Representative Office
A foreign trade representative office (SIUP3A) is established by a foreign company or a group of foreign companies to act as its/their representative in Indonesia. It may be established as either a selling agent, manufacturer’s agent, and/or purchasing agent.
A Foreign Trade Representative Office is prohibited from conducting trades, transactions, or sales activities which represent an entire transaction from beginning to end (e.g., resulting from tender document submission, contract signing, and claims settlement).
Construction Representative Office
As specified in the Government Regulation of the Republic of Indonesia No. 28 of 2000 regarding the Business and Role of Construction Society (“PP No. 28/2000”) in conjunction with the Regulation of the Minister of Public Works No. 05/PRT/M/2011 regarding the Guidance on the Requirements to Grant Foreign Construction Company Representative License (“Permen PU No. 05/2011”), in order to establish the representative office for foreign construction services, the foreign construction company (“BUJKA”) shall obtain a permit called the License of Representative Office for Foreign Construction Services (Izin Perwakilan Badan Usaha Jasa Konstruksi/“IUJK”).
Why to set up representative office in Indonesia
The fastest way to get a legal presence in Indonesia, you must have an establishing representative office and it would be easy than setting up a limited liability company itself. But it keep comes with more limitations.
Before set up a new company
Foreign Representative Office is an ideal way for a foreign company to gain a market presence in Indonesia.
Minimize the risk to do business
Foreign Representative Office can be 100% foreign-owned and controlled, and has no director or shareholder requirements.
Save time and save your money
Opening Foreign Representative Office in Indonesia has no minimum share capital requirements.
The advantage of setting up representative offices
of foreign companies in Indonesia
As you could see from the role of representative office, it is not a substitute to opening a limited liability company (PT PMA) as it won’t be able to act as a separate entity. However, there are several reasons why many foreign companies choose a representative office over PT PMA.
No capital requirement
PT. PMA is required to have investment plans for at least US$1.2 million and paid up capital of US$300,000. This is not a small amount indeed, and in many cases the investors want to study the market first before making such capital commitments.
As representative office you won’t have any capital and therefore the capital requirements don’t apply. For some investors it also means that they won’t have to play with the minimum capital and do everything by the rules.
Manage the sales and delivery
A representative office is still allowed to do the sales and delivery of your products/services. The restriction is that you have to charge your clients from the parent company. In many cases your Indonesian clients will accept it and you can delay opening a PT PMA until you have gained a strong client portfolio.
You are still entitled to non-permanent stay permit (KITAS)
- Just like a PT PMA, representative office is able to apply non permanent stay permits (KITAS) to its foreign experts. You will be able to legally stay and work in Indonesia