Indonesia is a beautiful country with a booming economy and a vast target market. It presents plenty of business opportunities, especially for foreign entrepreneurs. If you want to start a business in Indonesia, you need to understand the local regulations, culture, and market dynamics. Let’s delve deeper to learn how to start a business in Indonesia as a foreigner.

What Are The Legal Business Entity Types in Indonesia?

Knowing the types of legal business entities is essential for foreigners who want to start a business in Indonesia. There are three common types of legal business entities in Indonesia:

Foreign-owned Limited Liability Company (PT PMA)

A foreign-owned Limited Liability Company, Perseroan Terbatas Penanaman Modal Asing (PT PMA), is a business entity that foreigners can wholly or partially own. It is the preferred business entity for foreigners to start a business in Indonesia, as they can fully own the business and employ foreign workers. However, an Indonesian must fill the director or commissioner position.

Locally-owned Limited Liability Company (PT)

Indonesia’s most common business entity is a locally owned Limited Liability Company, Perseroan Terbatas (PT). It’s an attractive option for many entrepreneurs, as it has relatively tiny capital requirements and faster setup time than foreign-owned companies. However, PT doesn’t allow full ownership by foreigners, making it only suitable for local entrepreneurs.

Representative Office

A representative office is a business entity set up by foreign companies to manage their interests in Indonesia. It is suitable for foreign companies aiming to expand their operations to Indonesia. A representative office is established to conduct market research, analyze business opportunities and suitability of Indonesia for the parent company, and facilitate corporate communications.

Considerations Before Starting a Business in Indonesia

Suppose you are an entrepreneur considering starting a business in Indonesia. In that case, several factors must be considered to ensure a smooth business launch. Here are some crucial considerations you should be aware of:

Market Research

Conduct thorough research to determine if your business ideas align with local market demands. To do this, you should understand your potential customers, their preferences, and their cultural nuances. It will ensure that your business is well-suited to answering problems or demands in Indonesia.

Cultural Sensitivity

Indonesia has a large Muslim population, with roughly 87% of the population identifying as Muslim. However, Indonesia is also a melting pot of various religions and cultural practices. Respecting these cultural norms is necessary to ensure the success of your business.

Local Partnerships and Employment

Some foreign entrepreneurs may wonder if a foreigner can own 100% of a business in Indonesia. The answer is yes, as long as the company operates in a sector open to 100% foreign ownership.

You should know the Negative Investment List, which outlines sectors where foreign ownership is restricted. When hiring foreign workers, ensure compliance with employment permit requirements, including obtaining a Temporary Stay Permit (KITAS).

Requirements to Start a Business in Indonesia as a Foreigner

To start a business in Indonesia as a foreigner, you must fulfill several requirements to ensure compliance with local laws. Some of the requirements are: 

• Obtain a business visa and work permit
• Select a legal business entity 
• Prepare ID of the founders (Passport for foreigners, KTP for Indonesian)
• Obtain approval for the name of your company
• Obtain the Deed of Incorporation, including Articles of Association. A notary needs to be present
• Obtain a letter of approval of the legal business entity granted by the Ministry of Law and Human Rights
• Register for a Tax ID (NPWP)
• Obtain a domicile letter that identifies the business’ location
• Obtain the unique company profile number (NIB), business license, and any necessary permits for the business

How Do You Start a Business in Indonesia as a Foreigner?

If you are a foreigner looking to start a business in Indonesia, understanding the legal and regulatory framework is crucial to ensure the smooth operations of your business. Here are the steps to establish a business in Indonesia:

Conduct Market Research

Conducting thorough market research is essential to identifying business opportunities and the demands of your potential target market. It is also crucial to understand cultural norms and purchasing behaviors, as they can significantly affect the success of your business. For example, the cultural norms in Aceh can be different from those in Bali, making certain products or services unsuitable.

Select The Legal Business Entity

There are several legal business entity options for foreigners, such as foreign-owned limited liability companies or representative offices. These entities come with their legal implications, tax obligations, and operational requirements. Consult legal experts to determine the most suitable entity for your business.

Prepare Your Capital

The cost to start a business in Indonesia may vary, depending on the type of legal business entity you choose, your business location, the scale of operations, and any additional requirements. For example, a foreign-owned limited liability company requires a minimum investment of IDR 10 billion (approx. $610,691). 

Obtain Required Licenses and Permits

Obtaining the required licenses and permits is critical to compliance with Indonesian regulations. It includes not only business licenses but also work permits and visas. Certain industries may have specific regulatory requirements, such as obtaining operational licenses from relevant government ministries. Consult legal experts to prepare the licenses and permits you need.

Register Your Business

Your business can be registered through the OSS system (https://oss.go.id/). You will be asked to fill in detailed information about yourself and your business and submit various company documents required to establish a business. This is essential not only for operational legitimacy but also for establishing credibility for your business.

Experience Effortless Business Setup in Indonesia With Effist!

Starting a business in Indonesia can seem daunting. However, with the right support, setting up your business in Indonesia can be effortless. Effist Suite Office provides the ideal solution for businesses of all sizes. Our serviced offices offer a turnkey solution with ready-to-use workspaces and comprehensive facilities, including high-speed internet, executive office equipment, meeting rooms, a business lounge, a pantry, and secretarial and cleaning services. 

Alternatively, our virtual office solutions provide a cost-effective and flexible option for establishing a local presence. Our virtual office solution has a prestigious business address, professional secretarial support, and mail handling services. Located in strategic South Jakarta locations, Gandaria 8 Office Tower and 88Office Kota Kasablanka, Effist Suite Office provides the perfect environment for your business to thrive. 

Choose Effist Suite Office and experience an effortless business setup in Indonesia. Contact us today at contact@effist.com to learn more about our serviced office and virtual office, or visit our “Book Tour” page.

Editor: Trie Ayu Feminin & Irnadia Fardila