An Overview of Company Registration in Indonesia
Author : Nikita Patel | Published On : 29 Nov 2024
With an annual growth rate of 6%, Indonesia is among the world's fastest-growing countries. Between the Pacific and Indian oceans is where it is situated. It has the largest domestic marketplaces in Asia, after China and India. According to World Bank reports, Indonesia's ranking in the "Ease of Doing Business" index for 2020 is 73rd out of 190 countries. Indonesia is a member of the G20 and the fourth-largest country in the world by population. Because of this, entrepreneurs find Indonesia to be a desirable place to start their businesses. Additionally, the services industry in Indonesia generates more than one-third of the nation's GDP. In particular, tourism is now a substantial source of income.
Benefits of Starting a Business in Indonesia
One may start a business in Indonesia for various reasons such as:
Trade Agreement: Low or no tax trade is possible between Indonesia and the nations member to ASEAN as Indonesia is a part of it. Companies that want to expand into other Southeast Asian nations might take advantage of cheap taxes by establishing a corporation in Indonesia. You may already reach a population of over 667.3 million people by engaging in trade with ASEAN member nations. Australia and New Zealand, China, India, Japan, and South Korea are all trading partners for Indonesia through ASEAN.
Tax Benefits: The Indonesian government has reduced the corporate income tax (CIT) rate from 25% to 22%. There are now 71 double taxation treaties between Indonesia and other countries.
Special Economic Zone: Numerous SEZs have been established in Indonesia. These Special Economic Zones (SEZs) provide a range of benefits to business owners, such as tax exemptions, different kinds of subsidies, and advantages for manufacturing. Tax benefits would also be offered, such as reduced corporate income taxes and VAT exclusions.
Cheap Labor Cost: Given that over 40% of its massive population is working age, Indonesia has a sizable labor force. The country's labor costs are reasonable when compared to other countries.
Types of Companies for Company Registration in Indonesia
There are the following forms of company structure offered by Irish Laws when it comes to company registration in its land:
1. Perseroan Terbatas: An organization with limited liability is a Perseroan Terbatas (PT). A PT is a legally recognized organization with shares as its capital because the shareholder's obligations are restricted to the amount of unpaid shares in the company's capital, the owner's personal assets are safeguarded in the event that the business experiences financial difficulties. It is not necessary to dissolve the corporation in order to sell shares or make changes to ownership. They are further divided into two types, Local PT Company and Foreign Owned PTMA Company
2. Firm [FA]: A Firma (FA), which is a type of privately held company, can be founded by two or more Indonesian citizens. Due to FA's lack of legal separation from its owners, neither the company's nor the owners' personal assets are protected, and in the event that the business incurs debt, the partners' personal assets will be used to settle the balance.
3. Commanditaire Vennootschap (CV): An entity with limited liability is a Commanditaire Vennootschap (CV). Active partners provide funds and oversee the business, whereas quiet partners just contribute capital. There are two categories of partners. A CV is one of the most straightforward entities to establish, and there is no minimum capital needed. A CV does not, however, shield the partners' private assets from other legal entities.
4. Sole Proprietorship [UD]: Single-person businesses, or Usaha Dagang is the most basic type of corporation in Indonesia because it just needs one person to manage the enterprise. The owner and single proprietorship are equivalent legal entities. To open a UD, you would require a business license, a residence letter, an employee id number, and the name of the company.
5. Representative Office: For international businesses looking to investigate the Indonesian market, setting up a representative office in Indonesia makes sense. The representative office is limited to representing the overseas parent company's purchasing or selling agents, carrying out market research, and organizing promotional events. This company's license is set to expire in two years, and in order to continue doing business in Indonesia, it must be renewed. In Indonesia, the office cannot turn a profit; instead, the foreign parent firm handles all business dealings. Unlike other foreign-owned businesses in Indonesia, there is no minimum capital requirement. Employers from abroad are also permitted to work in representative offices.
6. Subsidiary Company: In Indonesia, subsidiaries are incorporated as limited liability companies; if the parent firm is based outside, a foreign-owned company (PT PMA) would be the most suitable structure. A subsidiary business is a distinct legal entity. Entrepreneurs create a subsidiary firm to enter the Indonesian market. In addition, it is regarded as a tax resident and will pay 25% corporate tax.
Documents to carry for the registration process
You must have the following documents if you are applying for company registration in Indonesia:
1. Shareholder’s details [ list of their names, identity proof, documents stating their financial health, affidavit]
2. Director’’s details [ list of their names, identity proof, documents stating their financial health, affidavit]
3. Directors’ and shareholders’ passports [if foreign Nationals]
4. Acceptance copy from the Ministry of Law and Human Rights
5. Financial Documents of the company showcasing financial health, and capital deposition
6. Memorandum of Association and Article of Association [if applicable]
7. Domicile Letter
8. Company Registered address along with proof [lease agreement, utility bills, etc]
Types of taxes applicable in Indonesia
The following are certain types of taxes applicable to businesses operating in Indonesia:
Corporate Income Tax: Ordinary corporate income tax is applied at a rate of 22% to both domestic and foreign incomes when a corporation earns more than IDR 50 billion yearly. Reduced revenue businesses pay less in taxes. If public companies achieve certain standards, such as a minimum listing criteria of 40%, they can receive a tax discount of 3% off the ordinary rate, making their overall tax rate 19%.
Value Added Tax: Government regulations can cause the VAT rate in Indonesia to fluctuate between 5% and 15%, though the ordinary rate is typically 11%. The import of commodities is subject to an 11% VAT, whilst the export of goods is free from it.
Social Security Contributions: Ensuring that employees are enrolled in the Social Security program is the responsibility of the employers. The percentage of normal earnings that is used to calculate employer premium contributions might vary from 0.24% to 4%.
Regional Taxes: Numerous local taxes and fines may fall under the purview of a corporate taxpayer. The maximum rates range from 0.2% to 75% of the various reference values that the municipal governments in question have selected.
