Indonesia is the largest archipelago in the world, located between mainland Southeast Asia and Australia. The country consists of over 17,000 islands, of which only 6,000 are inhabited. Due to its complex and unique geographical location, Indonesia is extremely diverse in its ecosystem and fascinating with its heritage and history.
Business Environment in Indonesia
The Indonesian government has been working hard on regulatory and legal reforms to make the country more attractive to foreign investment, which plays an important role in Indonesia's economy. Indonesia is a producer and exporter of oil and gas, various mining products such as nickel, coal and tin, as well as agricultural products and fisheries. Local and international banks and other non-bank financial institutions are the main sources of money in Indonesia.
In Indonesia, as in many other countries around the world, prevailing cultural norms are also reflected in the business environment. Because of this aspect, companies in Indonesia tend to be highly hierarchical, with all decision-making controlled by a small group of executives. Similarly, the same sense of hierarchy carries over to the entire organization where employees prefer the manager to make the decisions and assign tasks. Initiative and proactive thinking are now seen more as a criticism of management than as a positive and desirable action on the part of an employee. The hierarchical nature of most organisations, and particularly governmental institutions, results in enormous bureaucracy.
Business structures in Indonesia
There are several possible types of business structure in India and every investor should carefully consider the most suitable structure of their company considering the industry, number of employees, capital structure and various other aspects.
Limited Liability Company (PT)
Limited Liability Company or Perseroan Terbatas (PT) in Indonesia is the most popular type of company structure among local entrepreneurs. A PT requires a director, a commissioner (can be a non-resident) and at least two local shareholders. The chief responsibilities of the commissioner are the oversight of the company, reviewing the annual accounts and approving the budget prepared by the board of directors.
According to the company law, Limited liability companies are further divided into following categories:
Micro Company – if net capital does not exceed 50 million rupiahs (3,745 USD) (excluding buildings and land) or annual sales turnover does not exceed 300 million rupiahs (22,171 USD).
Small Company - if net capital is between 50 and 500 million rupiahs (3,745 USD to 37,435 USD) or annual sales turnover is between 300 million and 2.5 billion rupiahs (22,171 USD to 184,763 USD.
Medium Company - if net capital is between 500 million and 10 billion rupiahs (37,435 USD to 739,053 USD) or annual sales turnover is between 2.5 and 50 billion rupiahs (184,763 USD to 3,695,267 USD).
Large Company – if net capital is over 10 billion rupiahs (739,053 USD) or its annual sales turnover is more than 50 billion rupiahs (3,695,267 USD).
If foreigners are employed in the company, it has to be at least medium-sized. As the incorporation of a PMA generally takes a significant amount of time, it is possible to use the Indonesian nominees for the initial setup of an LLC in order to reduce the incorporation procedure by approximately 2 months.
Foreign owned LLC (PMA)
If a limited liability company is partly or wholly owned by foreign investors it is called Penanaman Modal Asing (PMA). PMA is required to receive an approval from the Capital Investment Coordinating Board before any business activity can take place in Indonesia. Furthermore, under this business structure, the owners are required to present a business plan for a minimum of 1.2 million USD and deposit at least 300,000 USD as share capital.
PMA requires at least one resident director, two shareholders and one commissioner. In case the company is fully owned by foreigners, the owners are obliged to sell at least 5% of the company to an Indonesian citizen or a domestic business within the first 15 years of its incorporation. There are particular industries, in which foreign businesses need to obtain operating licenses in order to operate. Some business sectors are fully restricted to foreign companies or only allow businesses with partial foreign ownership. For example, in the mining sector at least 20% of the company needs to be owned by a local shareholder within 5 years since its incorporation.
According to the Indonesian Company Law, public companies are required to have a minimum of 300 shareholders and at least 3 billion rupiahs as paid-up capital. While public companies are subject to more strict regulatory provision if compared to PT or PMA, it is not compulsory for public companies to be listed on PT Bursa Efek Indonesia (national stock exchange).
Partnership in Indonesia is a common type of business structure, but only Indonesian nationals are allowed to form partnerships.
Persekutuan Perdata (PP) – partnership between two or sometimes more people with an aim to make a profit.
Firma (Fa) – open partnership incorporated to hold a business name used by trading and service enterprises.
Persekutuan Komanditer (CV) – a limited partnership with one partner allowed investing money in the business and not managing the company.