What is the current corporate tax rate?

The corporate tax rate is 25% for PMA companies.

Are there any tax incentives for my company in Indonesia?

Manufacturing companies can obtain Masterlist facilities to reduce taxes and duties on the import of capital equipment and raw materials.

Other incentives apply to substantial investments of IDR 500 billion (S$50 million) or more, or investments in certain less-developed regions.

BKPM, the Investment Coordinating Board of Indonesia, also offers tax incentives for eligible pioneer industries.

Any special grants for foreign companies or for specific industries which the local government encourages?

There are no special grants for foreign-owned companies.

When do I pay corporate tax? Is this paid annually or monthly?

The corporate tax is paid in monthly instalments on a self-assessment basis, with the tax due on the 15th day of the calendar month following the tax assessment month.

Monthly tax returns must be filed by the 20th day of the following month. Annual corporate tax returns must be filed within four months from the end of the year of assessment.

What are the withholding tax rates on interest, dividends and royalties?

The current withholding tax rate on interest, dividends and royalties is 20%.

Do I need to pay tax when I send dividends back to Singapore?

Yes. The rate is 20%, subject to reductions under the Singapore-Indonesia agreement on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

Are there any tax treaties between Indonesia and Singapore?

Yes, there is a Singapore-Indonesia agreement on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. This reduces withholding tax on interest to 10% and royalties to 15%. Withholding tax on dividends is 10% if your company is the shareholder with at least 25% ownership; otherwise the rate is 15%.

Any value-added tax or goods & services tax in Indonesia? If so, what is the current rate?

Yes, the value-added tax rate is 10%.

Which business structure can I use?
To do business in Indonesia, one of the first things to decide is your business structure. You may set up either a PMA company, which means a foreign capital investment company, or set up a representative office.

PMA Company
A PMA company is a limited liability company that is established as a joint venture between foreign investors. It might also include Indonesian partners based on commercial considerations or due to industry-specific limits on foreign ownership. The joint venture partners may be legal entities (corporations) or individuals.

A PMA company has specific objectives or activities unlike a general PT Company established by Indonesian-only investors.

Representative Office
A representative office is a branch or division of the parent company and does not have its own share capital.

There are three main types of representative offices:

1. 1. Foreign Construction Representative Office (BUJKA) is licensed to provide construction consulting or construction contracting services in a joint operation with Indonesian-owned companies.

1. 1. Foreign Trade Representative Office (KP3A) is licensed to do promotional activities and gathering of information for the head office abroad. It may not perform operational business or trading activities such as accepting orders, bidding for tenders, distributing, exporting, importing, and signing contracts.

1. Foreign Investment Representative Office (KPPA) is licensed to investigate or supervise the foreign company or group’s investment activities in Indonesia.

Do note that most representative office licences are restricted to non-revenue activities. You may only carry out marketing, sourcing or investment identification activities. The exception is a Foreign Construction Representative Office (BUJKA).

What is the minimum share capital or investment capital I need to set up a PMA company?

The minimum investment must exceed IDR 10 billion (S$1 million) of share capital. Some industries may require a higher minimum sum.

Do I need approval from the local authorities to increase my share capital or investment capital?

If you increase your share capital, you should have a shareholders’ resolution signed, notarised and lodged with the Ministry of Law & Human Rights for approval. This process takes about two weeks. After the Ministry of Law & Human Rights approval is obtained, the Company should process the changes through the Online Single Submission (OSS) System.

Potentially, an increase in investment might not involve an increase in share capital. That is, an increase in investment within the PMA Company’s existing licensed business might be 100% debt funded depending on the PMA Company’s existing debt-to-equity ratio. In this case, the company shall apply the investment change in the OSS System by submitting the investment data amendment option in the OSS System.

What is the typical share capital requirement for an investment holding and trading company?

You cannot set up an investment-only holding company because this is not recognised by the Ministry of Law & Human Rights.

What is the common unit issue price per share?

You can issue your shares at any price.

Can I issue shares in a currency other than Indonesian Rupiah?

You can only issue shares in Indonesian Rupiah. However, your company is allowed to state dual currency in the Articles of Association (for information purpose).

Any restrictions on bringing capital out of Indonesia?

There are no restrictions on the payment of non-Rupiah out of Indonesia (and Rupiah can be sold to buy foreign currencies). The Central Bank does require the customer bank to request information to confirm that buying or selling of Rupiah is not linked to currency speculation.

How many directors do I need to set up a PMA Company?

You need at least one director. There is no limit on the number of directors.

You must also have at least one commissioner appointed by your shareholders. Commissioners monitor the activities of the directors to ensure they are following the business plan agreed by the shareholders. There is no limit to the number of commissioners.

Do I need a minimum number of resident directors?

Indonesia’s Company Law or Investment Regulations does not require your company to have a resident director.

In practice, Indonesia’s tax regulations require you to have a director with a Tax ID. Only an Indonesian or a foreigner with a work permit can obtain a Tax ID. However, this director does not need to remain in Indonesia throughout the year.

Any restrictions on who I can appoint as a director?

A director in your company must be at least 18 years old. In the past five years, your director must not have been:

• Declared bankrupt.
• Responsible for the bankruptcy of a company, as a director or commissioner.
• Guilty of crimes causing loss to the state or involving the financial sector.

Can I appoint only foreigners as directors of my board?

Yes, your board can consist of foreigners only.

Can a company in Indonesia be wholly-owned by foreigners? Do I need a minimum percentage of local shareholders?

This depends on your business activities. You can check the foreign ownership allowed in different sectors and activities in Indonesia’s Investment Negative List (“DNI”) issued in May, 2016.

If an activity is not regulated, you can assume it is open to 100% foreign ownership, although a quick check with BKPM – the Investment Coordinating Board of Indonesia – will help clarify this. Management consulting and most manufacturing businesses are open to 100% foreign ownership.

How many shareholders do I need to set up a company?

You need at least two shareholders to set up a PMA company, even if it is 100% owned by foreigners.

What are some of the activities that require a commercial licence before I can start operating?

You need to apply for specific commercial licences for most of the business activities in Indonesia. Some examples include:

• Construction services – Function and Utilisation Plan Licences for Flats
• Marine and fisheries sector – Fishing Licence for Fishing Boats
• Health sector – Hospital Operating Licence

Typically, do I apply for licences before or after setting up my company?

You should apply for licences after incorporating your company.

Do I renew my licences each year?

You will only need to apply for the NIB (Business Identification Number) and business licence once, but you need to update them if you change your business activities.

Commercial licences may be valid for different periods. Some commercial licences such as special import licences are subject to renewal. These include ML codes (for food & beverage product imports) or Standar Nasional Indonesia (SNI – National Standards Certification).

Should I display the business licence prominently at my business location?

Under the law, you do not need to display your business licence at your business location.

Do I need approval from the local authorities before my company operates?

Yes, you must obtain the NIB (Business Identification Number), business licence and commercial licence(s) (for example, an import licence for specific commodity), before operating.

Are there business activities which foreign companies cannot do?

You may refer to Indonesia’s Investment Negative List (“DNI”) for a list of activities closed to foreign investment.

What basic employment benefits must I give to my employees?

The basic employment benefits in Indonesia are:

• 12 days of annual leave if you have a standard five-day work-week.
• Religious Holiday Allowance which is known as THR. This is equivalent to at least one month of your employee’s salary as well as fixed allowances after one full year of employment; otherwise it can be prorated. This allowance is payable no later than one week before the person’s major religious holiday.
• Contributions to Indonesia’s social security scheme (BPJS), which covers accidents, death, pension and medical benefits. Many employers also provide a reimbursement for outpatient medical expenses.

Do I need to pay taxes or social security contributions for employees?

Yes, you must withhold taxes each month from your employee’s salary, and contribute to your employees’ social security account (BPJS).

Historically, companies paid each employee a take-home salary and paid tax for the employee as a separate benefit. In recent years, more employers offer a gross salary and deduct tax from this before paying the after-tax amount to the employee.

Both employer and employee must contribute to the BPJS. You need to deduct your employee’s contribution from the salary and pay the amount together with your share of the contribution to the BPJS.

If I send a Singaporean employee to work in Indonesia for less than a year, does my employee need a work pass?

Yes. Any foreigner who wishes to work in Indonesia should obtain a work permit that is sponsored by an Indonesian-based employer. It takes about three months to get the work permit.

In general, your employee must have degree-level qualification, be at least 25 years old and have five years of work experience. The regulations specify what types of positions are open to foreigners. There are generally no restrictions for director-level positions except foreigners are not allowed to manage human resources.

It takes one to two months for your employee to obtain a VITAS Visit Visa to enter Indonesia. Upon arrival, it takes another one month to complete the documentation process and obtain the work permit.

Most foreign employees start work as soon as they enter Indonesia with the VITAS Visa even though they have not obtained the actual work permit. You must pay an official levy (DPK-TKA) of US$100 (S$135) per month or prepay US$1,200 (S$1,620) for a 12-month work permit, before the work permit is issued.

Must I have a physical office in Indonesia? Can I use another business’ address or a virtual office address?

For licensing, you need to produce a lease agreement for the rental of an office. This can be a serviced office, but it cannot be a virtual office.

In addition, the Tax Office will visit your official business address before granting Value-Added Tax Registration. Therefore, a physical office must exist. Indonesia does not yet have the practice of a registered office or secretarial address concept. Your registered or official address is the location where the company is expected to be found.

Do I need a separate bank account to receive capital?

It is not necessary. You can receive capital contribution in any of your company’s bank accounts.

How long does it take to set up a corporate bank account?

It takes two to three weeks, depending on how fast you complete the bank’s “Know Your Client” requirement.

Do I need to keep a minimum amount as capital in the bank account at all times? Or can my company use the entire amount for business activities?

No, you do not need to keep a minimum amount related to the share capital but your bank may require a minimum deposit in your account.