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Every country has its own unique regulations and cultural practices. For foreigners planning to establish a company in Indonesia, it is crucial first to understand the local laws and cultural context. Consulting with a trusted and reputable local advisor regarding PMA company registration in Indonesia is strongly recommended, as assistance will be needed to navigate the country’s legal and bureaucratic systems effectively.
You must also familiarise yourself with the procedural requirements to avoid potential fraud and mistakes during the incorporation process. This article outlines seven common mistakes that foreign investors often encounter when registering a company in Indonesia.
1. Uncertainty about Business Activities
One of the first questions to address when establishing a company in Indonesia is: What will my business activities be?
Your business activities are essential as they determine the company classification (KBLI). Certain classifications are fully open to foreign investment, while others fall under the negative investment list and are either partially restricted or entirely closed to foreign ownership.
2. Uncertainty about the office address
The office address is a critical component of PMA company registration. A domicile letter, which specifies the company’s office location, is required to register the business and obtain its Tax Identification Number (NPWP).
If you are uncertain about the location of your business operations, you may face several challenges later. For instance, relocating your office will require additional time and costs. Moreover, if your office moves to a different jurisdiction, you must close the previous NPWP and register a new one in the new jurisdiction.
Additionally, you will need a building permit (IMB or Izin Mendirikan Bangunan). For further insights on this topic, refer to our article Key Considerations Before Purchasing Land in Indonesia.
3. Starting the PMA company with insufficient capital
Under Indonesian regulations, foreign-owned companies must have a minimum paid-up capital of IDR 10 billion to protect local businesses and ensure foreign investments contribute positively to the economy. Using insufficient capital during the incorporation process is a significant mistake that should be avoided.
4. Failure to address KITAS and Work Permit Requirements
This is a common oversight among foreign investors, particularly those establishing their first PT PMA in Indonesia. A foreign shareholder who invests at least IDR 10 billion and holds a director position is eligible to apply for an Investor KITAS, which provides a two-year stay permit, allowing them to live in Indonesia and manage their business.
However, if you are a director without shareholder status, you must also apply for a work permit in addition to the KITAS. This work permit allows you to work legally in Indonesia for up to five years.
Related Article: Different Types of KITAS for Foreigners
5. Failure to fulfill tax obligations
From the outset, it is crucial to report your taxes on time. Whether your business is active or not, you are required to file tax reports once you obtain your NPWP. Failure to do so may draw unwanted attention from tax authorities.
Tax reporting is relatively straightforward and can be outsourced if your company does not have an in-house accountant. Additionally, companies employing staff must comply with BPJS Health and Employment insurance programs.
Foreign-owned companies are also required to submit LKPM (Investment Activity Reports) periodically, depending on their business stage. Permitindo can assist in managing these reports on your behalf to ensure compliance.
6. Underestimating Indonesia’s legal and bureaucratic system
Every country has its own unique legal framework and bureaucratic procedures, and Indonesia is no exception. Establishing a company requires the preparation of numerous documents and permits.
Even minor errors, such as incomplete documents or incorrect formatting, can result in delays or the rejection of your application. A thorough understanding of Indonesia’s legal and bureaucratic requirements is essential to ensure a smooth registration process.
7. Hiring an unprofessional consultant in your PMA company registration
Selecting a qualified consultant is a critical step in the PMA company registration process. Working with an inexperienced or untrustworthy consultant can lead to financial losses, wasted time, and unnecessary complications.
To choose a reliable consultant:
- Review their portfolio and previous client list.
- Request references from their former clients and follow up with these references.
- Ensure the consultant asks you to sign a Power of Attorney during the process. If they do not, there is a risk that your documents could be forged.
Conclusion
While it is possible to register a PMA company without the assistance of a consultant, working with an experienced professional can help you navigate regulatory challenges more efficiently.
For assistance in registering your company, contact Permitindo. Fill out the form below and our team will promptly contact you to initiate the process.
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