Setting up a representative office in Indonesia can be brilliant for companies to test the market before committing to a full-scale operation. It is a cost-effective way to establish a presence in the country. The company can use it to conduct market research, build relationships with local partners, and promote the parent company’s products and services.
The Indonesian government has promoted foreign investment by creating a more business-friendly environment for companies wishing to start operations there. This article will discuss how to set up a representative office in this country and the benefits of doing so.
What is a Representative Office?
A representative office is like an outpost a company sets up in Indonesia to take care of its business there. But there are a few things to remember before you can set one up. The main thing is that you already need to have a legal entity set up outside of Indonesia. Once you’ve covered that, a representative office can act as a liaison, supervisor, representative, or coordinator for your parent company’s interests in Indonesia.
However, it’s important to note that representative offices can’t generate income in Indonesia. All commercial transactions need to be handled by your parent company. It’s also essential to understand that a representative office differs from a branch. Foreign companies aren’t allowed to open branch offices in Indonesia right now, so a representative office is a way to go if you want to establish a presence there.
The Representative Office Permitted Activities
A representative office (RO) is only allowed to conduct non-commercial activities. You can hire foreign nationals if you want to—but hire some Indonesians too. Here are the permitted activities for a representative office in Indonesia:
- Assist the parent company as a coordinator, liaison, or supervisor;
- Planning for the establishment of a foreign investment firm in Indonesia;
- Do not participate in managing the parent business’s branch office or subsidiary in Indonesia;
- Do not seek revenue from Indonesia.
To begin, you’ll need to establish your RO in an office building in the capital city of any Indonesian province. ROs are low-risk business entities; all you need to get started is a business identity number (NIB) and a RO registration.
Advantages of a Representative Office
One of the great things about a representative office is that it offers some significant advantages for foreign companies:
- 100% ownership
For starters, you can have complete foreign ownership and control over the office without any pesky director or shareholder requirements getting in the way.
- No capital requirements
Plus, there’s no minimum share capital required to get started. In other words, you don’t need a certain amount of money in the bank before establishing a representative office in Indonesia. It’s a flexible and cost-effective option that allows you to explore business opportunities without committing many resources upfront.
The Requirement to Set up a Representative Office in Indonesia
Knowing the rules and regulations is essential to ensure a smooth process. The following are the requirements you must provide:
- Obtain a Letter of Approval from BKPM – the Investment Coordinating Board: As the primary license, the parent company must obtain a Letter of Approval issued by the BKPM according to the Decree of the Head of the BKPM No. 6 of 2018.
- Get an NPWP or Tax Payer Registration Number from the Tax Office: A representative office must have a Tax Payer Registration Number (NPWP) to comply with tax regulations.
- Obtain a Business Identification Number (NIB) from the Online Single Submission (OSS): To operate legally, a representative office must obtain a Business Identification Number or Nomor Induk Berusaha (NIB) from the Online Single Submission (OSS).
The following documents are required to open a Representative Office in Indonesia:
- Letter of appointment and Letter of Intent, both from the parent company.
- If a third party represents the applicant, a Power of Attorney is required to sign the application.
- Letter of Recommendation from the Indonesian Embassy or IIPC, the Indonesian Investment Promotion Centre, in the parent company’s location.
- Parent company’s latest financial statements.
- Parent company’s articles of association.
- Copy of a valid passport (for foreigners) or copy of ID card number (for Indonesians) of the person being proposed as the Executive.
- Letter of commitment to stay and serve solely as a Representative Office Executive in Indonesia without doing any other business.
Furthermore, once you have these documents, you may expect BKPM to issue the Letter of Approval within ten working days. If you need assistance to open a Representative Office in Indonesia, IZIN.co.id is always here for you. For more information, email us at cs@izin.co.id or via WhatsApp.
