Setting up a representative office in Indonesia is another option besides PT PMA (foreign investment) to explore business opportunities and gain market intelligence in Indonesia. Opening a representative office enables a company to have a legal presence in the country and the option to hire employees in Indonesia without investing a large capital or complying with foreign shareholding restrictions. This article will further discuss the regulation about setting up a representative office in Indonesia.
Governing law and regulation
- BKPM Regulation No. 4/2021 concerning Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities
- Government Regulation (PP) No. 5/2021 concerning Implementation of Risk-Based Business Licensing
Definition
The representative office is an individual who is an Indonesian citizen or an individual who is a foreign citizen, or a business entity that is a representative of Business Actors from abroad with the approval of the establishment of an office in the territory of Indonesia. Based on the Investment Coordinating Board (BKPM) Regulation No. 4/2021, it is mentioned that Business Actors who can apply for Business Licensing are natural persons, business entity, representative office, and foreign business entity.
Representative office established by a foreign company or several foreign companies outside the territory of Indonesia with the intention of managing the interests of the company or affiliated companies in Indonesia and/or in other countries and/or preparing the establishment and business development of foreign investment companies in Indonesia and/or in another country.
Types of foreign representative office
There are four types of foreign representative office known in Indonesia under the BKPM Regulation No. 4/2021, which are:
- representative offices of foreign trade companies (KP3A). Representative offices of foreign trade companies (KP3A) is established in order to act as a representative of a foreign trading company which can be in the form of a Selling Agent and/or Manufacturers Agent and/or Buying Agent.
- representative office of a foreign company (KPPA).
- representative office of foreign construction service business entity (BUJKA).
- representative office of foreign electric power support services (KPJPTLA).
In this article we will discuss more regarding the representative office of a foreign company (KPPA).
General rules and restrictions of KPPA
KPPA must comply with these restrictions:
- as supervisor, liaison, coordinator, and manage the interests of the company or its affiliated companies
- prepare the establishment and Business Development of PMA companies in Indonesia or in other countries and Indonesia
- located in an office building in the provincial capital city
- not seeking any income from sources in Indonesia, including not being allowed to carry out activities or enter into any engagement/transaction of sale and purchase of commercial goods or services with domestic companies or individuals
- not participate in any form in the management of any company, subsidiary or branch of a company in Indonesia.
The head of the representative office of a foreign company (KPPA) must reside in Indonesia, be fully responsible for the running of the office, not be allowed to carry out activities outside the restrictions and not hold concurrent positions as head of a company or more than one representative of a foreign company.
In the event that the appointed representative of a foreign company is a foreigner and/or employs foreign workers, the representative of the foreign company must employ Indonesian workers.
Because KPPA is a non-investment activity, there is no capital arrangement or investment value for KPPA.
Report
KPPA is required to submit reports on its activities every 6 (six) months online through the Supervision subsystem of the OSS System, with the following submission period:
- Semester I Report: submitted no later than July 10 of the current year; and
- Semester II Report: no later than January 10 of the following year.
License
To carry out representative office in Indonesia, companies must acquire a Business License. KPPA follows the provisions of Risk-Based Business Licensing in accordance with the provisions of the legislation. Risk-Based Business Licensing is the granting of Business Licensing and implementation of supervision based on the level of business and/or activity risk. The meaning of “risk level” is the potential for a hazard to occur to health, safety, environment, utilization of natural resources and/or other hazards that fall into the low, medium, or high category. The Risk-Based Business Licensing for KPPA is included in the low risk level.
Procedure for application and issuance of KPPA permit
Risk-Based Business Licensing for KPPA can be submitted through the OSS System. Before starting business activities in Indonesia, KPPA must have a Business Identification Number (NIB). This NIB becomes the identity as well as legality for KPPA to carry out its activities in Indonesia. Business Licensing is Divided Based on Risk.
To obtain NIB, KPPA must meet business actor data which at least includes:
- Name of overseas company that appoints
- The business activities of the designated overseas company
- The address of the designated overseas company (including country of origin) and
- The representative offices data in Indonesia
Meanwhile the requirements for the KPPA application are as follow:
- Copy of the Articles of Association (article of association) in English or its translation in Indonesian
- Letter of appointment acknowledged by Indonesian Embassy/trade attaché and IIPC
- Letter of Intent acknowledged by Indonesian Embassy/trade attaché and IIPC
- A Letter of Statement from the Head of the Representative Office stating his willingness to stay and only work as the Head of the Representative Office, without carrying out other business activities in Indonesia known to the Indonesian Embassy/local Trade Attaché/local IIPC;
- Letter of Reference from the Indonesian Embassy/local Trade Attaché/local IIPC;
To submit an application, you can enter the OSS (oss.go.id). The license shall be valid as long as KPPA conducts its activities.
