What we learned incorporating a foreign startup in Indonesia

Access Indonesia is a series by Teoh Minghao, Tech in Asia’s business development head specializing in market access to Indonesia. He aims to help foreign companies learn more about the tech landscape and strategic partners who can accelerate their growth in the country.

Having stayed in Indonesia for five years to form the Tech in Asia team there, I have had the fortune to witness the growth of the country’s tech industry, while also experiencing the struggles of building a local team.

Incorporating the company as a legal entity in Indonesia wasn’t as straightforward as we thought. We took the longer path, taking more than six months to incorporate compared to the average three months. Without my local colleagues’ help, we could have met more roadblocks.

This is what I’ve learned.

Jakarta / Photo credit: 123RF

Incorporating a foreign company

In Indonesia, a limited liability company is called a Perseroan Terbatas (PT). As long as 1 percent of the entity (at least) is foreign-owned, the company would be categorized as a foreign company.

As such, most non-Indonesian startups that wish to do business in Indonesia will incorporate as a PT PMA (Perseroan Terbatas Penanaman Modal Asing), which translates to limited liability foreign-owned company.

Negative investment list

Indonesia has a Negative Investment List policy that restricts a number of business categories from being fully foreign-owned. This protects local interests by ensuring the profitable or crucial parts of the country still involve Indonesians.

Businesses in this list must have some Indonesian shareholding; the rest can be fully foreign-owned. Here are some of them (for the full list, go here):

• Ecommerce (e.g. platform-based marketplace, daily deals, price comparison, online classified sites): maximum of 49 percent foreign ownership if the investment is less than US$7 million (up to 100 percent if more than US$7 million)
• ISP/telecommunication-related businesses: maximum of 67 percent foreign ownership
• Profession courses (e.g. computer or language centers): maximum of 67 percent foreign ownership
• Meeting, incentives, conference, exhibition (MICE): maximum of 67 percent foreign ownership (70 percent if investors come from the ASEAN)
• Insurance or VCs: maximum of 85 percent foreign ownership
• Recruitment-related business: maximum of 49 percent foreign ownership
• Fintech: maximum of 85 percent foreign ownership

Do I need a local co-founder?

If your business falls in the Negative Investment List, you would need a local shareholder. For us at Tech in Asia, we were lucky enough to have someone we trust in our local leadership team.

How to incorporate?

We hit a number of problems to get the necessary paperwork done. Other than being ill-informed at the start, we needed to overcome the language barrier, as all legal documents were in Bahasa Indonesia.

We worked with Kontrak Hukum, a local consultant, to help us with the process. If you work with one, the average incorporation service will cost anywhere upwards of US$2,500 and will take around three months. The consultant will help you get the following approval and paperwork done:

• Reserve company name and register with a public notary
• Get ministry approval for the company’s establishment
• Register the company with the tax department
• Get a domicile letter from the district government (note that different parts of Indonesia would have different district governments)