Thinking about doing business in Indonesia but want to take it slow? Establishing a foreign representative office is a perfect option. It’s basically an office in Indonesia for your company from another country. Keep reading to find out whether this type of venture might be the most suitable one for your business.
Foreign Representative Office: Test the Waters
Indonesia’s booming economy is attracting international interest, but starting a fully qualified company from scratch can be scary because it takes a high level of commitment. For that issue, setting up a representative office (FRO) is a great first step for foreign businesses. This structure is suitable for foreign investors who want to explore the Indonesian market without committing to a full-scale operation. Like your local helper in Indonesia.
A representative office is an office set up by a company outside of Indonesia to take care of its business in Indonesia. It may act as a supervisor, liaison, coordinator, and also as a representative of the parent company’s interests in Indonesia. The main prerequisite for opening a representative office in Indonesia is that you must already have an existing legal entity abroad.
These affordable offices let you learn about the market, find potential customers, and understand the rules. It’s an amazing option to test the waters and see if Indonesia is the right place to grow your business. However, please note that FROs are restricted from commercial activities like selling things, issuing invoices or earning profit and signing contracts. Instead, FRO can focus on market research, gathering client information, building trade relationships, and understanding Indonesian regulations.
4 Types of Foreign Representative Offices
There are four main types of FROs in Indonesia, each with specific limitations on their activities:
1. General Representative Office or in Bahasa Indonesia, Kantor Perwakilan Perusahaan Asing/KPPA: These offices handle the interests of their parent companies but cannot participate in trade or sales directly.
2. Trading Company Representative Office: These offices act as agents (selling, buying, or manufacturing) for their parent companies but are prohibited from any actual trade activities themselves.
3. Construction Service Company Representative Office: These offices can only participate in construction projects through joint ventures with Indonesian construction firms.
4. Electricity Company Representative Office: These offices can handle construction, consultation, and maintenance of electricity installations, as well as certain high-value electricity-related services.
Setting Up a Foreign Representative Office
Fortunately, establishing an FRO in Indonesia is a simplified process. These low-risk entities only require a business identification number (NIB) and an FRO registration to get started. However, foreign investors need to fulfill specific requirements:
— Online Registration: Register through the OSS online system.
— Company Documents: Submit the parent company’s legalized Articles of Association and a Letter of Appointment from the Indonesian Embassy in the parent company’s country.
— Financial Statements: Provide the parent company’s latest financial statements.
— Intent and Competency: Submit a legalized Letter of Intent and certificates demonstrating relevant industry expertise.
— Administrative Documents: Include a lease agreement and a statement confirming the FRO won’t conduct commercial activities in Indonesia.
Important Note: Remember that different types of FROs might require additional licenses.
Key Restrictions for Foreign Representative Offices
Once your FRO is operational, be mindful of prohibited activities:
– Participating in trade (buying, selling, etc.)
– Issuing invoices
– Signing business contracts
– Renting warehouses
– Securing suppliers
– Conducting promotional activities
Alternative for Growth: PT PMA
While FROs offer a low-cost entry point, companies with ambitious plans might find them limiting. Establishing a PT Penanaman Modal Asing (PMA) is a viable alternative for those seeking direct involvement in commercial activities and generating revenue in Indonesia.
A PT PMA is a foreign-owned limited liability company that allows for majority foreign ownership (up to 100% in certain sectors). This structure provides greater control over operations and the ability to generate profits in Indonesia. Carefully evaluate what your needs and the resources to choose the best option for your business in Indonesia.
Ensure Your Smooth Business SetupÂ
Ready to explore the exciting Indonesian market? Seven Stone Indonesia offers comprehensive company incorporation services for both PT PMAs and FROs. Our experienced team will guide you through the process efficiently and ensure your business is set up for success. We take the complexity out of the process, ensuring a compliant establishment for your business. Contact Seven Stone Indonesia today to discuss your options and let’s get started!
