Experts in the Indonesian Market
Company Formation Services
Few Choose a Foreign Entity
When considering company formation in Indonesia, businesses are first faced with the choice between setting up a foreign-owned or locally-owned entity. If you can prepare around USD 700,000 in capital, a foreign-owned entity is generally recommended, as it allows for 100% control of the company—except in sectors with foreign ownership restrictions.
At our firm, we receive inquiries almost daily from companies seeking advice on entering the Indonesian market. Honestly, very few choose to establish a foreign-owned entity.
Realistic Options for Entering the Indonesian Market
When entering the Indonesian market, most companies ultimately choose from the following three options. Setting up a foreign-owned entity is often too financially burdensome, so methods that reduce that burden are generally preferred.
-
Representative Office
A representative office is not technically a legal entity. Therefore, while no capital is required, it is prohibited from conducting revenue-generating business activities.
-
Locally-Owned Company
This method involves borrowing the names of two Indonesian nationals to establish a company. It can be set up at low cost, but you cannot legally own shares.
-
Employer of Record (EOR)
We act as the legal employer to hire Indonesian staff, while you manage them directly—enabling a virtual market entry into Indonesia.
Frequently Asked Questions
-
What types of companies typically choose a representative office, locally-owned company, or EOR?
-
Representative offices are most commonly established by large corporations. They often use it for preliminary research before investing approximately USD 700,000 to set up a foreign-owned entity. Locally-owned companies are more often chosen by small and medium-sized enterprises or startups that are more comfortable accepting the risk of not owning shares. EOR is widely used regardless of company size due to its convenience and flexibility.
-
What are the pros and cons of a representative office?
-
The main advantages are that no capital is required and it can be set up quickly. Compared to a corporation, it offers a low-risk, low-cost entry. The downside is that commercial activities are prohibited — representative offices are limited strictly to research activities and cannot generate revenue.
-
What are the pros and cons of a locally-owned company?
-
The benefit is that it does not require the large capital investment (about USD 700,000) needed for a foreign-owned entity, and unlike a representative office, it can engage in commercial activities. The drawback is the inability to legally own shares. In the worst-case scenario, there’s a risk of the company being taken over.
-
What are the pros and cons of using an Employer of Record (EOR)?
-
The advantages combine the strengths of both representative offices and locally-owned companies: no capital is required and commercial activity is allowed. Honestly, there are virtually no major downsides. For companies considering entry into Indonesia, this is the most recommended option. For more details, please see this page.
For Companies Looking to Market Entry into Indonesia
-
Contact Us via Web
Free initial consultationWe will respond within one business day
-
Contact Us via WhatsApp
We reply quicklyWe will respond within 3 hours
4 Benefits of Establishing a
Representative Office
The biggest advantage of a representative office compared to company establishment is the ability to easily reach the Indonesian market. While the Indonesian market is attractive, success is a separate matter, so we recommend first establishing a representative office to explore the possibility of success in Indonesia.
-
Speed
You can establish a representative office in about 2 months, without spending 4-5 months as required for foreign company establishment.
-
Cost
The cost of establishing a representative office is cheaper than company establishment, with setup costs of around $2,000.
-
Market Research
While a representative office cannot conduct sales activities, it offers flexibility for all other types of research.
-
Risk
This approach has significantly lower risk than immediately establishing a company in Indonesia, where market entry barriers are high.
Potential Risks of Establishing a Locally-Owned Company
When establishing a local entity in Indonesia, many companies consider setting up a locally-owned company due to the high cost of forming a foreign-owned one. However, under Indonesian law, foreign individuals or companies are not allowed to invest in locally-owned companies (i.e., they cannot own shares). Even after the company is formed, foreign ownership is not permitted through capital increases or similar means.
-
Requests for Higher Compensation
Shareholders may regularly demand to raise the nominee fee from ¥50,000 to ¥100,000 per month.
-
Demands for Additional Benefits
Even without a salary increase, shareholders may request benefits such as a company car, driver, or an apartment.
-
Unauthorized Use of Company Funds
As legal shareholders, individuals can withdraw money from the corporate bank account and use it without approval.
-
Takeover of the Company
Under Indonesian corporate law, shareholders are the true owners — creating the risk that a nominee may take full control of the company.
3 Key Benefits of the Employer of Record (EOR) Service
The EOR service combines the best aspects of representative offices and locally-owned companies. Since no capital investment is required, there is no shareholder risk, and business activities are permitted. As you’re not setting up a legal entity, monthly costs are lower compared to establishing a representative office or a local company. One of the biggest advantages of EOR is that there are virtually no significant downsides.
No Heavy Decision-Making Like Company Incorporation
-
With EOR, our company serves as the legal employer, so there’s no need for the heavy decision-making involved in company formation. Outsourcing to freelancers is already common. Think of this as simply outsourcing overseas — in this case, to Indonesia.
Faster Market Entry (Easy to Start)
-
You don’t need to spend months preparing documents or dealing with government offices for company registration. You can launch operations in Indonesia as early as next month. Once your assigned expat is selected, we can also assist with arranging their work visa. This is one of the fastest ways to enter the Indonesian market.
Minimize Exit Risk (Easy to End)
-
Once a branch is established in Indonesia, it’s not easy to shut it down. With EOR, you can simply terminate the contract. Especially in the case of foreign-owned entities, the exit process involves thorough scrutiny by the Indonesian tax office to check for any misconduct such as tax evasion. This makes winding down a foreign entity particularly complex and challenging.
Post-Incorporation Back-Office Support Also Available
-
Accounting & Bookkeeping Services
- Monthly Tax Filing Services
- Annual Tax Filing Services
- Bookkeeping Services
- Accounting Services
-
HR & Labor Management Services
- Payroll Calculation
- Attendance Management
- Expense Reimbursement Management
- Creation of Internal Regulations
-
General Affairs & Secretarial Support
- Restaurant and Service Reservations
- Various Types of Research
- Internal Interpretation and Translation
- Communication with Government Agencies
-
Legal Support Services
- Drafting of Contracts
- Contract Review
- Communication with Relevant Ministries
- Other Legal Correspondence
Customer Testimonials
-
●Web Development Company
They carefully explained the risks of having Indonesian shareholders and provided helpful advice for setting up a locally-owned company.
-
●Recruitment Agency
As we considered entering the sending business, they provided us with valuable low-risk options for market entry.
-
●HR Consulting Firm
We were able to enter the Indonesian market sooner than expected. The EOR service is extremely convenient and effective.
-
●Toy Manufacturer
They supported us from the research stage all the way through to company incorporation, which was incredibly helpful.
-
●Senior Care Services Provider
They gave us a clear strategy on how to build a working relationship with Indonesian shareholders, which was very reassuring.
-
●Cosmetics Manufacturer
In addition to supporting company formation in Indonesia, they also helped with BPOM registration and import procedures — a truly reliable partner.
We are experts for Entering the Indonesian Market
-
Research
EOR / VISA
Formation
Supporting foreign companies in expanding to Indonesia.
Basic Terminology for Company Incorporation
Here are some useful Indonesian terms to know when establishing a company in Indonesia. We hope this helps you navigate key terminology during the incorporation process.
| Term | Explanation |
|---|---|
| KBLI | Short for *Klasifikasi Baku Lapangan Usaha Indonesia*, which refers to the Indonesian Standard Industrial Classification. It consists of a 5-digit code. According to BKPM Regulation No. 4 of 2021, foreign companies must invest an additional 10 billion IDR for each KBLI category they apply for. |
| OSS RBA | Short for *Online Single Submission Risk Based Approach*, an electronic system for applying and issuing various business licenses. Unlike the earlier OSS Ver1.1, it incorporates a risk-based classification system that assesses company risk levels based on capital and KBLI. |
| NIB | Short for *Nomor Induk Berusaha*, meaning Business Identification Number. It consists of 13 digits. |
| SIUP | Short for *Surat Izin Usaha Perdagangan*, meaning Business Trading License. |
| Izin Lokasi | Location Permit |
| Akta | Articles of Association (Deed of Incorporation) |
| NPWP | Short for *Nomor Pokok Wajib Pajak*, meaning Taxpayer Identification Number. Tax filings are not handled via OSS RBA but through the separate DJP Online system. |
| WLKP | Short for *Wajib Laporan Ketenagakerjaan Perusahaan*, meaning Mandatory Employment Report. This is filed online each December to report employment status to the Ministry of Manpower. It is also required when applying for work permits and visas for foreign nationals. |
| LKPM | Short for *Laporan Kegiatan Penanaman Modal*, meaning Investment Activity Report. SMEs must file this every 6 months, and large companies every 3 months. |
| SABH | An online system provided by the Directorate General of General Legal Administration under the Ministry of Law and Human Rights. Notaries use this platform to register company incorporation. |
