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Foreign Representative Offices in Indonesia
By : Erick Sanjaya Perkasa, S.H.
1. How many types of foreign representative offices can be established under Indonesian Law ?
There are three types of representative offices that can be established under Indonesia Law:
General Representative Office (“KPPA”)
According to Investment Regulation Board Regulation Number 15 of 2015, concerning Guidelines for the Licensing and Non Licensing Procedure (“PERKA”), the business activities of KPPA are limited to:
- Attending to the company’s interests and those of its affiliated companies:
- Preparing for PT/PMA establishment and business development in Indonesia or other countries.
Trading Representative Office (“KP3A”)
According to PERKA, the establishment of KP3A can be as a selling agent, manufacturing agent or buying agent. Moreover, the regulation concerning KP3A can be found in Ministry of Trade Regulation Number 10/M-DAG/PER/3/2006 and the latest revision, 28/M-DAG/PER/6/2010 (“REGULATION”), which stipulates that the activities of KP3A are limited to:
- Conducting activities of introducing, promoting goods produced by foreign companies as well as providing an explanation or instructions on the use and import of goods;
- Conducting a market survey and supervising sales in Indonesia in the course of marketing goods;
- Conducting market research in relation with products required by the company and on the export terms and requirements of the company;
- Acting on behalf of an appointed company to terminate a contract in relation to export activities.
- Foreign Construction Services Representative Office (“BUJKA”) Under the law, a foreign construction company can only establish a large-scale BUJKA, subject to Ministry of Public Works Regulation Number 03/PRT/M/2016.
Both KPPA and KP3A are prohibited from conducting transactions or activities that may generate profit.
2. Is a representative office subject to the Negative Investment List regarding maximum foreign share ownership?
No, a representative office does not have shares and is not subject to any foreign ownership restrictions. Basically, a representative office is not a company, but an office whose main company/office (“Principal”) is subject to a foreign jurisdiction. The name of the representative office will be exactly the same as that of the principal.
3. Is there a Board of Directors or Board of Commisioners at a representative office ?
A representative office does not acknowledge or require a Board of Directors or Board of Commisioners. A representative office is led by a chief representative, which position can be assigned to a foreign or Indonesian citizen. The chief representative of a representative office is appointed by a director (subject to a foreign jurisdiction) of their principal office; a chief representative officer is prohibited from holding any other positions in other companies (i.e. director or commisioner) in Indonesia or their principal office.
Law Number 2 Year 2017 dated 12 January 2017, concerning Construction Services (“Construction Law”), Article 33 stipulates that the chief representative of BUJKA must be an Indonesian citizen. However, the implementing regulation concerning this provision has not yet been issued. In practice, foreign citizens can still hold the chief representative position. However, BUJKA must employ more Indonesians than foreign employees.
4. Which Indonesian government department should I apply to for a representative office license?
A KP3A license was previously handled by the Ministry of Trade and a BUJKA License by the Ministry of Public Works. However, after the enactment of PERKA, both Ministries delegated the authority to issue such license (including a KPPA license) to the Indonesian Investment Coordinating Board (“BKPM”). Therefore, you should apply for a representative office license at BKPM after preparing the required documents.
5. Is there any regulation or restriction concerning foreign employees at a representative office ?
This matter is addressed in Ministry of Manpower Regulation Number 16 of 2015 with its latest revision in Number 35 Year 2015. Article 4 states that a representative office can employ foreign employees. However, according to articles 12 and article 13, there are the following conditions:
- He must have an undergraduate background or equivalent (S1)
- He must have work experience of at least three years in a business field that is relevant to the position he/she will be assigned to
- For every foreigner employed by the KP3A, KP3A must employ three Indonesian citizens; therefore, the proportion of foreign employees to Indonesian citizens is 1:3.
Article 33 of the Construction Law states that BUJKA has to employ a majority of Indonesian citizens as employees. Article 35 indicates that there will be an implementing regulation to further elucidate this matter in the future.
It should also be noted that, according to Ministry of Manpower Decree Number 40 of 2012, there are certain positions that cannot held by foreign employees.