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Investment in Indonesia: Establishing a Foreign Representative Office

Indonesia is one of many countries which has become a destination for foreign investors to make an investment with the purpose of maximizing their profits. Having a large land mass, rich soil and benefitting from a tropical climate, Indonesia is opulent in natural resources such as oil and minerals, timber and raw/semi-processed agricultural products. For those wishing to invest in Indonesia, the usual choice is the foreign-invested Ltd. (in Indonesian: Perseroan Terbatas Penanaman Modal Asing). [1] However, prior to establishing a foreign-invested Ltd., investors are allowed to establish Foreign Representative Office (“FRO”; in Indonesian: Kantor Perwakilan Perusahaan Asing) also. [2]

However, while the former allows foreign investors to conduct business in Indonesia, the latter solely serves the purpose of conducting non money-generating activities, such as conducting research, preparing for the establishment of a foreign-invested Ltd. and representing its parent company in Indonesia. This allows foreign investors to start their business in Indonesia at lower cost and understand the market better by having a base in Indonesia before deciding to fully enter the market.

The scope of FROs

FROs are limited to the above-mentioned activities and as such must not engage in any money-generating business. This is clearly a huge disadvantage of FROs compared to foreign-invested Ltds. However, the purpose of an FRO is not to conduct business but rather to prepare conducting of business. Therefore, the FRO should not be seen as an alternative to the foreign-invested Ltd.

Setting up an FRO

The business license

Although an FRO’s business is limited to those activities which do not generate any money, like any other business, the FRO must obtain a license (an FRO License) before engaging in any activities in Indonesia. [3]

There are no costs whatsoever an FRO needs to pay to obtain an FRO license and the license remains valid as long as the FRO is conducting its activities in Indonesia.

Electronic application process

It is free of charge and fairly simple to set up an FRO in Indonesia. The investors must obtain the FRO license through the Indonesian Investment Coordinating Board’s (BKPM) electronic system and submit several documents together with the application. [4]

Obtaining the FRO License

If all documents are in order, the license (the FRO License) will ordinarily be issued within three business days in the form of an electronic certificate with an electronic signature.

Place of establishment

FROs can only be established in the capital of any of the 34 Indonesian provinces. For example, if the FRO is to be established in Central Java province, it must be located in Semarang, the capital of the Central Java province. An FRO must furthermore be located in an office building. [5] No other restrictions apply.

The FRO’s Head

Both Indonesian and foreign citizens can be appointed as the FRO’s head. The FRO’s head must be domiciled in Indonesia and is personally liable for any actions (or omissions) by the FRO. As such, it is also the FRO’s Head’s responsibility to make sure that the FRO has sufficient capital at all times. [6] The FRO’s Head must not conduct any other business activities outside the scope of FRO. It is only possible to concurrently act as the FRO’s Head of one single FRO. Furthermore, the FRO’s Head is not allowed to hold a position as a member of the board of directors or board of commissioners in any other company in Indonesia. [7]

The daily activities of an FRO

Since the scope of an FRO is limited to non money-generating activities, as mentioned above, the activities are limited. For those limited activities, however, most rules which apply for other entities also apply to FROs.

There are no restrictions whatsoever when it comes to the employment of non-Indonesian nationals. However, in the event the FRO employs foreign workers, it is also obliged to employ Indonesian workers. [8]

All relevant rules related to employment need to be observed for both foreign and Indonesian workers. This includes social security matters including insurance, and must comply with the minimum wage provision also other employee’s rights in accordance with Indonesian labor laws and regulations.

There is no requirement for an FRO to maintain a bank account. However, in practice, a bank account is often needed for practical reasons as the FRO will need to pay salaries, office rent, etc. For the avoidance of doubt, there are no general restrictions to money transfer for FROs.

Special types of FROs

Other than the “regular” FRO, there are two other types of representative offices which can be established in Indonesia, namely the Foreign Trade Representative Office (in Indonesian: Kantor Perwakilan Perusahaan Perdagangan Asing) and the Foreign Construction Service Representative Office (in Indonesian: Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing). Special rules apply to these two types of FROs.

How Schinder Law Firm can assist

Schinder Law Firm assists investors from around the world when they enter the Indonesian market. We provide strategic advice on the choice of the form of company and swiftly implement the setting-up of the entity. Subsequent to the establishment, we support our clients on the ground by facilitating their day-to-day business with our legal guidance as well as know-how on Indonesian culture and customs. We thus act as a “one stop shop” to foreign investors, making their investment to Indonesia easy.

If you intend to enter the Indonesian market or need any other legal services related to Indonesia coupled with strategic advice, you can reach us at [info@schinderlawfirm.com].

Schinder Consultant London Ltd.


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