SETTING UP REPRESENTATIVE OFFICE

Category: Business Establishment & Licenses
Written by Samuel Sri Kurnia on 13/04/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

To expand the scale of business overseas, the role of a Representative Office (RO in short) is needed. RO’s existence of a foreign company provides convenience in terms of time for companies who are interested in international investment. Through the role of a representative office, the foreign company can quickly learn more about the market in the destination country. Furthermore, the company can develop more advantageous business from the results of the conducted study.

This article covers pieces of information regarding steps in setting up a RO in Indonesia. With the benefits and relatively quick steps, foreign companies may pique their interest in investment after reading the comprehensive details below.

What IS a representative office?

A Representative Office could be defined as a service from foreign business companies in exploring the circumstances or providing investment inside a country. For the case in Indonesia, RO is regulated in Indonesia’s Investment Coordinating Board (Badan Koordinasi Penanaman Modal / BKPM) Regulation 13/2017 about Guidelines and Procedures for Licensing and Investment Facilities. This guideline was further supported by Presidential Regulations 91/2017 regarding the Acceleration of Business Implementation program. Through this plan, the Indonesian government hopes to open opportunities for overseas entrepreneurs to invest in Indonesia.

It is recommended for foreign companies to set up an RO at the beginning of their business in Indonesia due to its convenience. Establishing an initial presence could help the company learn about the business environment through market research. The process also requires lesser investment capital and faster document processing.

4 Categories of representative offices in indonesia

There are 4 types of an RO in Indonesia based on its industry according to BKPM. These ROs are:

  1. Foreign Company RO (Kantor Perwakilan Perusahaan Asing / KPPA)

    KPPA is an office led by an individual Indonesian citizen or a foreign citizen appointed by a foreign company or an association of foreign companies as their representatives in Indonesia.

    KPPA is the easiest representative office a company could establish, as it could be done without too much capital investment. It is more beneficial in using KPPA to set up an initial presence and helps the company to explore business opportunities in Indonesia. Companies may use KPPA for creating promotional activities or market research due to the limited scope of work.

    The permit for KPPA is effectively valid for 3 years. A KPPA also needs to be located in an office building in the capital city of any province in Indonesia. Any activities conducted by the KPPA must be reported every 6 months.

  2. Foreign Trading Company RO (Kantor Perwakilan Perusahaan Perdagangan Asing / KP3A)

    KP3A is similar to KPPA, where it is an office led by an individual Indonesian citizen or an appointed foreign citizen, but by a foreign trading company or an association of foreign companies as their representatives in Indonesia.

    Revolves around the trading sector, a KP3A could serve as an agent to produce, sell, or buy for the parent company. KP3A has wider activities such as promoting, assessing, or negotiating a product or service. The restriction is KP3A cannot issue an invoice for the transaction. A deal needs to be completed with its parent company name.

    For foreign companies that are engaged in e-commerce, the business must meet these criteria within one year:

    • Had 1,000 or more transactions with customers
    • Delivered 1,000 or more packages for customers

    The permit for KP3A is effectively valid for 2 months (SIUP3A Sementara), which can be extended for another 1 year (SIUP3A Tetap) and another 3 years (SIUP3A Lanjutan). KP3A also needs to be located in an office building in the capital city of any province, district, or city in Indonesia. Any activities conducted by the KP3A must be reported every 6 months.

  3. Foreign Oil and Gas Company RO (Kantor Perwakilan Perusahaan Asing Minyak dan Gas / KPPA MIGAS)

    KPPA Migas is also similar to KPPA, where it is an office led by an individual Indonesian citizen or an appointed foreign citizen, but by a foreign company or an association of foreign companies who are engaged in the oil and gas sub-sector as their representatives in Indonesia. Establishing this sector requires a letter of recommendation from Indonesia’s Directorate General of Taxation of Oil and Gas, and Ministry of Energy and Mineral Resources. Unlike normal KPPA, KPPA Migas doesn’t have any specific requirement for its location.

  4. Foreign Construction Company RO (Kantor Badan Usaha Jasa Konstruksi Asing / BUJKA)

    BUJKA is a business entity that is established according to law and settled in a foreign country, has a representative office in Indonesia, and is equivalent to a limited company that is engaged in the construction service business.

    As a construction company, BUJKA is allowed in a joint operation for a project in Indonesia. The company may need to partner up with a local (Indonesian) construction company.

    The permit for BUJKA is effectively valid for 3 years and can be extended by applying for permission. BUJKA also needs to be located in the capital city of any province, district, or city in Indonesia, although doesn’t require a specific building type. Any activities conducted by the BUJKA must be reported annually to Indonesia’s Ministry of Public Works and Housing in January each year.

STEPS TO SET UP A REPRESENTATIVE OFFICE

Setting up a RO for your company can be done through different stages, based on its category. Different types also require specific documents during the process of establishment.

For each RO, the requirements needed are as follows:

  1. Requirements for KPPA

    The establishment of KPPA is relatively easy. Since KPPA aims for general market research, opening one only demands a business identification number (Nomor Induk Berusaha/NIB) and registration files. The registration process needs to send an application from the director or manager of the respective foreign company to the BKPM before the start of the business operation. The appointed director in Indonesia could also send the letter on behalf of the company.

  2. Requirements for KP3A

    The establishment of KP3A is a bit similar to KPPA. Aside from the business identification number (NIB), the company also needs to get business license for the trade sector (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing / SIUP3A). The documents needed in opening a KP3A also need to be validated in the company’s respective country and further legalized by Indonesia’s Ministry of Foreign Affairs.

  3. Requirements for BUJKA

    The establishment of BUJKA needs more documents than KPPA or KP3A. For initial verification, the company has to obtain:
    • Business Entity Certificate (Sertifikat Badan Usaha / SBU)
    • Construction Services Business Licence (Izin Usaha Jasa Konstruksi / IUJK)
    • Expertise Certificate (Surat Keterangan Ahli / SKA).

    These licenses must be granted by the BKPM itself in the context of a representative office.

BENEFits of representative office

While an RO in Indonesia functions specifically for market research, respective foreign companies can still enjoy some benefits, such as:

  1. Minimum Initial Capital

    Setting up an RO in Indonesia doesn’t require initial paid-up capital unless the company wants to open a foreign-owned investment company (Perseroan Terbatas Penanaman Modal Asing / PT PMA). The minimum capital needed for establishing a PT PMA is IDR 2.5 billion ($ 175,000). With RO, foreign investors could enter the business game at a relatively low cost in terms of investment.

  2. Less paperwork needed

    Companies may need to report employee’s taxes and the office’s rented space after making an RO. This is greatly different from PT PMA which also needs to report for corporate income and value-added tax (VAT). RO could also manage and ensure sales and delivery of the company albeit not be able to gain profits.

  3. Fast establishment

    Setting up an RO for foreign companies may need fewer requirements. RO needs to have 1 chief that can be local or foreigner, compared to PT PMA which demands at least 2 shareholders, 1 director, and 1 commissioner. The duration of establishing an RO itself may take around 1 month, while PT PMA needs around 2 months.

  4. Apply for a limited stay permit

    Foreign companies may apply to get stay permits (Kartu Izin Tinggal Terbatas / KITAS). With KITAS, a foreigner could stay and work legally in Indonesia. It is recommended for foreign executives or employees could request KITAS after the company’s respective RO is established. .

LIMITATIONS FOR REPRESENTATIVE OFFICE

Although the benefits of establishing an RO may seem abundant, there are still restrictions for activities based on regulations in Indonesia. Generally speaking, the restrictions are:

  1. Restricted sales and business activities. The company cannot gain profit from the activity conducted by the RO.
  2. Limited supervisory or marketing activities. The company cannot participate in any form of management of a company, subsidiary, or branch office of a related company.
  3. Foreign worker sponsorships is limited. For each expatriate to work at a company’s RO in Indonesia, the company will need three local Indonesian employees.

HOW CAN WE HELP

For investors planning to approach the Indonesian market, Putranto Alliance can assist you in establishing an initial presence through a Representative Office. Investors can set up RO for supervisory, administrative, or marketing functions (to test the Indonesian market), but not for commercial transactions in Indonesia. The parent company will need to establish a foreign investment company (Perseroan Terbatas Penanaman Modal Asing/PT PMA) if you want to start commercial operations in Indonesia.

We can help you obtain the relevant approvals from BKPM through the OSS system and apply for a Representative Office Tax Identification Number. Although an RO does not receive income, there are still tax obligations such as withholding income tax for employees’ salaries, service fees, and rental expenses.

Simply check the FAQs below or contact us through our website if you still have any questions regarding opening RO for your company.

REFERENCES

FAQs

Indonesia is an Asian country with abundant natural resources, sustained by varying bio-diversities and ecosystems. It is more promising with the recent issue of the development of the new capital city of Indonesia in Kalimantan by 2024.

There are no specific qualifications, but KPPA or KP3A has to be located inside an office building. With recent IT development, a foreign company can develop a virtual office or serviced office services. Please note that a virtual office needs a minimum specification of operational office space, at least an apartment.

 

It depends on the type of RO (KPPA, KP3A, or BUJKA). But it would be around 1-1,5 months for opening one. Please note it requires more documents for establishing a BUJKA, so expect the process to be longer for construction sector companies.

Foreign companies can employ both foreign and local manpower to work in RO. But please note that foreign manpower can only be employed for a certain position and department. The employee may be classified into 2 types based on their working relations, which to be a permanent employee or for a specified period. The usage of outsourcing manpower is also allowed.

It depends on the type of RO (KPPA, KP3A, or BUJKA). But in any province, district, or city of Indonesia in general. KPPA would need to be specifically located on the province level, while KP3A or BUJKA can be on a smaller level.

Thank you for sharing

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