Indonesian ROs: Easy Steps for Successful Establishment
April 8, 2016
Representative offices (ROs) are an attractive way for foreign investors to get a feel for a given market in Asia, as they are the easiest type of foreign investment structure to set up. The defining characteristic of ROs are their limited business scope – ROs are generally forbidden from engaging in any profit-seeking activities – but they are excellent investment vehicles for foreign companies to better understand a country prior to full market entry, or as a communication channel between that country and HQ.
The set-up procedures and structure of an RO varies across Asia. Over the past few years, Asia Briefing has detailed how ROs function across different Asian markets, including in China, Vietnam, and India. In this article, we examine representative offices in Indonesia.
With a total population exceeding 250 million, Indonesia is a great market opportunity for foreign companies seeking to expand their consumer base and bolster production. The majority of Indonesians are middle class and, at 28 years of age, the average citizen is at the height of their productivity and nearing peak consumption years.
Firms seeking to increase their global footprint – in particular, through the establishment of regional production hubs – should therefore strongly consider Indonesia as an exciting entry point to ASEAN and the region at large.
During the process of tapping into the archipelago’s emerging advantages, Indonesia – like any foreign market – can at times present complicated and often costly due diligence. Potential investors, and particularly those with limited resources, such as startups, may therefore need to explore the market to ensure operations are conducted in a seamless manner.
While full incorporation within Indonesia comes with costly capital requirements, many of the preliminary activities a company may wish to carry out are readily accomplished through a Representative Office (RO). Prospective investors that wish to limit due diligence to any of the following activities should strongly consider the establishment of Representative Offices over investment such as limited liability companies:
- market research and testing
- negotiating with local companies
- distributing products or services through local distributors
- promoting products or services without doing direct business activities and profit generation
Types of Representative Offices in Indonesia
Depending on the nature of a company’s operations and the activities that it wishes to carry out within Indonesia, two types of Representative offices available to investors:
- Trade Representative Office
By far the most common, Trade Representative Offices (TROs) are controlled under the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal – BKPM). The range of activities that may be conducted by TROs, however, are quite narrow. In particular, they may not engage in trading, own production facilities, or undertake operational business activities. As a result of these limitations, TROs cannot accept orders, participate in tenders, sign contracts, or engage in the import, export or distribution of goods.
Trade Representative Offices are mainly reserved for firms wishing to participate in marketing, promotional, and other information gathering activities on behalf of the parent company.
- Construction Representative Office
Established for the purposes of entering into joint operation agreements with Indonesian entities, for the purpose of engaging in construction and/or construction consulting services, Construction Representative Offices (CROs) are is controlled under Ministry of Public Works.
The Guide to Establish a Trade Representative Office
The following steps outline the registration, staffing, and compliance procedure for the Establishment of Trade Representative offices in Indonesia. Those interested in establishment through other avenues explored previously are strongly encouraged to contact relevant government officials or engage professional investment services:
Step 1 – Registration
To successfully register a Trade RO in Indonesia, the following information and documentation must be prepared and submitted to the Indonesian Investment Coordinating Board (BKPM):
- RO application form, Letter of Intent, and Letter of Statement
- Letter of Appointment from principal company
- Letter of Reference from Indonesia Embassy Representative in the principal country
- RO work plan
- Statement letter of labor companion from Ministry of Manpower
- Foreign Worker Employment License, if RO employ a foreign employee
Step 2 – Staffing
ROs require the employment of at least one employee as RO head. The RO head must submit curriculum vitae, education certificate, and valid ID card when completing RO registration. If the RO head is a foreign employee, the minimum education requirement is a bachelor degree with three years working experiences in a similar field.
Please keep in mind that if an RO wishes to hire a foreign employee as the RO head, they also must hire at minimum three local employees as experts or administration staffs; proven by employment contract, copy of identification card, and salary slip.
Processing and Validity
Following submission of registration paperwork to the BKPM, a license for the operation of the RO will be issued within a month.
Although the validity of this license is set at three years, updated regulations have removed previous limitations on the number of renewals that could be applied for. Currently, following successful compliance with guidelines outline below, licenses may be renewed indefinitely.
Similar to Limited Liability Companies, ROs are subject to a variety of compliance requirements. Although prohibited from conducting profit generating activities within Indonesia, it should be noted that RO compliance does include tax filing.
All ROs operating within Indonesia should be prepared to submit the following information:
- RO activities report (if RO license extension is required)
- Monthly tax filing
- Monthly social security report