“In establishing PT PMA, the minimum capital and paid-up capital is IDR 10 billion excluding land and office buildings. PMA can only perform business activities on a large business scale. Meanwhile, Representative Offices are not limited by investment value and capital like PT PMA. In implementing its duties and functions, a representative office cannot exceed the duties and functions regulated by law in Indonesia. Regarding BUT is not an entity but a term used for the sake of taxation used by foreign entities. The purpose of a BUT is more specific to taxation, because a foreign business entity that meets the criteria for a BUT is legally required to have an NPWP and pay taxes.”
There are multiple ways for foreigners to invest in Indonesia. In general, there are two different options, which are portfolio investment and direct investment. Portfolio investment is an investment through buying securities, wherein the investor would not acquire real assets in Indonesia and is free to bail out at any time by selling the securities. This usually refers to stock trading in capital market or other similar medium. On the other hand, direct investment is an investment through buying real assets. The investors would be directly involved with the assets that they bought. This usually refers to establishing a business in Indonesia. Thus, foreign investor must truly know how they would like to invest in Indonesia before choosing the suitable entity.
Badan Usaha Jasa Konstruksi Asing (“BUJKA”) Representative Office
BUJKA Representative Office is a foreign business entity established under foreign law, as defined in Article 84 paragraph (4) of Government Regulation No. 5 of 2021 on Risk-Based Business Permitting (“PP 5/2021”). According to Articles 84 and 85 of PP 5/2021, the highest leader of a BUJKA Representative Office must be an Indonesian citizen serving as the technical responsible person. However, the highest leader responsible for overseeing construction activities for technology transfer purposes may be a foreign citizen. Unlike other types of representative offices, BUJKA Representative Offices are permitted to participate in tenders and execute projects in Indonesia.
To qualify for participating in tenders and performing construction projects in Indonesia, as stipulated in Government Regulation in Lieu of Law No. 2 of 2022, BUJKA Representative Offices must meet the following minimum requirements:
- Cooperation with a Local Construction Company: BUJKAs can only participate in tenders through collaboration with a local construction company. The local company must be wholly owned by Indonesian citizens or local companies without foreign shareholders. The BUJKA and local construction company will form a joint operation entity to participate in tenders and execute construction projects.
- Large-Scale Qualifications: Both the BUJKA Representative Office and its cooperating local construction company must be business entities with qualifications equivalent to large-scale companies.
- Business License: Both entities must possess a license for foreign construction service business entity representatives.
- Human Resources: BUJKA Representative Offices must employ more Indonesian workers than foreign workers and appoint an Indonesian citizen as the highest leader of the representative office.
- Technology Usage: BUJKA Representative Offices must prioritize the use of domestic materials and construction technology. They must also possess advanced, sophisticated, efficient, and environmentally friendly technology, considering local wisdom to facilitate technology transfer.
- Compliance with Laws and Regulations: When undertaking construction projects in Indonesia, BUJKA Representative Offices must fulfill all other obligations in accordance with applicable laws and regulations.
Representative Office of Foreign Companies
Representative Office of Foreign Companies (Kantor Perwakilan Perusahaan Asing or “KPPA”), refers to an office established by a foreign company or several foreign companies outside the territory of Indonesia for the purpose of managing the interests of the company or its affiliated companies in Indonesia and/or in other countries and/or preparing for the establishment and development of Foreign Investment Companies (Penanaman Modal Asing or “PMA”) in Indonesia and/or in other countries. Unlike a BUJKA Representative Office, KPPA can be headed by an Indonesian citizen or a foreign citizen. Furthermore, KPPA cannot directly conduct business activities in Indonesia.
As stipulated in the Regulation of the Investment Coordinating Board No. 4 of 2021 concerning Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (“PERBKPM 4/2021”), the following restrictions apply to KPPA:
- Acting as a supervisor, liaison, coordinator, and managing the interests of the company or its affiliated companies;
- Preparing for the establishment and development of PMA in Indonesia or in other countries and Indonesia;
- Being located in an office building in the provincial capital;
- Not seeking any income from sources in Indonesia, including being prohibited from engaging in any activities or entering into any sales or purchase transactions of goods or commercial services with companies or individuals domestically; and
- Not participating in any form in the management of a company, subsidiary, or branch in Indonesia.
Representative Office of Foreign Trading Companies
Representative Office of Foreign Trading Companies (Kantor Perwakilan Perusahaan Perdagangan Asing or “KP3A”) refers to an individual Indonesian or foreign citizen appointed by a foreign company or a group of foreign companies outside Indonesia to represent them in Indonesia, as stipulated in Article 1 paragraph (1) of the Minister of Trade Regulation No. 49 of 2020 concerning Amendments to the Minister of Trade Regulation No. 10/M-DAG/PER/3/2006 on Provisions and Procedures for Issuing Business Licenses for Foreign Trade Representatives (“Permendag 49/2020“). Both the Head Office and Branch Office of a KP3A must possess a Business License for a Foreign Trade Representative (“SIUP3A“) as stipulated in Article 7 paragraph (1) and Article 9 paragraph (1) of Permendag 49/2020.
According to Article 3 of Permendag 49/2020, the scope of authority of KP3A in Indonesia can be in the form of a Selling Agent and/or Manufactures Agent and/or Buying Agent. Unlike BUJKA Representative Office which can participate in tenders, KP3A is prohibited from engaging in trade and sales transactions, from the initial stage to completion, such as submitting tenders, signing contracts, settling claims as stipulated in Article 4 of Permendag 49/2020.
Furthermore, based on Article 3 of Permendag 49/2020, KP3A may:
- Engage in activities to introduce, promote, and facilitate the marketing of goods produced by the foreign company or group of foreign companies that appointed them, and provide information or instructions regarding the use and importation of goods to companies/users domestically;
- Conduct market research and sales monitoring domestically to facilitate the marketing of goods from the foreign company or group of foreign companies that appointed them;
- Conduct market research on goods required by the foreign company or group of foreign companies that appointed them, and connect and provide information and instructions regarding the export requirements of goods to domestic companies; and
- Conclude contracts on behalf of the appointing company with domestic companies for export purposes.
Author: Adam Kausar
Gaffar & Co. is an Indonesian Boutique Law Firm specializing and focusing in Investment Regulatory, including a Corporate Secretarial Services.
For further queries and information, contact us:
+62 811 877 216 | info@gaffarcolaw.com | www.gaffarcolaw.com
