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Editorial

DOING BUSINESS IN INDONESIA

Contributed by Siregar & Djojonegoro

ESTABLISHING BUSINESS IN INDONESIA

Indonesia has many potentials as investment destination country. The capital owners from many foreign countries consider Indonesia as the country with many potentials for investment because Indonesia has many important aspects to support good investment.

There are 2 (two) legal entities that are permitted for foreigners in Indonesia: (1) a foreign representative office; and (2) a foreign investment limited liability company (“PT PMA”).

Foreign Representative Office

Foreign companies are permitted to establish foreign representative offices in Indonesia. However, unlike a PT PMA, a foreign representative office has more restrictions on its activities. A foreign representative office’s activities are limited to: (i) take care of the company interests or its affiliated companies and/or; (ii) prepare for the establishment and development of business enterprise of foreign investment in Indonesia or in other countries; and (iii) located in the provincial capital and located in an office building.

Generally, there are 3 (three) types of foreign representative office: (1) foreign company representative office (“KPPA”); (2) foreign trade company representative office (Kantor Perwakilan Perusahaan Perdagangan Asing or “KP3A”); and (iii) construction service provider representative office (Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing or “KPBUJKA”). KPPA is approved by the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”). A KP3A is approved by the Minister of Trade. Foreign construction companies may establish a representative office in order to bid for potential projects and develop construction projects in Indonesia. KPBUJKA can only carry out construction projects if they are considered to be high risk, high cost, or if the project requires a certain type of technology which the relevant foreign company possesses. KPBUJKA is required to execute projects with a local construction company partner pursuant to a joint operation agreement. In order to establish KPBUJKA, a foreign construction company is required to obtain a license from the Minister of Public Works.

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Overview

With the presidential elections set to take place in April 2019, many international investors have adopted a ‘wait and see’ approach to Indonesia. The current president Joko Widodo is expected to win off the back of his administration's efforts to modernise the country and attempting to eradicate corruption and bribery.

Energy has always been the backbone of the Indonesian economy but the emerging middle class has made the consumer, retail and tech sectors even more prevalent. Indonesia is now home to three unicorn companies: ride-hailing app GO-JEK, online marketplace Tokopedia, and Traveloka, which provides online services for purchasing airline tickets and booking accommodation. As an archipelago, fintech is particularly booming as it provides banking services to the locals who do not have quick access to a local branch.

International law firms are prohibited from operating in Indonesia, so many firms have an associated office in Jakarta. Among these are Ginting & Reksodiputro in association with Allen & Overy, Hiswara Bunjamin & Tandjung in association with Herbert Smith Freehills and Hadiputranto, Hadinoto & Partners, a member firm of Baker McKenzie. Meanwhile, Dentons has recently announced a tie-up with local outfit Hanafiah Ponggawa & Partners.

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