A representative office or also known as Kantor Perwakilan Perusahaan Asing (KPPA) is a ‘place’ for foreigners who want to introduce their business scope and know more about Indonesia market culture. Establishing a representative office can be the first attempt to open an opportunity. So, how to set up a representative office in Indonesia?
The Steps in Setting Up a Representative Office
Setting up a representative office requires some registration procedures. They are submitting some documents needed to the Indonesian Investment Coordinating Board (BKPM) for approval. The documents include:
- Appointment letter from the parent company
- Power of Attorney to sign the application if the parent company is represented by another party
- Copy of valid passport for foreigner who is nominated as the executive in representative office (for Indonesians, copy of ID is enough)
- Letter of statement about the willingness to stay and work only as an RO executive without getting involved in other businesses in Indonesia.
The RO must obtain a domicile letter from the local government, register a tax-payer identification number (NPWP), and then register with the company registry.
Allowed and Restricted Activities of a Representative Office in Indonesia
Based on the Article 68 (2) of BKPM Regulation No.5/2013, a representative office may take care of the interest of the foreign parent company or its affiliated companies and prepare the establishment and development of an international investment company or PT PMA in Indonesia.
Based on the Article BKPM 22/2001, the regulation sets that the representative office is not allowed to search for income in Indonesia (as the source), including carrying out or doing anything related to the engagement in and sales and purchases of goods or services with a company or an individual inside Indonesia. A representative office is also not allowed to participate in any form of management of a company, a subsidiary or branch office in Indonesia.
The Chief Representative is allowed to employ foreign employees as long as they possess a relevant expertise. All foreigners who work in Indonesia need a permit called KITAS (a non-permanent stay permit) and an IMTA (work permit).
The Tax for a Representative Office
A representative office must report a pay tax every month (as well as the monthly social security report) although it does not engage with direct sales, which will make it cannot generate revenue or profit.
Opening a Bank Account
As a legal entity, a representative office can open a bank account at a local bank. The RO usually open a rupiah-denominated account for administration needs and also employee wages. However, a US dollar-denominated is even possible.
To open an account, banks may ask different requirements. But in general, they will require an RO to show the RO’s Copy of Company Registration (TDP), Business License, and a copy of tax number (NPWP). A minimum deposit is also required.
That is all about the simple guide to setting up a representative company in Indonesia. The RO above is only for general representative office. Besides the public RO, there is also the foreign trade representative office (K3PA) and foreign construction services representative office (BUJK). But, the two following types do not have a further discussion here.
Unlike general RO which is regulated by BKPM, the K3PA and BUJK are under the regulation of the Ministry of Trade and Ministry of Public Works.