With the rapid development of the Indonesian economy, more and more overseas companies plan to enter the Indonesian market. However, many companies are hesitant to set up a branch or representative office in Indonesia. Here, I will focus on the relevant situation of the representative office.
Restrictions on Representative Office
Indonesian laws and regulations allow foreign companies to open representative offices in Indonesia. However, allowing the establishment does not mean that there are no restrictions. In addition to being unable to freely conduct commercial operations, foreign company representative offices also have many other restrictions. According to the guidelines and procedures for permits and investment facilities in Article 37 of Regulation No. 13 of 2017 of the Indonesian Investment Coordination Board, the establishment of a representative office of a foreign company in Indonesia has at least five restrictions:
- A representative office of a foreign company can only act as a supervisor, liaison, and coordinator and handle issues related to the parent company’s interests or its affiliates.
- A representative office is limited only to prepare for establishing and developing a foreign investment company business in Indonesia or other countries and Indonesia.
- Regarding the office location of a representative office of a foreign company. The Indonesian Investment Coordinating Commission Regulation No. 13 of 2017, Article 37(1) Subparagraph c stipulates that the office of foreign company representative offices is limited to office buildings located in provincial capital cities. In other words, representative offices of foreign companies are not allowed to be established in non-provincial capital cities. At the same time, you cannot use a virtual office address like a limited company.
- The representative office of a foreign company is prohibited from seeking income from Indonesia. The Indonesian Investment Coordinating Board Regulation No. 13 of 2017 Article 37(1) Subparagraph d stipulates: (the activities of foreign company representative offices are restricted) shall not seek income from Indonesia, including agreements/transactions that are not allowed to carry out activities or buy or sell goods or services with companies or individuals in Indonesia.
- Applicable to the handling of the relationship between a representative office of a foreign company and a subsidiary or branch. The Indonesian Investment Coordinating Commission Regulation No. 13 of 2017 Article 37(1) Subparagraph e stipulates: Foreign company representative offices shall not participate in the management of companies, subsidiaries, or branches in Indonesia in any form.
Obligations of A Representative Office of A Foreign Company
In addition to the above restrictions, the regulations also stipulate certain obligations for the representative office as an organization and the head and employees as individuals. For example, before operating, a representative office must obtain a representative office license from the Indonesian government. This is stipulated in Article 37(2) of Indonesian Investment Coordinating Board Regulation No. 13 of 2017.
The maximum period of validity of a representative office permit is three years unless the letter of an appointment indicates that it is less than three years, and it can be extended by the period of validity specified in the letter of appointment. The representative office must apply for an extension of the representative office license at least 30 days before the license expires.
Finally, there is the obligation of the person in charge of the representative office. The person in charge must live in Indonesia and take full responsibility for the normal operation of the representative office. The person in charge shall not engage in activities other than the related activities of the representative office, and shall not concurrently hold the position of the person in charge of the representative office of other companies and/or representative offices. If the person in charge of the representative office is a foreign citizen and/or has foreign employees, then according to Indonesian laws and regulations, the representative office must also employ Indonesian employees.