EARLY LEGAL ASSISTANCE
IS THE KEY OF SUCCESSFUL BUSINESS
GET TO KNOW ABOUT INDONESIA

The Republic of Indonesia was formed on August 17th, 1945. The Constitution serves as the supreme law and sets forth the basic state ideology in five fundamental principles. Commonly referred to as Pancasila, these five principles are: belief in one supreme God, humanity, unity, democracy and social justice.

The President is the head of state and also the head of the government. The President is elected once every five years by the Majelis Permusyawaratan Rakyat, shortly “MPR” (the People’s Consultative Assembly), and may be re-elected for a maximum term of five years. The MPR is the supreme policy making body of government.
 

The Dewan Perwakilan Rakyat or shortly “DPR” (the People’s Representative Council) performs the main legislative function of passing legislation and also supervises the performance of the executive branch. Administratively, the Republic of Indonesia consists of 37 provinces, five of which have special status. Each province has its own legislature and governor. The provinces are subdivided into regencies/district (kabupaten) and cities (kota), which are further subdivided into sub-districts (kecamatan) and again into administrative villages (either desa, kelurahan, kampung). Village is the lowest level of government administration in Indonesia. Furthermore, a village is divided into several community groups (Rukun Warga) which are furthed divided into neighbourhood groups (Rukun Tetangga).

 

The Indonesian law can be characterized as part of the civil law system. Modern Indonesian law is quite complex due to the pluralistic nature of Indonesian society and the fact that the law is founded on customary and local laws, Dutch Law, as well as laws enacted after independence. Since independence, there has been a general trend towards replacing out-dated Dutch laws with those enacted by the legislature, but many Dutch laws and structural influences remain. 
 

The 1945 Constitution or Undang-Undang Dasar 1945 is the supreme law of Indonesia.  After the Constitution, there is a hierarchy of laws, listed here in the order of their level of authority, i.e. MPR Resolutions; DPR Enacted Laws; Temporary Regulations in Lieu of Law; Government Regulations; Presidential Decrees; Ministerial Regulations/ Instructions and lower departmental decrees; regulations and instructions. MPR resolutions are implemented through laws enacted by the DPR. After enactment, the laws are published in the formal statute book. These laws may be made more specific through Government Regulations or Ministrial Decrees.
 

The Indonesian Judicial system is composed of six types of lower courts, and a Supreme Court. The lower courts include: General Courts (consisting of two levels: the District Court and High Court); Military Courts (consisting of two levels, the Military Court and Military High Court); Administrative Courts (consisting of two levels, the Administrative Court and the Administrative High Court); Religious Courts (consisting of two levels, the Religious Court and the Religious High Court); the Commercial Court (a specialized court for hearing insolvency cases with the possibility of appeal to a special bankruptcy tribunal of the Supreme Court) and the Industrial Relation Court. The Supreme Court is the highest judicial tribunal and the final court of appeal in Indonesia. The Courts are independent from the executive and legislative arms of the government.

SETTING UP YOUR FDI COMPANY IN INDONESIA

Unlike Indonesian who can set up business presence in various form, such as limited liability company, cooperative, partnership, or commanditaire vennootschap (CV) basically there are 2 forms of business presence for foreign parties in Indonesia, and that is by either setting up a limited liability company (Perseroan Terbatas or shortly “PT”) with foreign direct ownership (Penanaman Modal Asing or shortly “PMA”), or by opening up a Representative Office.
 

The most common and popular company structure in Indonesia is Perseroan Terbatas.  This type of company may be either public or proprietary company. A public company is a company which is permitted to raise capital from the public and it includes those companies listed on the Stock Exchange. A proprietary company is not permitted to raise funds from the public.
 

Foreign Direct Investment (FDI) in Indonesia is governed by the Law Number 25 Year 2007 on Investment (Law No. 25/2007).  Under Law No. 25/2007 the Indonesian Government requires foreign investors who want to operate in Indonesia to form a limited liability company. The corporate structure in the form of Limited Liability Company or Perseroan Terbatas or PT in Indonesia is governed under the Indonesian Corporate Law (Law Number 40 Year 2007 concerning the Limited Liability Company). This Law No. 40/2007 stipulates the procedure on how to establish the limited liability company as well as what is required to be stipulated in the Articles of Association. In practice, Indonesian (company/individual), foreign (company/individual), or joint venture between Indonesian and foreign can establish PT.


In the event of foreign parties would like to set up a PT at the first step they must check eligibility of business line and check whether the proposed business line is 100% opened for FDI or it falls under business sectors that partially, conditionally, or entirely closed to FDI. It is advisable to also seek information from legal consultant to ensure that all requirements under the Indonesian prevailing laws and regulations are fulfilled when you set up an FDI company in Indonesia. 

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ONLINE SINGLE SUBMISSION: THE INTRODUCTION

Online Single Submission (OSS) was introduced in 2018 by the Government of the Republic of Indonesia. It is a web-based platform that integrates all business licenses/permits process under one-roof and enable the simultaneous issuance of permits both at the central and regional government level. The current OSS regulation is based on the Government Regulation No. 5 Year 2021 concerning the Implementation of Risk-based Business Licensing. This risk-based business licensing process is intended for administering a more streamlined and efficient business licensing process and in some instances even removing the licensing requirement for certain businesses. Business licensing process is now classified into low-risk, medium-risk (which is further sub-classified into lower-medium and higher-medium risk), and high-risk business activities, with the respective licensing requirements increasing along with the level of risk.

Depend on level of risk, the business licenses issued by the Government of the Republic of Indonesia consists of Single Business Identity Number (Nomor Induk Berusaha or “NIB”), standard certification, and permit. The OSS issues the above documents after determining level of risk, business activity scale rating including Micro, Small and Medium Enterprises and/or large business, and land area.

NIB also serves as Company Registration Certificate (Tanda Daftar Perusahaan or “TDP”), Importer Identification Number (Angka Pengenal Impor or “API”), and Customs Access for companies who are doing export and/or import. By obtaining NIB, the company will be automatically registered as potential member in the Manpower and Health Social Security Program (BPJS Ketenagakerjaan and BPJS Kesehatan). However, separate activation process is needed before enrolling the company in these programs.

MERGER: WHAT SHOULD YOU DO?

According to the Law No. 40/2007 concerning the Limited Liability Company j.o. the Law No. 11/2020 concerning the Job Creation (the “Company Law”), merger shall cause the Merging Company to expire by operation of law without necessity of liquidation. This means (i) the assets and liabilities of the Merging Company shall pass in law to the Surviving Company, (ii) shareholders of the Merging Company shall by law become shareholders of the Surviving Company, and (iii) the Merging Company shall expire by operation of law as from the Merger comes into effect. Merger shall only be done by taking into consideration the interest of each company, shareholder, third party, creditors, employee and society. It is also important to note that the Government Regulation No. 57 Year 2010 (the “GR 57/2010”) prohibits merger that may cause monopolistic practices and/or unfair business competition. Therefore GR 57/2010 requires a notification to be given to the Indonesia’s Commission for the Supervision of Business Competition for further assessment if such Merger causing the asset value exceeds Rp2,500,000,000,000.00 (two trillion and five hundred billion rupiah) - or Rp20,000,000,000,000.00 (twenty trillion Rupiah) for banking sector - and/or sale value in the amount of Rp5,000,000,000,000.00 (five trillion rupiah). The asset value and/or sale value as intended by this GR 57/2010 shall be calculated based on the total of asset value and/or sale value of the Surviving Company and the business entity which is directly or indirectly controlled the Surviving Company.

 

Certain legal risks and unforeseen legal problems may arise when merging two or more companies. Therefore, conducting assessment shall be taken into account in order to mitigate the risk of any problems emerging during merger process. This includes assessment to corporate documents and status, licenses/permits/registration details, ownership, contractual restriction, employment matters, and litigation. Merger requires stages of process from legal and tax perspective. In principle, you need to ensure that all steps taken are appropriate to minimize risk in the future as a post-merger consequence.

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