Foreign investors have been eyeing Indonesia as a perfect place to expand and grow their business. This year, BPS-Statistics Indonesia released recent data showing that Indonesia is performing solid economic growth, with household consumption and investment as the leading star.
Establishing a representative office in Indonesia becomes a great solution for foreign companies to start their business in Indonesia without the need for an actual office. General Representative Office or Kantor Perwakilan Perusahaan Asing (KPPA) is a simpler and inexpensive way for foreign companies to start their business in Indonesia.
To learn about what is a representative office, the difference between a branch and a representative office, and more, keep reading.
What Is a Representative Office?
The foreign representative office meaning is a formation or entity that a foreign company uses to engage in market supervision, networking, investigating business chances, or offering other managerial needs in Indonesia to the holding company overseas.
The foreign representative office (FRO) is a perfect way for foreign investors to explore business opportunities in Indonesia. Although there is no restriction on hiring foreigners, a representative office is obligated to recruit Indonesian workers. A FRO is also limited to non-profitmaking activities.
So what is FRO allowed to do?
- Serving as coordinator, affiliation, or administrator to the foreign parent company.
- Arranging for the integration of a foreign investment business in Indonesia.
- Not engaging in the capital office’s branch office administration or subsidiary in this country.
- Not pursuing revenues from Indonesia.
What Are the Different Types of Representatives Office?
After learning representative office definition, you must know four different types of representative office in Indonesia. The different types are:
- KPPA/Kantor Perwakilan Perusahaan Asing or Foreign representative office (FRO).
- Kantor Perwakilan Perusahaan Perdagangan Asing (KP3A) or Representative Office for a foreign trading company (TRO).
- Badan Usaha Jasa Konstruksi Asing (BUJKA) or Representative Office for a foreign construction company. BUJKA is established under the law of a foreign country.
- Jasa Penunjang Tenaga Listrik Asing (JPTLA) or Representative Office for a foreign electricity company.
Advantages and Disadvantages of a Representative Office
Even though FRO is an ideal way to expand a business, there are still disadvantages to it. Below are the advantages and disadvantages of a representative office:
Advantages of Representative Office
Low Incorporation Cost
As mentioned earlier, FRO is a great way to enter the Indonesian market at a low cost. FRO helps foreign companies to comprehend the market.
One of the great things about having FRO in Indonesia is that foreign investors or foreign employees can have residence and work permits. They can perform business activities as business visa sponsors for business partners.
FRO can act as an alternative for employers with a more adaptable organizational chart. Here, FRO only requires one chief executive.
100% Foreign Ownership
FRO is a hundred percent owned and controlled by a foreign company. Shareholders and directors are not needed.
Disadvantages of Representative Office
- Since there are no sales and inventory, FRO can only offer non-profit-generating activities.
- FRO is not allowed to issue any invoices.
- There will be an annual license tax.
- Sometimes, the establishment procedure can be a bit complicated.
You may also check:
- Representative Office vs Branch: What’s the Difference?
- Representative Office vs. Subsidiary: What’s the Difference?
The Requirements for Setting Up a Representative Office in Indonesia
According to the framework of the Decree of the Head of BKPM No. 6 of 2018 concerning establishing a RO in Indonesia, FRO must acquire a Letter of Approval as a principal major license, which is issued by the Investment Coordinating Board (BKPM).
Besides the Letter of Approval, FRO should get Nomor Induk Berusaha (NIB) or a Business Identification Number from the Online Single Submission (OSS) and Nomor Pokok Wajib Pajak (NPWP) or a Tax Payer Registration Number from the Tax Office.
To earn the FRO license, here are the initial requirements:
- Letter of Appointment and Letter of Intent from the holding company abroad.
- Power of Attorney shall sign the form on condition that the participant presented by another affiliation.
- Letter of Reference from the Indonesian Embassy or Indonesian Investment Promotion Centre (IIPC) in the holding company’s location.
- Articles of Association of the holding company.
- Copy of the foreign employee’s valid passport or Indonesian worker’s identification card number who will be appointed as a Representative Office Executive.
- Letter of statement stating the eagerness to stay and only work as a Representative Office Executive and not conduct any other business in the country.
How to Setting Up a Representative Office in Indonesia
For foreign investors who wish to start FRO in Indonesia, these are the steps:
- Visit the Online Single Submission (OSS) system to register.
- Obtain a Representative Office License or KPPA by applying to the Ministry of Law and Human Rights of the Republic of Indonesia (Kemenkumham RI).
- Then, register at the nearest Investment Agency and Integrated Licensing Services (BPMPT) and the local Tax Service Office (KPP).
- A Domicile letter must be obtained to show your business location.
- After getting the Registration of Tax ID (NPWP), apply for Company Registration Certificate (TDP) Acquisition.
How to make sure your business has registered all the required applications and submitted the documents requirements? Set up a representative office in Indonesia and ensure your business has met all the formal requirements with InvestinAsia.
Post-Registration Requirement and Compliance
Once your registration and application are approved and successful, make sure your FRO is not conducting the following prohibited activities:
- Taking part in the trade.
- Providing consultancy favors.
- Opening invoices or engaging in business contracts.
- Hiring warehouses.
- Gaining suppliers.
- Conducting promotional activities.
Other Things to Know About Representative Office
Is a representative office the same as a branch?
A representative office is different from a branch office. While FRO cannot hold profitable business activities, the branch office may engage in commercial activities, including profit-making. The branch office is an extension of the head company.
Is a representative office a legal entity?
Even though it is limited to non-profit business affairs, it doesn’t mean that FRO is not a legal structure. FRO is a legal entity that is allowed to perform non-transactional operations.
That’s all you need to know about what is a representative office and the requirements for establishing a representative office in Indonesia. Establishing FRO in Indonesia is relatively easy. Still, a consultant or service provider will be a huge help. Chat us now and get FREE consultation!