A holding company in Indonesia is a business set up for the purpose of owning assets or shares in subsidiaries, and not for the purpose of engaging in effective trade or commercial activities.
Indonesia is a very open country to foreign enterprisers which has transformed it into one of the most sought investment destinations in Southeast Asia.
At the moment, Indonesia is the largest economy in its region and those interested in setting up a business in Indonesia can choose between various industries and types of companies.
The wholly-foreign owned company is one of the most appreciated types of structures used by foreign investors in Indonesia because it also allows for the establishment of holding companies.
Our Indonesia company incorporation consultants can offer information on the legal requirements related to starting a holding company here.
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Registering a holding company in Indonesia
The holding company will be registered as any other company in Indonesia. The investor must first choose the type of structure which best complements the activities of the future holding company.
Most foreign entrepreneurs choose a limited liability company with foreign ownership. This type of entity is subject to special requirements, among which an investment plan that must be submitted for approval and a minimum share capital will be injected into the project. Our company registration advisors can assist with the incorporation of the Indonesian holding company.
The requirements for the PT PMA, the foreign investment limited liability company, are listed below by our team:
- at least 2 shareholders;
- an investment of USD 7000.000 irrespective of the business activity;
- corporate income tax rate of 22% or a reduced corporate income tax of 0.5% of the gross income, for a certain period (only applicable in some cases).
Please keep in mind that the requirements for the PT PMA can be subject to change and that the investment project is analyzed by competent authorities. Reaching out to our company formation agents before commencing the registration project is helpful in order to receive updated information about these requirements.
The process to incorporate a PT PMA starts with drafting its Articles of Association. Having specialized local assistance is useful in this case as the documents are legalized by a public notary and then signed by all of the shareholders in the presence of the Indonesian notary.
The next step is to obtain the company’s tax identification number, and this is also a procedure during which our team can assist as the application is performed with the local tax office. Once the process is complete, the issued tax number is sent to the company.
The PT PMA can be subject to divestment obligations, however, this may not be the same when the company is not 100% owned by foreign shareholders and the Indonesian ones stipulate that they do not demand share from the divestment obligation.
Our company registration advisors can assist with the incorporation of the Indonesian holding company.
The newly formed holding company in Indonesia will need to comply with the accounting and reporting requirements. An advantage in terms of taxation is the fact that there is no withholding tax on dividends paid by an Indonesian company to a resident company. The dividends are exempt from corporate income tax for the recipient.
Particularities of the holding company in Indonesia
All over the world, the holding company allows a foreign or local investor to pool various assets under the entity which will have total control over them. The same principle applies to holding companies in Indonesia, according to which the holding is incorporated for the purpose of owning assets or real estate and it will not be effectively involved in a commercial activity.
Some of the types of assets that can be owned by a holding company are the following:
- stocks in other companies which are its subsidiaries as the holding has controlling interest in them;
- real estate which is located in Indonesia or in other locations, and can include prime real estates such as office spaces and apartment buildings;
- intellectual property rights which can be in the form of trademarks, patents, designs, etc.;
- the holding company can also hold other types of assets; it is not involved in manufacturing or producing, nor in the provision of services; it does not conduct business operations.
As far as the subsidiaries it controls are concerned, the holding company in Indonesia does have controlling rights, given the high percentage of shares it owns in the subsidiaries, however, is it not actively involved in the daily management of its subsidiaries.
These can be located in Indonesia or in other countries and are managed as per the applicable reporting rules in the jurisdiction in which they operate, by the appointed agents or shareholders who run their daily activities.
Because there is a clear separation between the holding and its subsidiaries, the Indonesian holding will not be held liable for the losses of the subsidiaries. This means that if a subsidiary is bankrupt, the holding will not be directly affected. You can read below more about these advantages.
Foreign enterprisers interested in setting up holding companies here must know that certain restrictions apply. The list with industries totally or partially restricted to foreign investments is published periodically by the Ministry of Investment.
Foreigners who want to set up holding companies are advised to verify with our Indonesian company formation agents what these restrictions are. There are no mandatory conditions to immigrate to Indonesia in order to be able to register this business type.
Holding company advantages
The manner in which a holding company in Indonesia is structured allows it to limit its liability and employ a useful asset protection strategy. Our company formation agents list some of the key advantages below:
- risk reduction through placing multiple assets in separated entities;
- flexibility for growth through the very fact that the holding can own multiple types of assets;
- centralized control through the fact that the holding is involved in the control (not daily activities) of its subsidiaries;
- asset protection through the fact that the holding will hold the valuable assets of a corporation and will allow for succession planning.
The option to diversify the assets and invest in new assets, as well as cease investments in certain areas if need be, provides a great degree of flexibility and is an important advantage for local and foreign investors in Indonesia.
Structuring a holding company is a step that can be easily accomplished with the help of our company formation agents in Indonesia.
Please watch our video on holding companies in Indonesia:
For more information on the benefits of the holding company or assistance in setting one up, please contact us. You can also reach out to us if you are interested in issues concerning the process to immigrate to Indonesia.