Introduction

As Indonesia's economic landscape evolves, numerous foreign investors are eyeing opportunities to establish a foothold in the country. While some opt for setting up a company, others consider forming a Representative Office (KPPA) for various strategic reasons.

Understanding the Difference

PT PMA, or Perseroan Terbatas Penanaman Modal Asing, represents a company engaged in business activities with capital derived from foreign sources. It can operate solely under foreign ownership or in partnership with domestic investors. On the other hand, a Representative Office (KPPA) is an entity led by either a foreign national or an Indonesian citizen appointed directly by a foreign company. However, it is important to note that a KPPA cannot conduct commercial activities, as strictly outlined in regulations such as Head of BKPM regulation No. 22 Tahun 2001.

Establishment Requirements

To establish either a PT PMA or a Representative Office (KPPA), certain prerequisites must be met, including compliance with designated business fields and types as per the Negative Investment List (DNI). Here are the key requirements:

For PT PMA

1. Specific business types like Real Estate, IT-related ventures, construction, and distribution must have a physical office address, excluding Virtual Offices.

2. PT PMA can engage in wholesale trading only, with retail operations limited to local companies.

3. Virtual offices are acceptable for wholesale trading and representative offices.

4. Paid-up capital requirement of IDR 10,001,000,000 until December 31, 2024.

5. Minimum investment of IDR 10,001,000,000 until December 31, 2024.

For Representative Office (KPPA)

1. Preparation for PT PMA establishment in Indonesia, including market testing and feasibility studies.

2. Handling the company's interests in Indonesia in advisory, control, and liaison capacities.

3. Prohibited from generating profits.

4. Limited to two personnel under a Work KITAS: Chief Representative Officer (CRO) and CRO assistant.

5. Virtual offices are permissible for representative offices.

Conclusion

In summary, a Representative Office (KPPA) can serve as an initial step for foreign companies to explore the Indonesian market before committing substantial capital investments. Typically used for feasibility testing and market analysis, KPPA offers a strategic approach for gauging market interest and potential before venturing further.