After the lengthy incorporation process you might expect that you’ve managed to beat the bureaucracy and your company is finally set to conquer the Indonesian market. But there is one license every business still needs to acquire – permanent business license.
Let’s look more closely what is it and why you will want to get it as soon as possible.
Role of permanent business license
There are two key licenses when it comes to incorporating a foreign owned company in Indonesia – Principal License (Izin Prinsip) and Permanent Business License (Izin Usaha Tetap – IUT).
Principal license is received during the incorporation process and you are given permission to start investing in Indonesia.
Permanent business license means that you have completed the preparations and are now fully operating in Indonesia.
Key reasons why you need to get IUT
1# Hire foreign experts
With Principal license you are only allowed to issue work permits to foreign shareholders, directors and commissioners. If you want to legally hire foreign experts then you will need to present your permanent business license.
Additionally, if you wish to extend KITAS for the directors and commissioners, IUT is one of the requirements.
2# Get other supporting license
This is especially relevant for trading companies wanting to acquire import license. But also other supporting licenses require IUT.
3# Comply with the law
Even if you don’t plan to hire foreign experts or get an import license we still advise you to get the IUT. Indonesian government is not proactively checking whether the foreign owned companies (PT PMAs) are acquiring the license but this could change any time.
I’ve said it many times but I’ll say it again – as a foreign investor, don’t try to outsmart the Indonesian government. There are thousands of foreign companies that don’t have permanent business license years after their incorporation but it doesn’t mean it is a good practice. Just comply with the law and focus on long-term success.
BKPM is the institution issuing permanent business licenses
4# Add shareholders or sell the company
In order to be able to include new shareholders or sell the company, the PT PMA needs to have acquired permanent business license. The only exception is if the company has been operating for less than a year. Read more about company acquisitions.
Conditions you need to meet
A. Get a physical office
We’ve already started to advise our clients that virtual office is only a temporary solution. If you want to get permanent business license you must get a physical office.
Essentially what it means is that you can get Principal license using virtual office. But if you do, you will need to change your office location before applying for permanent business license. While doing so you will also have to change many documents (see which ones exactly) and it will cost you time and money.
B. Submit investment activity reports (LKPM)
As a foreign company you need to submit investment reports every 3 months until you receive permanent business license. This is to show how you are progressing with your investment plan.
If you missed some of the investment reports it’s not a big deal. BKPM will check only your last investment report when you are applying for the IUT.
C. Proof of investment
Proof of investment should reflect the investment plan you submitted when you first applied for Principal License – which can be but is not limited to:
- Copies of purchase orders
- Financial statement (non audited is accepted)
- Copies of buying of assets
and many more…
Additional requirements for certain business classifications
Permanent business plan requirements depend on your business classification. Here are some common examples:
Service and Trading company – one year physical office rental agreement
Restaurant and Hotels – finish construction of the hotel and recommendation from Hotel and Restaurant Association
Distributors – warehouse rental agreement for at least 1 year and distributor appointment letter
Factories – set up at least 80% of the machinery and have at least 3 year rental agreement for the factory
For medical devices business – recommendation letter from ministry of health
Mining company – Recommendation Letter from Ministry of Energy and Mineral Resources
Primary Products of Wood Forest – Recommendation Letter from Ministry of forestry
Education Sector – Recommendation letter from Ministry of Education
And many more! Contact our consultant to know the exact requirements for your business classification.
For many industries there are no physical items they need to set up first, such as consulting firms. In such case you can apply for permanent business license immediately after you receive Principal license. Of course given that you have a physical office.
When you need to get the permanent business license?
The time you are given to get permanent business license is stated in the Principal license and it’s commonly between 1-3 years.
In reality get the permanent business license as soon as you start commercial activities, have physical office rented and you’ve met the additional requirements.
However, if your company was set up years ago and you still don’t have the license then consider yourself lucky and get the process started now. BKPM will ask for reasons why you hadn’t applied earlier but a good consultant will be able to help you out here.
Feel free to reach out to us at [email protected]