Indonesian law requires companies to rent an office already during the incorporation process. The document you’ll need is domicile letter (Surat Keterangan domisili lurah camat) that is given based on your rent agreement.
Until recently virtual office was a good alternative for companies who needed the domicile letter but not a physical office. This saved you money and still enabled you to have an office address.
In this article we’ll explain what kind of office you should rent depending on your location and activities and why virtual office is no longer a good option for most companies.
Receiving domicile letter
First you need a rent agreement. Based on the location, you will get the domicile letter from Kelurahan (administrative village/ lowest level of government administration) and Kecamatan (subdivision of a city/regency).
For example Jakarta is officially divided into several cities – South Jakarta, North Jakarta etc. and each of them itself into many districts (Kelurahan). For example moving your office from Kuningan to Pondok Indah would mean changing your district.
Using your home as an office
In Jakarta you are required to have an office in a designated office building. This means you cannot use your house or apartment for your legal address.
In other parts of Indonesia you can still combine your house and office but you will need to get approval from all of the neighbors whose land borders with yours.
Using virtual office (and when not)
Many companies incorporate before they actually start their business activities in Indonesia. Some companies don’t plan to hire any employees.
For such cases we used to recommend our clients to get a virtual office if they were located in Jakarta. Virtual offices are cheap and used to give you all the legal benefits a physical office gave.
However, in December 2013 there was an important change in regulations. Now companies cannot get any longer permanent business license (IUT) if they are in a virtual office. This would mean that you need to change your domicile letter before you update your license. We’ll explain soon what it means to your business.
How will the government know that you are using virtual office?
Your address doesn’t have a unit number. Virtual offices usually have the same address for all the tenants.
There are a lot of companies registered in the same address. Virtual offices often accommodate hundreds of companies.
The domicile letter is not with the owner of the building. Virtual offices give domicile letters that are issued by them while physical offices have contract with the building.
There is only one reason you should use virtual office. It’s when you definitely don’t need a physical office for at least 12 months after getting your company registered and your future office will be in the same district as the virtual office. In other cases it’s cheaper to rent a physical office directly.
Changing domicile letter
Indonesian laws are strict about changing domicile letter. Even moving from one part of South Jakarta to other would mean that you change your district and need to change a lot of documents. If you move from one city to another, you need to change almost every incorporation document and essentially doubling the company registration fees.
When you are still in the same administrative city (from South Jakarta still to South Jakarta, but different kelurahan and kecamatan) you need to change:
* Principal License of BKPM
* Domicile Letter
* Tax Registry and Tax Card
* TDP/ Business Registry
When you change your administrative city (and each part of Jakarta is a separate city):
1. Principal License of BKPM
2. Article of Association
3. Domicile Letter
4. Tax registry and Tax Card
5. Ratification from Ministry of Law and Human Rights
6. Business Registry/TDP
Therefore be very careful where you get your initial domicile letter and make sure you don’t spend unnecessary time and money for changing it when you are going to get your permanent business license.
Benefits of a physical office
We know that getting a physical office in Jakarta is challenging – the commercial property occupancy rates are extremely high and therefore the good office locations are getting increasingly more expensive.
But having a good physical office has several other benefits besides making it easier to get IUT. Such as:
* It’s easier to hire Indonesian employees when you have a nice office in a prestigious location. This is an important factor for most Indonesian employees when considering where to apply.
* Your local business partners see you as more credible partner. While virtual offices give you a prestigious address too, it takes only one meeting for your partners to realize that you are not having a physical office. And that will be translated as “they might not be here for long term”.
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