When a foreigner wants to engage in market surveillance, networking, explore business opportunities or provide other managerial support in Indonesia to the parent company abroad, he needs to establish a (general) foreign representative office (in Indonesian: Kantor Perwakilan Perusahaan Asing, abbreviated KPPA). This office is the local representative of the foreign parent company. It needs to be emphasized that this foreign representative office is strictly forbidden from engaging in commercial activities and generate revenue/profit, send invoices, etc. For these kind of business activities, a foreign investment company (PT PMA) is required.
It frequently occurs that a foreign investor opens a representative office in Indonesia first in order to ‘get to know the market’. If his findings are positive, then he can open a PT PMA. The advantage of opening a representative office first is that it requires no large capital investment and it is a relatively easy and quick way to establish a legal entity in Indonesia. Contrary to the PT PMA (which is restricted by the Negative Investment List), a representative office can be established in most – but not all (!) – industry sectors (for example, a law firm cannot open a representative office in Indonesia).
Indonesia is a lucrative market for foreign entrepreneurs due to the country’s huge population (a giant consumer force), low minimum wages, and abundant natural resources. However, if Indonesia is a new market for you, or, if you are not sure whether your product, services or project can become a success, or, your financial resources are limited, you are advised to open a “Rep office” first, and use this legal entity to explore the market, promote your products, find business partners (distributors) and become acquainted with Indonesia’s (business) culture. But, we emphasize again, you cannot use your “Rep office” to generate profit or engage in direct business activities.
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