1. In Indonesia, Opening a representative office (RO) is the fastest and simplest way of establishing a legal entity in the country. This setup is a temporary arrangement – ROs are not allowed to engage in any commercial activities, issue invoices, sign contracts, or earn any revenue. Foreign investors, however, can own 100 percent of this business entity and don’t have to contribute the same paid-up capital required by PT PMAs.
2. Establishing a representative office (RO) in Malaysia is often the fastest and most cost-effective way to have a legal entity and study the local market before determining viable opportunities. However, the RO is prohibited from earning any revenue and is limited to mainly market research, information gathering, and developing trade contacts in Malaysia.
REPRESENTATIVE OFFICE IN INDONESIA
1. Indonesia’s Omnibus Law has made amendments to ROs and introduces four types, In addition, the law has simplified the process for establishing an RO in Indonesia.:
- Foreign representative office (FRO);
- Representative office for a foreign trading company (TRO);
- Representative office for a foreign construction company (BUJKA); and
- Representative office for a foreign electricity company (JPTLA).
2. The business activities of ROs are limited to – market research activities, obtaining information on potential clients, developing trade contacts, and gathering information on regulations and laws.
FOREIGN REPRESENTATIVE OFFICE (FRO)
1. A FRO is ideal for investors who are still exploring opportunities in Indonesia. The FRO is limited to non-commercial activities and there are no restrictions on the employment of foreign nationals. However, if a FRO does employ foreign workers, then it is also obligated to employ Indonesian citizens.
2. FROs are limited to:
- Acting as a liaison, coordinator, or supervisor to the foreign parent company;
- Preparing for the incorporation of a foreign investment company in Indonesia;
- Not participating in the management of the parent company’s branch office or subsidiary in Indonesia; and
- Not seeking revenues from Indonesia.
3. The FRO must be incorporated in an office building in the capital city of any province in Indonesia. Further, FROs are classified as low-risk business entities and thus only require a business identification number (NIB) and a FRO registration to begin operations.
REPRESENTATIVE OFFICE FOR A FOREIGN TRADING COMPANY (TRO)
1. A TRO acts as a selling, buying, or manufacturing agent for the foreign parent company and is prohibited from engaging in any trade or sales activities. To establish a TRO, an NIB and a TRO Business License for the Trade Sector (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing Bidang Perdagangan Melalui Sistem Elektronik – “SIUP3A Bidang PMSE”) is required.
2. Each TRO must have a SIUP3A, and if the TRO wants to conduct imports, then must be done through a local company holding a business license or a foreign investment company holding a general import identification number.
3. Foreign e-commerce organizers must establish a TRO if they fulfill the following criteria:
- Having more than 1,000 transactions with customers within a one-year period; and/or
- Delivered over 1,000 packages for customers within a one-year period
REPRESENTATIVE OFFICE FOR A FOREIGN CONSTRUCTION COMPANY (BUJKA)
1. A BUJKA is an RO for foreign construction companies, and unlike the KPPA and KP3A entities, a BUJKA can undertake projects in Indonesia through a joint venture with a local construction company. the BUJKA entity is required to obtain a NIB and a business entity certificate (Sertifikat Badan Usaha) (SBU).
2. In addition to making a joint venture with a local construction firm, the BUJKA is also required to adhere to the following:
- Fulfill all business licensing requirements;
- Hire an Indonesian as head of the BUJKA representative office;
- Utilizing sophisticated, efficient, and environmentally friendly technology;
- Prioritize the use of local construction materials;
- Employ more Indonesian workers than foreign workers in the expert level; and
- Carry out the transfer of knowledge and technology to Indonesian workers.
3. The joint venture with the local construction firm must also fulfill the various technical criteria such as stating the rights, responsibilities, and obligations in a written agreement between the cooperating businesses.
4. Further, at least 50 percent of the cost value of any construction work undertaken by the joint venture must be done onshore, and at least 30 percent of the cost value of the project shall be borne by the BUJK entity.
REPRESENTATIVE OFFICE FOR A FOREIGN ELECTRICITY SUPPORTING SERVICES(JPTLA)
1. A JPTLA is a representative office for businesses in the field of electricity supporting services. The JPTLA must obtain a NIB and a business entity certificate.
2. The JPTLA business licensing is granted to the following activities:
- Construction of electricity installation;
- Consultation for electricity installation; and
- Maintenance of electricity installation.
3. The JPTLA can undertake high-cost electricity supporting services with the following threshold:
- Projects for the construction and installation of electricity infrastructure worth at least 100 billion rupiah (US$6.9 million); or
- Projects for consultation in the field of electrical maintenance and installation worth at least 10 billion rupiah (US$696,000).
4. Further, the JPTLA representative office must appoint an Indonesian citizen in charge of the office and conduct technology and knowledge transfers to Indonesian workers. The JPTLA must prioritize the utilization of domestic products as well as use high-tech and environmentally friendly technology.
5. GENERAL SET UP REQUIREMENTS FOR ROS, Foreign investors looking to open general RO will need to fulfill the following requirements:
- Register through the OSS online system;
- The parent company’s Articles of Association legalized by a notary and the Indonesian Embassy of the parent company’s country of origin;
- Letter of Appointment by the Indonesian Embassy located in the parent company’s country of origin;
- Latest financial statements of the parent
- Letter of intent legalized by a notary and the Indonesian Embassy located in the parent company’s country of origin;
- Certificates demonstrating competency in the relevant industry or sub-sector;
- Lease agreements;
- Must be located in the capital of a province; and
- A letter that states the RO will not engage in any commercial activities in Indonesia.
REPRESENTATIVE OFFICE IN MALAYSIA
1. Malaysia is fast competing with Singapore to attract foreign businesses seeking a strategic location to headquarter their Asian operations.
2. The country’s proximity with other ASEAN markets, competitive operation costs, and strong supply chain linkages underscore Malaysia’s importance as a regional hub. Establishing a representative office is the fastest way of establishing a legal entity and studying the local market before determining if setting up operations in Malaysia is a viable proposition.
3. Foreign businesses should also know that the RO is a non-trading entity and is thus not governed by the regulations under the Companies Act 2016. The RO is not permitted to earn any revenue in Malaysia.
4. Most applications (excluding tourism, banking, and finance) are submitted to the Malaysian Investment Development Authority (MIDA).
5. Applications for ROs in banking and finance must be submitted to the Central Bank of Malaysia, and RO applications for tourism services must be submitted to the country’s Ministry of Tourism.
6. The required documents include:
- Company profile of the parent company;
- A completed application form stating the purpose of establishment, the activities of the proposed RO, the benefits the RO will bring to Malaysia, and the estimated cash flow and human resources requirements;
- Copy of the parent company’s certificate of incorporation;
- A copy of the parent company’s latest annual reports and audited accounts from the last two years;
- Tenancy agreement for their business address in Malaysia;
- Copy of passport for the approved expatriate;
- Copy of their resume;
- Copies of employment testimonials; and
- One passport-size recent photo.
7. Permissible activities of a representative office in Malaysia, The RO can undertake any of the following activities:
- Gathering information on investment opportunities in Malaysia and the region;
- Identifying components, sources of raw materials, or suppliers;
- Undertake market research and development;
- Act as a coordination center for the parent company’s affiliates, agents, and subsidiaries in the region; and
- Other activities that do not result in commercial transactions
8. Activities representative offices not permitted to do in Malaysia, In addition to commercial activities, ROs are also prohibited from:
- Signing business contracts;
- Participate in the daily operations of any subsidiaries or branches in Malaysia; and
- Lease warehousing facilities.
9. A company can establish the RO for a minimum of two years, which can be considered for extension depending on the company’s commitment to operating expenditure and based on the merits of each case. For government entities or trade associations, the RO duration is for a maximum of five years, which can also be extended based on the merits of each case.
10. The ROs operational expenditure must be at least 300,000 ringgit (US$71,000) per annum. Further, the RO needs to be financed from sources outside of Malaysia.
11. The RO is eligible for expatriate hiring, although expatriates can only be considered for managerial and technical posts. Further, the expatriate must be currently working for the parent company or within the group or subsidiary. Their tax is based on the portion of chargeable income attributed to the number of days they are in Malaysia.
Source:
https://www.aseanbriefing.com/news/set-representative-office-indonesia/
https://www.aseanbriefing.com/news/establishing-a-representative-office-in-malaysia/
