Indonesia: A Guideline On The Establishment Of Foreign Trade Representative Office And Foreign Representative Office In Indonesia

In Indonesia, the term representative office refers to an office led by a chief of representative office appointed by a foreign company outside Indonesia as its representative in Indonesia. However, representative offices are actually further divided into Foreign Representative Office or Kantor Perwakilan Perusahaan Asing ("FRO"), Foreign Trade Representative Office or Kantor Perwakilan Perdagangan Perusahaan Asing ("FTRO"), Construction Representative Office or Badan Usaha Jasa Konstruksi Asing (BUJKA), and Foreign Representative Office of Electric Power Support Services or Kantor Perwakilan Jasa Penunjang Tenaga Listrik Asing.

As an act of testing the "Indonesian business water", many foreign businesses are considering establishing an FTRO and/or FRO rather than directly establishing a Foreign Investment Company or Perusahaan Modal Asing ("PMA").

Generally, FTRO and FRO are not construed as legal entities and they have limited activities, which include market exploration and liaison (i.e., these offices act as the local contacts to connect the principal with the Indonesian parties). It is important to note that FTRO and FRO are not allowed to conduct trade and sales transactions, enter any contract with third parties, conduct tender applications, and are restricted to become members of the management of any company, branch office, or subsidiary office.

In this article, we provide a comprehensive guide on how to establish FTRO and FRO in Indonesia. We elaborate the (i) General Overview of FTRO and FRO (ii) Procedures and Requirements for the Establishment of FTRO and FRO; (iii) Obligations of the FTRO and FRO; and (iv) Concluding Remarks.

General Overview of FTRO and FRO

FTRO

FTRO is a foreign representative office established by a foreign company to be its delegate in Indonesia to introduce, promote, and market goods of the trade principal. In this regard, an FTRO carries out activities on behalf of the principal. An FTRO may be established to become the (i) selling agent, (ii) manufacturing agent; and/or (iii) buying agent.

As the selling or manufacturing agent, an FTRO may:

1. introduce, promote, and improve the marketing of the products of the Trade Principal, including provide direction or information on how to use the products, as well as on how the imports of the products to the domestic consumers are conducted;
2. conduct the market research and supervise the sales of the products of the Trade Principal in Indonesia.

As the buying agent, an FTRO may:

1. conduct the market research on the demand of foreign markets, and provide the information and guideline on the requirements for exporting the goods; and
2. conclude the contracts for export purposes for and on behalf of the Trade Principal.
   
   (Minister of Trade ("MoT") Regulation No. 10/M-DAG/PER/3/2006 on Provisions and Procedure of Issuance of Foreign Trade Representative Business License, as amended by MoT Regulation No. 49 of 2020 ("MoT 10/2006"))

FRO

Similarly, the scope of activities of an FRO is also limited to:

1. acting as the supervisor, communicator, coordinator, and organizer for the interest of the company or its affiliates;
2. preparing the establishment and development of the PMA company in Indonesia;
3. conducting activities that do not generate revenue from Indonesia and do not involve activities, relationships, or transactions of commercial goods and services with other companies or individuals in Indonesia; and
4. not participating in any form of company organizations, subsidiaries, or affiliate companies in Indonesia.

(Article 16 (3) of Investment Coordinating Board (Badan Koordinasi Penanaman Modal or "BKPM") Regulation No. 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities ("BKPM 4/2021"))

Having regard to the above scope of activity, an FRO follows the general rule that it is established as the principal's representative in Indonesia for maintaining communication with its Indonesian partner(s) and/or acquaintances.

Unlike an FTRO, an FRO is not involved in the activities of "introducing, promoting, and advancing the marketing of goods and/or services generated by the principal". These activities are carried out by the FTRO.

Procedures and Requirements for the Establishment of FTRO and FRO

Given no initial capital requirement, the procedure and requirements to establish FTRO and FRO are relatively simple and conducted through the Online Single Submission ("OSS") system. An FRO is considered as a "low-risk" activity according to BKPM 4/2021. Pursuant to the regulation, a low-risk business is required to obtain only the Business Identification Number (Nomor Induk Berusaha or "NIB"), which also serves as the identification once the FRO is duly established (together, "FRO License").

On the other hand, BKPM 4/2021 does not stipulate the risk classification of FTRO activities. However, Article 7 of MoT 10/2006 stipulates that an FTRO is obligated to hold SIUP3A (Surat Izin Usaha Perwakilan Perusahaan Perdagangan Asing) besides an NIB. Similarly, SIUP3A is issued by OSS as the legal basis for an FTRO to carry out its activities in Indonesia. (together, "FTRO Licenses")

For obtaining FRO and FTRO licenses, several documents need to be prepared by the principal of a representative office. They are:

1. Letter of Appointment ("LoA");
2. Letter of Intent ("LoI");
3. Letter of Statement ("LoS"); and
4. Letter of Reference ("LoR") as issued by the Government of Indonesia's Consulate or Embassy in the principal's country.

Given that Indonesia is now the contracting party to the 1961 Convention Abolishing the Requirement of Legalization for Foreign Public Documents ("Apostille Convention"), a legalization of LoI, LoS, LoA, and LoR by the Indonesian Embassy in a foreign country is no longer required. As such, the documents are legalized only by a Notary in the relevant country and apostilled by the relevant authority, before being submitted to the Indonesian Embassy.

For your ease of reference, please refer to the following table below on the requirements for the establishment of FRO and FTRO:

FTRO and FRO licenses will be issued immediately after the Head of FTRO or FRO has completed the registration process in OSS system.

Obligations of FTRO and FRO

Under BKPM Reg. 4/2021 and BKPM Regulation No. 5 of 2021 on Guidelines and Procedures on the Supervision of Risk-Based Business Licensing ("BKPM Reg. 5/2021"), a representative office has the following obligations:

1. FTRO and FRO are required to obtain a Taxpayer Registration Number (Nomor Pokok Wajib Pajak or "NPWP") from the relevant Tax Service Office for the fulfillment of its tax obligation;
2. The Head of FTRO or FRO must be appointed by the principal office and the appointed person must be domiciled in Indonesia. If the Head of FTRO or FRO is a foreigner, the person: (i) must obtain the appropriate work license in accordance with the Indonesian manpower law; and (ii) must employ Indonesian citizens in the FTRO/FRO;
3. An FTRO or FRO should have a domicile address in Indonesia that is located in an office building in the capital city of a province (i.e., Jakarta); and
4. Once established, an FRO or FTRO is subject to an activity report ("Activity Report") that must be submitted bi-annually through the OSS system.

Concluding Remarks

Both FTRO and FRO are efficient ways for foreign businesses to build a market presence in Indonesia, even with restrictions on business activities. It is important to note that FTRO and FRO are not allowed to undertake trading activities and generate revenues in Indonesia. Given the similarity of the purposes and requirements, the FTRO and FRO licenses will be issued by BKPM upon the completion of the registration to the OSS system. They will remain valid during their operations in Indonesia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.