The World Bank’s Doing Business in 2010 has ranked Indonesia the 122nd  easiest place in the world (183 economies) to do business. Specific rankings in terms of ease include:

• Starting a business (161st). 
• Dealing with construction permits (61st). 
• Employing workers (149th).
• Registering property (95th).
• Getting credit (113th).
• Protecting investors (41st).
• Paying taxes (116th).
• Trading across borders (37th).
• Enforcing contracts (146th).
• Closing a business (142nd).  

The common business structures established by foreign investors in Indonesia are a:

• representative office.
• regional representative office.
• foreign joint venture company.
• branch of a foreign company.  

New Zealand companies in Indonesia tend to find that a representative office (RO) is faster to set up, cheaper and simpler.

In most cases, New Zealand companies setting up a RO in Indonesia will come under the control of the Department of Industry and Trade. These offices are restricted to a narrow range of activities such as working as intermediaries, handling promotional activities and gathering information for the head office abroad. They may not perform operational business or trading activities such as accepting orders, bidding for tenders, signing contracts, importing, exporting, and distributing. The representatives of the company may be one or more foreigners or Indonesian citizens.

The exceptions to these controls are construction and construction consulting firms, under control of the Department of Public Works. The department allows rep offices to engage in construction and construction consulting activities as long as they have a joint operation agreement with an Indonesian partner.  

A multinational company may establish a Regional Representative Office (RRO) to manage its operation in more than one ASEAN country. RROs are licensed by the Indonesia Investment Coordinating Board (BKPM) and can be established in one of Indonesia's main cities. They are limited to employing two expatriates who can only monitor and coordinate management activities in the region. 

A joint venture (JV) can be established with 100 percent foreign ownership. However, within 15 years companies must sell shares (as little as 1 percent) to Indonesian investors through direct placement or indirectly through the domestic stock exchange.

Joint ventures can involve legal entities (corporations) or individuals and must take the form of a limited liability (or PT) company which is subject to Indonesian corporate law. BKPM officers often require at least US$100,000 (Rp1.1bn) in capital, despite an official minimum of Rp20m. Many investors continue to opt for joint ventures, since a local partner can help in navigating an often complicated investment-approval system. 

Foreign banking and mining companies can open branch offices under certain conditions. 

Most medium and large scale foreign investment projects have to be approved by the BKPM.

Business licences, formally granted for 30 years, now remain valid for as long as production or operations proceed.  Also, the schedule for the issue of a permanent business licence has increased from seven to ten days.  However, the process almost always takes longer than this guideline.

BKPM can also provide reductions or exemptions from customs duty on most capital equipment and raw materials and / or import duty holidays for initial stages of a project.

As well as BKPM’s investment supervision, every province in Indonesia has a Regional Investment Co-ordinating Board (BKPMD) that provides recommendations and permits, for example working permits for expatriates. BKPM also has representative offices in other countries such as, Australia, US, Japan, London, Singapore and Taiwan.

Approval forms are on the BKPM website. 

All investment projects are restricted by the Negative List for Capital Investment (published in the BKPM website, see list on home page) that specifies business fields:

• closed to all capital investment.
• closed to foreign investment.
• open to foreign investments on condition of joint venture with local investors.
• open to foreign investments on certain conditions.

Investment projects in sectors such as banking, oil, gas, mining and forestry are approved directly by the relevant ministry.

The Government also regulates sectors and types of business reserved for small-scale enterprises and those open for medium-scale or large-scale enterprises.

Although there are no minimum investment requirements to set up a limited liability company with foreign shareholding, in practice BKPM requires minimum investments of US$250,000 on the basis that smaller investments are categorised as small to medium sized enterprises and foreign investors should be larger than this.

Regulations stipulate that a business may be established on land it owns as long as the land is in an area designated for industrial use.

Indonesian-based audit and consulting firm RSM AAJ says it is not clear how land can be owned by a company before the company has been established. This provision is presumably intended to cover the situation where a proposed joint venture partner or Indonesian shareholder owns land intended to be used in the company's business.

Foreign-owned and JV companies in Indonesia, already in commercial production, can establish a new company or buy shares in PMA companies, companies established with Indonesian investment (PMDN companies), or non PMA / PMDN companies.  Share acquisitions can only take place if the target company’s line of business is open to foreign capital investment.

Foreign legal entities may also purchase shares in a PMA, PMDN or non-PMA / PMDN companies if the purpose for the acquisition is to rescue or help the financial standing of the target company.

These share purchases do not change the status of the company whose shares are being acquired.

(Additional sources used on this page: RSM AAJ Associates)