Explaining Foreign Business Entities

According to the law, Business Actors are allowed to submit application for Business Licensing, whether as: Individuals, Business Entities, Representative Offices, or Foreign Business Entities. Each of these criterias have its own requirements and regulations that organize it. In this article, we will discuss in further details the case of Foreign Business Entity.

Fore a more thorough explanation the topics of Business Entities and Representative Office, take a look at our previous articles concerning these topics.

Although similar, the concept of Representative Office and Foreign Business Entity is different. Representative Offices (“KPPA” or Kantor Perwakilan Perusahaan Asing) is an alternative method for foreign companies to establish their businesses in Indonesia. The functions of a representative office is limited as it cannot engage in commercial activities (profit-generating activities, issue invoices, and enter into contracts). Its main purpose is to serve as intermediary between the parent company and its clients. This is because a representative office is not a separate legal entity moreover, it acts as the extension of its parent company. Foreign Business Entity, on the other hand, Foreign Business Entities are foreign business entities that are established outside the territory of Indonesia and that carries out business and/or activities in certain sectors.

Types of Foreign Business Entities

According to Regulation of the Investment Coordinating Board Number 4 of 2021 on Guidelines and Procedures For Risk-Based Business Licensing Services and Investment Facilities (“BKPM Regulation 4/2021”), Article 9 (11). There are four types of Foreign Business Entities, namely:

a.Franchisors From Abroad;
b.Foreign Futures Traders;
c.Foreign Private Electronic System Organizer; and
d.Permanent Establishment

Risk-Based Licensing

In accordance with BKPM Regulation 4/2021, both Representative Offices and Foreign Business Entities must comply with provisions regarding ‘Risk-Based Licensing’. Thus, in relation to its application as an entity, Foreign Business Entities are required to follow the same procedures as any other Business Actors, namely submission of application through the OSS System, therefore complying with the provisions regarding KBLI.

According to Government Regulation Number 5 of 2021 on The Organization of Risk-Based Business Licensing (“Government Regulation 5/2021”), Article 6 (3). Risk-Based business licensing consists of the following arrangements:

a.Related KBLI/KBLI code, KBLI title, scope of activities, Risk parameters, Risk level, Business Licensing, time period, validity period, and Business Licensing authority;
b.Requirements and/or obligations of Risk-Based Business Licensing;
c.Risk-Based Business Licensing guidelines; and
d.Business activity standards and/or product standards.

In relation to the requirements regarding ‘Investment Value and Capital’, for Foreign Business Entities as stated in the BKPM Regulation 4/2021, Article 13 – Foreign Business Entities are Business Actors that are categorized as ‘Foreign Investors’ under the existing provisions in Indonesia, accordingly, it should have followed the same sets of requirements of Investment Value and Capital of PT PMA. However, in accordance with mentioned regulation, “Foreign Business Entities are exempted from the provision regarding the investment value and capital as referred previously towards PT PMA’s Total Investment requirements”.


To recap, Foreign Business Entities are foreign business entities that are established outside the territory of Indonesia and that carries out business and/or activities in certain sectors. It consists of four types, namely: Franchisors From Abroad; Foreign Futures Traders; Foreign Private Electronic System Organizer; and Permanent Establishment. And, it follows the provisions regarding Risk-Based Business Licensing that is regulated under the management of Ministry of Investment / Indonesia Investment Coordinating Board (BKPM). Although similar, the establishment of such entity might prove to be different with the establishment process of regular companies. We at Selaras Law Firm (SLF) provides you up-to-date information and consultation on all things related to business development and investment. Contact us through our contacts at pur Company Profile below to schedule your appointment.


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