Legal & Regulatory

How to Set Up a Limited Liability Company in Indonesia

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It is not mandatory for foreign investors looking to enter the Indonesian market to establish a new Limited Liability Company. Would-be investors may just invest their capital in an existing local company operating in their field of business by following standard acquisition procedures. However, for those looking to establish a new Limited Liability Company or Penanaman Modal Asing (PT PMA), the following are the key steps they would need to follow:

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Indonesia Market Entry Models: Limited Liability Company

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There are two main market entry options available for foreign investors looking to expand into Indonesia: a Limited Liability Company and a Representative Office. A Limited Liability Company is known as Perseroan Terbatas or ‘PT’. Under a PT, shareholder liability is limited to the extent of the capital agreed to be contributed by the shareholders. Indonesian law divides PT into two classes: (1) Local Company and PDMN Company and; (2) Penanaman Modal Asing (PT PMA). In this article, we discuss the PT PMA, where up to 100 percent overseas ownership is permitted.

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Indonesia Relaxes Loan-To-Value Ratio to Spur Credit Growth

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By Dezan Shira & Associates

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Bank Indonesia, the country’s central bank recently announced a relaxation of the loan-to-value (LTV) and financing-to-value (FTV) ratios in the real estate sector. The move, which will come into effect from August 1, 2018, will reduce the down payment obligations of property buyers. The move is also expected to prompt home buyers to purchase real estate by availing the House Ownership Credit (Kredit Pemilikan Rumah – KPR) scheme. It is also aimed at providing more flexibility to banks and financial institutions to disburse loans through the mortgage program.

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Indonesia Increases Interest Rate for Second Time in Two Weeks to Boost Flagging Rupiah

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By Dezan Shira & Associates

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Bank Indonesia (BI), the country’s central bank recently raised its key interest rate for the second time within a span of just two weeks. The move is seen as an attempt to arrest the volatility of the Rupiah, the country’s currency as well as to prevent the outflow of capital from the archipelagic nation.

On May 30, 2018, BI increased its key benchmark by 25 basis points to 4.75%. This was a repeat of an earlier increase of 25 basis points announced on May 17, 2018. The previous increase was in itself the first interest rate hike in four years.

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IP Protection in Indonesia’s Food and Beverage Industry

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By: South-East Asia IPR SME Helpdesk

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The food and beverage (F&B) industry includes the research and development, processing, production, wholesale and distribution, including branding and retailing, of a wide range of food and beverage products.

Recent research by the EU SME Centre suggests that European SMEs are increasingly expanding their business abroad, and are making significant investments in product development, pricing and growth strategies in emerging markets.

 

Rapid economic growth in South East Asia is creating a burgeoning market for imported F&B products. Indonesia accounts for one third of the region’s GDP and has the fifth largest fresh food market in the world. The turnover in Indonesia’s processed F&B industry grew by 4 to 5 percent in the first quarter of 2015 from the same period in the previous year.

While opportunities for EU SMEs in Indonesia’s F&B industry are promising – the country is demanding more ‘Westernized’ products – it should be noted that the majority of the Indonesian population is Muslim. This means that all slaughtered food must possess halal certification and adhere to specific labelling requirements, and that importers should be aware of regulations related to alcohol.

As well as paying attention to Indonesia’s F&B regulations, EU SMEs should also take steps to ensure that their IP rights are protected. There are several types of IP that are relevant to the F&B industry.

Trade marks in Indonesia

Concerns about food safety and halal observance in Indonesia, and the relatively high number of counterfeit and home-made products (especially in the alcoholic beverage industry) mean that F&B reputation is especially important.

A trustworthy brand can be critical to the success of F&B products in Indonesia, as in other countries in South-East Asia. A company’s trade mark can therefore be critical for distinguishing the goods of one trader from those of another – i.e. it can function as a badge of quality.

Indonesia uses a ‘first-to-file’ system, meaning that the first person to register a trade mark owns the right to it – regardless of who ‘created’ it first. It is particularly important to register your trade mark in Indonesia because trademark piracy due to ‘bad faith’ registration is a serious problem. ‘Bad faith’ registrations occur when a trade mark is registered by a third party that does not own the trade mark, thereby preventing the legitimate owner from registering it.

Geographical indications

It is also possible to register geographical indications (GIs) in Indonesia. This includes products that originate from a specific geographical location and thus possess certain qualities associated with that area.

Examples include Bordeaux wine, Parmesan Reggiano cheese and Parma ham. To register a GI, the registrant must belong to a collective organization representing a group of producers in the area that produces the goods they want to register.

Packaging

Creative packaging styles are developed to distinguish the external look of different products. Despite its commercial significance, the importance of packaging is often underestimated, as is the importance of protecting design aspects of products to prevent counterfeiting and replication.

Packaging elements can be registered as trademarks, design patents or copyright; 3D trademarks are another way to protect product packaging.

Design patents

Design patents may be used to protect the visual appearance of products. They cover:

  • The shape of a product (e.g. Chambord’s distinctive bottle);
  • The pattern of a product (e.g. Tunnock’s Caramel Wafer);
  • The shape and pattern of a product;
  • The shape and color of a product;
  • The shape, pattern and color of a product.

Two types of patents are recognized in Indonesia:

  • Standard patents: for products and processes – three to five years to file; 20 years patent protection; and
  • Simple patents: for products only – two to three years to file; 10 years patent protection.

In both cases, annual payments must be made after the grant to keep the patent valid. In the case of the standard patent, publication takes place 18 months or more after the filing date, whereas for the simple patent the application will be published three months or more after the filing date.

Copyright

Copyrights can also be used to protect packaging rights in Indonesia. Shapes, ornamental features, products featuring works of applied and fine art can be protected, as can images of F&B products – brochures, catalogues, web content, labels and marketing materials.

Copyright protects the expression of an idea, but not the idea itself.  Copyright in a work is effective from the date of creation of the work, and there is no need to register copyright (though it is possible to record copyright at the Copyright Office).

Trade secrets

A trade secret is widely understood as non-public information that is financially valuable and is guarded with confidentiality measures. In the F&B industry, trade secrets may refer to ingredients or processing methods that are critical to the taste, texture, appearance and smell of a product. A famous example is the Coca Cola formula.

In Indonesia, trade secrets may be protected by applying physical, technical and contractual barriers. While there is no official registration process, EU SMEs intending to import F&B products to Indonesia might consider asking their employees to sign agreements to agree to keep trade secrets confidential. All private documentation should also be marked: ‘confidential – do not disclose.’

There is no time limit to trade secret protection – it will remain a secret until it is publicly disclosed.

Case study: Es Teler 77 – an Indonesian success story

Company background

Es Teler 77 is an Indonesian fast-food chain, with over 200 restaurants in Indonesia and several in Malaysia, Singapore and Australia. It was established by Mrs. Murniati Widjaja and her husband in 1982, when they began selling a fruit ice drink called “Es Teler” from a kiosk outside a shopping mall in Jakarta.

Establishing a brand

The name “Es Teler 77” was decided when the couple decided to add the Chinese lucky number 77 to the name of their kiosk. To advertise their brand name, the family sponsored local competitions and attempted to beat national records, such as creating the biggest Christmas tree in Indonesia. These events drew media attention and increased their small company’s profile.

Gradually, their business drew larger swathes of customers; the kiosk was upgraded into a small restaurant, and several food items were added to the menu.

Due to the restaurant’s increasing popularity, the family chose to register “Es Teler 77” as a trade mark to protect their company from fraudulent activity. They also registered the company’s service mark “Juara “
Indonesia” in categories including restaurants, cafeterias, hotels, catering, beverages, food services, and various F&B categories (such as meatballs, iced drinks and syrups). Understanding the value of trade marks, the company created and registered another service mark: “Mie Tek Tek” – which would be used exclusively for noodle outlets.

Franchising

Much of Es Teler 77’s success can be attributed to its strict franchising strategy. Franchisees are required to pay around EUR 7,600. This entitles them to a franchise term of 5 years. Franchisees are obligated to send their staff to an Es Teler 77 training center for one week, followed by three weeks at an established Es Teler outlet. Franchises must be in either mall, shopping center or supermarket locations.

related-link_indob-icons_2017RELATED: IP Protection in the Philippines’ Food and Beverage Industry

The Es Teler 77 brand is widely known in Indonesia and South-East Asia due to its owners’ meticulous protection of its trade marks. The company has also invested in catchy marketing and has developed a strong and highly reputable franchise.

Take-away messages for EU SMEs in Indonesia’s F&B industry

  • Mandatory F&B regulations and labelling requirements do not cover IP protection in Indonesia. To protect your trademarks, designs and copyrights in Indonesia you should always consider registering them.
  • Due to F&B safety concerns and the prevalence of counterfeit goods in Indonesia, brands and packaging are often key to the success of EU SME products.
  • Registration is the key to the protection of your IPR in Indonesia.
  • Design patents can be a good way to protect your product packaging.
  • Keep trade secrets confidential – regulate access to information with physical barriers, such as contracts.

About South-East Asia IPR SME Helpdesk

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The South-East Asia IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to South-East Asian countries, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (question@southeastasia-iprhelpdesk.eu) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days.

The South-East Asia IPR SME Helpdesk is co-funded by the European Union.

To learn more about the South-East Asia IPR SME Helpdesk and any aspect of intellectual property rights in South-East Asia, please visit our online portal at http://www.ipr-hub.eu/.

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Indonesia Eases Tax Holiday Policy for New FDI Projects

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By Dezan Shira & Associates

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In a bid to attract more investment to support the country’s economic growth, Indonesia recently issued a new regulation granting a 100 percent Corporate Income Tax (CIT) cut to new FDI-backed businesses.

Further, the new regulation grants tax holidays to new investors in any of the 17 pioneer industries including transportation, telecommunications, robotic components, oil and gas refinery, train engines, medical devices, pharmaceutical raw materials, power plant machinery, and processing of metals and agricultural products among others. Pioneer industries are those that create added value, introduce advanced technology and have strategic value for the national economy. Previously, the provision was available to only eight such industries.

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Indonesia Targets Maritime In OBOR Investment Push

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The Indonesian Government has developed a deliberately “limited” portfolio of projects for Chinese businesses to invest in as part of the OBOR maritime routes. Indonesian Investment Coordinating Board (BKPM) chairman Thomas Lembong has confirmed that Indonesia would only offer infrastructure projects in a limited number of regions as the government had found that a lack of focus could make Chinese investors hesitant.

Lembong stated that Indonesia would focus on maritime projects encompassing transportation, telecommunications, tourism, industrial estates, energy and power. “We have a vision that during the summit, we will propose integrated projects worth tens of billions of US dollars. However, the government must first pick out two or three priority regions,” he said on Wednesday.

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Government Regulations Aim to Add Value to Indonesia’s Mining Industry

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By: Winnindo R&D Team
Editor: Samuel Glickstein

The Indonesian government recently published its fourth revision of Regulation No. 23 2010, which governs the country’s mineral and coal mining sector.

The government also published two decrees for the Ministry of Energy and Mineral Resources to implement the regulation: Ministerial Decree No. 5 and Ministerial Decree No. 6. Ministerial Decree No. 5 concerns the increase of the added value of minerals for domestic processing and purification and Ministerial Decree No. 6 Year involves the export agreement.

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According to Ministerial Decree No. 5, holders of mining production and operation licenses, special mining production and operation licenses, as well as mining production and operation licenses that specialize in processing and purification are obligated to fulfill minimum processing and/or purification requirements. Companies may process and purify minerals individually or through joint ventures.

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Establishing a Representative Office in Indonesia

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By: Winnindo Business Consult
Editor: Dustin Daugherty

As a country with a population exceeding a quarter billion – by far the largest in ASEAN – Indonesia is an alluring market for foreign companies to promote and sell their products and services w. With a young population (the median age is 29 years, which is low by regional standards) and a large and growing middle class, many foreign businesses have established Indonesian subsidiaries to tap into the large market.

However, in many cases – especially for small and medium-sized enterprises (SMEs) or other investors lacking the resources of multinational corporations – it is prudent to ease into the market slowly with a less expensive and lighter footprint to explore opportunities and gain market insights before committing to larger investments. For companies looking to conduct market research, identify potential partners, provide post-sales service or other support services, or even oversee the execution of commercial agreements with local partners, a Representative Office (RO) offers a low risk and low cost local presence. An RO can be an ideal structuring option to take advantage of Indonesia’s vast potential without committing substantial investment capital for patient investors initially content to conduct more limited activities and without a need to generate revenue locally.

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Intellectual Property Rights and Trademarks in Indonesia

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By: Dezan Shira & Associates
Editor: Samuel Glickstein

Foreign firms in Indonesia can protect their investments by familiarizing themselves with the country’s intellectual property rights (IPR) landscape. Indonesia possesses a strong legal IPR framework that generally meets international standards.  The country is a member of the World Trade Organization (WTO) and has acceded to the Agreement on Trade-related Aspects of Intellectual Property (TRIPs Agreement). Furthermore, Indonesia has ratified most major international IP agreements, including the Paris Convention and the Berne Convention. In 2014 the Indonesian government amended the 2002 Copyright Law to improve the efficiency and effectiveness of the country’s IPR system and protect copyright owners. The changes include extending copyright protections for most types of works from 50 years to 70 years after the death of the author, outlawing the illegal upload and download of copyrighted material for commercial purposes, creating harsher penalties and criminal sanctions for copyright violations, and establishing landlord liability for “deliberately and knowingly” permitting the sale or duplication of copyright infringing products.

However, it is difficult to safeguard and enforce IPR in Indonesia. The Office of the United States Trade Representative has placed Indonesia on its Special 301 Priority Watch List, a list of trading partners that experience IPR protection and enforcement issues. Counterfeiting as well as physical and online piracy are common in Indonesia. According to the International Intellectual Property Alliance, 86 percent of business software in the archipelago is unlicensed and retail piracy rates are likely even higher. Investigators from the Directorate General of Intellectual Property (DGIP) do not have authority to arrest people and must cooperate with the police for enforcement action. IP owners in Indonesia must file formal complaints with the police before authorities can take action. Carrying out raids on businesses that violate IPR in Indonesia is an expensive and time-consuming process because the police must interview witnesses.

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