A joint venture Indonesia (JV) combines two or more businesses’ expertise and resources to reach particular goals or pursue specific projects. The joint venture is not only combining different resources but also shares its rewards and risks. Since it is a big decision, many considerations involve before entering into a joint venture Indonesia.
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Things Need to Consider before Setting up a Joint Venture
It is easier to start a new joint venture company in Indonesia than buying shares in an existing one. Other Things you need to consider while setting up a joint venture in Indonesia are as follow:
1. Determine the Business Sector
First of all, it is vital to determine the business sector of Indonesian joint ventures. It is because not all sectors are open to foreign ownership.
2. Negative Investment List and Foreign Ownership
Under the Negative Investment List (DNI), regulate the maximum percentage of foreign ownership. This list keeps updated from time to time.
3. Determine the Locations
After determined the joint venture company’s business sector and foreign ownership, it is also necessary to decide where the JV will operate.
This is because certain business sectors do not allow a joint venture to operate in certain Indonesian regions. Therefore, certain business sectors only allow a joint venture to operate in specific regions in Indonesia.
4. Taxation
The major taxation matters for a joint venture company are the withholding and income tax payable.
In most cases, foreign shareholders are responsible for 20% of the final withholding tax on dividends from an Indonesian joint venture company.
Once JV is established, it is always advisable to outsource taxation matters to an expert to ensure compliance and seamless operations in Indonesia.
Types of Joint Venture in Indonesia
Before setting up a JV, you need to know about the types of JV in Indonesia. There are two types of joint ventures in Indonesia: corporate JVs and contractual JVs.
Corporate JVs
There are two kinds of Corporate JVs which are incorporated JVs and partnerships.
An incorporated JV is a legal entity that has limited liability status, commonly referred to as a limited liability company (Perrseroan Terbatas or “PT”). PTs are organized under the Company Law.
A partnership is a business entity that does not have limited liability status. Common forms of partnerships in Indonesia include:
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A firm (firma or venootschap onder firma);
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A komanditer partnership/association (commanditaire vennotschap or “CV”).
The main difference between a firm and a CV lies in the contribution of the partners. In a CV, there are two types of partners, namely active partners, who manage the business of the CV, and passive partners, who merely make capital contributions to the CV. Above all, the liability of a CV’s passive partners is limited to the amount of their capital contribution. In contrast, there are no distinct categories of partners in a firm.
Contractual JVs
A contractual JV does not require the establishment of a legal entity since it’s formed by agreement between the JV partners.
The typical JV founding documents for a corporate JV are the:
- Deed of establishment, which contains the entity’s articles of association and a list of the members of the board of directors and board of commissioners, for a limited liability company (PT), or
a list of the partners, for a partnership. - JV/shareholders’ agreement entered into by the JV partners, which is a private agreement documenting the relationship between the JV partners.
- The deed of the establishment must be in the form of a notarial deed.
- A decree from the Ministry of Law and Human Rights (MOLHR) approving the establishment of the PT (MOLHR decree).
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