Indonesia 

The most common type of for-profit corporate organizational form used to operate a trade or business in Indonesia is the limited liability company (perseroan terbatas, “PT”). Due to its legal entity nature (separation of assets), the responsibility of the shareholders is limited to their share portions, which serves as a distinguishing feature preferred by investors and business actors compared with other forms. In addition, certain lines of business are only open to entities in the form of a PT.

In terms of investment, subject to certain requirements, including minimum capitalization, investment value and foreign investment restriction, foreign investors may only operate a trade or business with a physical presence in Indonesia by establishing a foreign-owned PT. Many micro, small, and medium businesses start as individual businesses to develop before deciding to expand and establish a PT, which is likely caused by a higher level of scrutiny, various obligations (both statutory and fiduciary) imposed on a PT, and the minimum capital requirement applicable to certain lines of business operated by a PT.

Other forms such as civil partnership (non-legal entity, an agreement between two or more individuals to contribute assets/expertise with the intention of sharing the profits or benefits obtained), firm (non-legal entity, a form of partnership to operate a business by using a common name), commanditaire venootschap (non-legal entity, a partnership established by two or more individuals whereby some of the members have limited responsibilities) (“CV”) are less popular, albeit remaining available for business actors.

a. Enterprises that seek financing from investors and will have multiple owners tend to form PTs, especially because of the considerable scope of choices of investors, i.e., both Indonesian and foreign. There is no maximum number of shareholders/owners of shares in a PT, but the minimum is 2. The shareholders/owners may be Indonesian and/or a foreign individual or entity.

b. As Social Enterprises have yet to be regulated under Indonesian law, for-profit Social Enterprises currently existing in Indonesia were established in the form of traditional entities such as PT/CV, with PT occupying the top position as the most common form of profit-oriented Social Enterprises.

For-profit corporate organizational firms such as PTs employ a two-tier board system, i.e., Board of Directors (for management) and Board of Commissioners (for supervision). Both the Directors and Commissioners are expected to serve the best interests of the PT. The Directors and Commissioners owe loyalty to the PT both above their own personal interests and the interests of the shareholders who appointed them, even where the interests of the PT conflict with those other interests. Neither the Board of Directors and the Board of Commissioners nor its individual members are agents of any of the shareholders. The limitation of the Board of Directors and Board of Commissioners' duties and responsibilities are subject to the provisions under the Articles of Association (“AoA”).

In addition, for certain corporate actions such as merger, consolidation, acquisition, and demerger, the Indonesian Company Law stipulates that a PT must take account of the interests of: (i) the PT, the minority shareholders, employees of the PT; (ii) the creditors and other business partners of the PT; and (iii) the public and fair competition in doing business.

No. Social Enterprises have yet to be regulated in Indonesia, and thus, those currently existing in Indonesia were established in the form of traditional entities such as PT/CV (for-profit), and Foundation/Association/Cooperative (non-profit).

Nevertheless, the House of Representatives and the Indonesian Government have prepared a Bill on National Entrepreneurship, which incorporates several provisions on Social Entrepreneurship. Under the Bill, Social Entrepreneurship will be performed by Social Entrepreneurs by forming entities such as Foundations, Associations, and Cooperatives. Social Entrepreneurship has certain characteristics, such as having business activities where most of the profits are re-used to implement social vision and mission to solve social issues in the community and/or provide positive changes to the welfare of the society and the environment. There are certain incentives envisaged to be provided for entrepreneurship activities, including: (i) funding; (ii) tax incentives; (iii) training, counseling, and mentoring; and (iv) ease of licensing requirements.

As an additional remark, the Foundation, Association, and Cooperative are legal entities, whose assets are separated from the members/founders. A Foundation is aimed at achieving specific objectives in the social, religious, and humanitarian fields, and has no members; an Association constitutes a group of people that is established to realize the similarity of specific objectives and purposes in a social, religious, or humanitarian field y and do not share profits with its members. Under Indonesian law, Foundation and Association are regarded as Community Organizations in the form of legal entities, which are organizations established and formed by the community based on similarity in aspirations, will, needs, interests, activities, and goals to participate in development for the purpose of achieving the Unitary State of the Republic of Indonesia based on Pancasila (the official, foundational philosophical theory of Indonesia). A Community Organization is voluntary, social, independent, non-profit, and democratic. Despite the non-profit attributes of Foundations and Associations, the Bill seems to provide the possibility of these entities earning a profit insofar it is allocated to address social issues.

Please see our response in I.6 below for further details on Cooperative.

Yes. As Social Enterprises have yet to be regulated in Indonesia, parties may choose to operate a for-profit or a non-profit traditional entity as a Social Enterprise. The applicable requirements, treatments, benefits, restrictions, and obligations differ in accordance with: (i) the form of traditional entity established as a Social Enterprise; and (ii) the objectives of the Social Enterprise (for-profit/non-profit). There are no special/different treatments for non-profit entities formed as Social Enterprises and those that are not formed as Social Enterprises. The most common form of non-profit for Social Enterprises is Foundation.

The use of non-profit traditional entities for Social Enterprises is less prevalent than its counterpart (for-profit entities).

Yes. A Cooperative is a legal entity, whose assets are separated from the assets of its members. There is no requirement that only workers can become members of a Cooperative; however, there is a mandatory minimum number of members, i.e., 9 individual members. Similar to a PT, it employs a two-tier board system comprising Management and Supervisor.

A Cooperative prioritizes the interests of the members and adheres to the principles of voluntary and transparency. All members have equal voting rights – one member one vote – which prevents any kind of discrimination between the members. A member of a Cooperative performs dual roles at once, i.e., as an owner as well as a user of services of the Cooperative. In addition, a Cooperative is entitled to incentives such as: (i) human resources training; (ii) innovation support and market expansion; and (iii) funding access.

Although a Cooperative is allowed to receive a grant for capitalization from a foreign source, with notification to the Minister of Cooperative and Small and Medium Enterprises, such grant may not be distributed, directly or indirectly, to the members, Management, and Supervisor. There are only 4 types of Cooperatives based on the line of business and/or economical interest of the members: (i) consumer Cooperative – engages in the services of providing goods for the needs of members and non-members; (ii) producer Cooperative – engages in the services of procurement of production facilities and marketing of products of the members to members and non-members; (iii) services Cooperative – engages in the services unrelated to savings and loans needed by members and non-members; and (iv) savings and loans Cooperative – engages in savings and loans activity as the only services offered to the members. In addition, certain lines of business are closed to a Cooperative (as explained in I.2 above, there are lines of business that are only open to entities in the form of a PT).

As Social Enterprises have yet to be regulated under Indonesian law, there are no unique reporting requirements tailored for entities formed as a Social Enterprise and specific government bodies for Social Enterprises. The reporting obligations vary depending on the type of the selected traditional entity established for such purpose.

As Social Enterprises have yet to be regulated under Indonesian law, no case law and jurisprudence has evolved to address the matter.

Yes.

PT – Under the Indonesian Company Law, a PT which engages in the line of business of and/or related to natural resources must exercise corporate social and environmental responsibility (“CSR”), which constitutes an obligation of the PT budgeted and allowed for as a cost of the PT. In practice, CSR shall be carried out by the Board of Directors based on the PT’s annual work plan after obtaining approval from the Board of Commissioners or the General Meeting of Shareholders in accordance with the PT’s AoA, unless stipulated otherwise under the laws and regulations. The implementation of CSR is included in the PTs annual report and is accounted for to the General Meeting of Shareholders. Failure by a PT to perform CSR is subject to sanctions under the relevant laws and regulations (sector-based, e.g., sanctions under environmental, mining, forestry laws and regulations).

As regards governance, the Indonesian Law also requires each PT to comply with good corporate governance (“GCG”) principles. In 2006, the National Committee of Governance Policy (KNKG) issued General Guidelines on GCG in Indonesia, which governs, among others: (i) GCG principles (transparency, accountability, responsibility, independency, fairness); (ii) business ethics and code of conduct, including in the event of conflict of interest and confidentiality of information; (iii) implementation of functions of organs of a PT; (iv) rights and obligations of shareholders; and (v) stakeholders’ interests.

Other entities such as firm, CV, Cooperative – the Constitutional Court of Indonesia held in its Decision No. 53/PUU-VI/2008 dated 13 April 2009 that these entities are also subject to CSR requirements under the Indonesian Investment Law (they are deemed as investment vehicles). Please see our response in I.11 below for further details on CSR for investors.

As Social Enterprises have yet to be regulated under Indonesian law, there are no specific ESG requirements tailored for entities formed as Social Enterprises. The ESG requirements vary depending on the type of the selected traditional entity established for such purpose.

Yes. The Indonesian Investment Law requires each investor to perform CSR, which is further defined as the responsibility attached to each investment company to continue to create relationships that are harmonious, balanced, and in accordance with the environment, values, norms and culture of the local community. There is no further elucidation on the means of implementation of this CSR requirement. As investor is defined broadly, i.e., an individual or a business entity that carries out investment, which can be in the form of domestic investor and foreign investor, it can be concluded that the CSR requirement applies to all investors regardless of the line of business, unlike the CSR requirement under the Indonesian Company Law, which emphasizes lines of business related to natural resources.

In addition, the Indonesian Investment Law also requires investors to implement GCG principles. There is no further elucidation on the means of implementation of this requirement.

Failure by an investor to perform CSR and/or implement GCG principles is subject to the administrative sanction of: (i) warning letter; (ii) temporary restriction of business activities; (iii) temporary suspension of business activities and/or investment facilities; or (iv) revocation of business activities and/or investment facilities.

No major investor classes are required to weigh in ESG factors. Note, however, financial institutions, issuers, and public companies are bound to mandatory disclosure relating to ESG. Financial institutions, issuers, and public companies are required to prepare an annual sustainability report in support of their annual reports (we mention this in Section II. 6 below). Considering this factor, while there is no requirement for so-called major investor classes (Indonesia do not differentiate between “institutional clients” and “retail clients”, or any similar concept as recognized and adopted in some jurisdictions) to look at ESG issues, they should consider it seeing the mandatory disclosure in place for specific entities mentioned above. In addition, the practice so far in recent years demonstrates that ESG issues indeed are among the factors the investors typically weigh in forming part of their tool of investment measurement.

Depending on their type of forms, Social Enterprises typically receive grants, charitable investments as well as traditional investments. Grants and charitable investments appear to be found in non-profit organizations (i.e., foundations, CVs), whereas traditional, conventional investments are more common in Social Enterprises of corporate forms. 

To date, the number of new for-profit impact investments is small today. These are, for example, Indonesia Impacts Fund (IIF) which is formed in 2020 by local venture capital firm, Mandiri Capital, with APEC Business Advisory Council Indonesia that focuses on investing in MSMEs and start-ups with social impacts, in particular, those that match up with UN Sustainable Development Goals (UN SDGs). Another noteworthy development is Mekar Impact Fund (MIF), which is reportedly Indonesia’s first impact-investing fund formed in 2018 by a local peer-to-peer (p2p) lending platform, Mekar, and aims to invest over the next five years in various sectors including, healthcare, education, clean energy, and recycling & eco-materials.

There is no special government funding tailored specifically for ‘Social Enterprises.’ However, there is government funding available for MSMEs; we discuss this in Section I.V.2 below.

We are not aware of any local listed companies formed as Social Enterprises; however,  25 selected  companies are listed on the Indonesia Stock Exchange (IDX) that conform with the Sustainable and Responsible Investment (SRI) as measured by SRI-KEHATI Stock Index. SRI-KEHATI is one of the indices in IDX and a green index that pays attention to listed companies that meet ESG criteria. These companies are from various industries, including banking, agribusiness, food manufacturing, automobile, infrastructure, and mining.

Yes, starting from 2020, listed companies must disclose ESG under their annual sustainability report to accompany their annual reports.

With the exception of the green bonds market, impact bonds have yet to bloom in Indonesia.

Not that we are aware of, in particular for foreign investments, generally foreign investors may invest in Indonesia. Nevertheless, companies in some specific sectors may be subject to foreign ownership limitations under the so-called Negative List provisions in the Indonesian Investment Law.  For non-profit, there are no such restrictions in receiving donations abroad. 

Yes, securities crowdfunding (previously, equity crowdfunding) is legal in Indonesia and is under the supervision of OJK. Securities crowdfunding platforms enable small and medium businesses to raise funding from investors in the capital market.

Pursuant to the Law No. 7 of 1983 on Income Tax, last amended by Law No. 36 of 2008 (“Tax Law”), any form of business establishment (legal entity established and domiciled in Indonesia) is a tax subject. Therefore, under this definition, a Social Enterprise is still subject to income tax regulation. Therefore, income made by the Company is still subject to income tax regulation as long as it is for profit. Furthermore, any donation or grant obtained by a Social Enterprise will be subject to income tax as well.

There are tax reductions and exemptions available for nonprofit organizations and foundations in general, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form.

Please consult a tax advisor for more detailed tax reductions and exemptions that may apply for a non-profit organization.

No.

No.

No.

At the time of writing, there is none. The country only acknowledges regulatory sandboxes in the financial sector; these are under the Indonesian Financial Services Authority (OJK) and the Central Bank (Bank Indonesia) regimes.

While not specifically for Social Enterprises, there are some recent significant changes in the scene of micro, small and medium enterprises (MSMEs) from the government through the country’s reformist Omnibus Law. The government now provides special allocation funds to finance activities/programs as well as loans and grants for MSMEs development and empowerment. There are also training and assistance for MSMEs. The Omnibus Law also introduces an incubation scheme, a program aiming for building capacity and means of entrepreneurial and managerial development of MSMEs through incubators. In legal aspects, legal aid/assistance is available for MSMEs from the government.

With the practice remains largely unregulated thus far, there are yet different compliance requirements for Social Enterprises or traditional enterprises.     

No.

No.

As you refer to the term ‘Enterprise’, we assume that you mean a profit-based business entity. A profit-based enterprise is commonly established in the form of PT. Generally, a PT takes approximately one to two months to establish.

The fee for establishment varies from an average of IDR8,200,000 – IDR10,000,000 (equivalent to USD587 – USD802), consisting of:

1. company name reservation: IDR200,000 (USD15);
2. Notarial fee for the making of company’s deed of establishment: IDR7,000,000 – IDR10,000,000 (USD500 – USD715). This fee is an estimate as it is subject to the appointed notary’s proposed fee;
3. Non-Tax State Income (Penerimaan Negara Bukan Pajak or PNBP) for the approval from the Ministry of Law and Human Rights to obtain limited liability status for the company: IDR1,000,000 (USD72).

Social Enterprises have yet to be specifically regulated under Indonesian Law. However, in a draft bill on National Enterprises, Social Enterprises are finally recognized.

Please also refer to Section I no. 4 and 5 for elaboration on current forms used for Social Enterprises.

Yes, startups can easily form and be established in Indonesia, commonly as a  limited liability company. Please also refer to Section I no. 4 and 5 for elaboration on Social Enterprises.

Social Enterprises have yet to be specifically regulated under Indonesian Law. However, in a draft bill on National Enterprises, Social Enterprises are finally recognized.

Please also refer to Section I no. 4 and 5 for elaboration on Social Enterprises.

Social Enterprises have yet to be specifically regulated under Indonesian Law. However, in a draft bill on National Enterprises, Social Enterprise are finally recognized.

Please also refer to Section I no. 4 and 5 for elaboration on Social Enterprises.

Generally, there is a concern in Indonesia with regard to corruption and money laundering. In an effort to prevent that, companies are required to provide a written statement on their beneficial owner when they process a matter at the Ministry of Law and Human Rights ("MOLHR") (e.g., establishment, change of directors or transfer of shares). This is related to the implementation of the Indonesian regulations on knowing beneficial owners of corporations in relation to the prevention and eradication of money laundering and terrorism-financing crimes.

The beneficial owner of a corporation is determined via several criteria, which vary depending on the type of the corporation. For limited liability companies, the criteria are as follows:

1. The beneficial owner possesses more than 25% of the shares in the limited liability company as stated in the AOA.
2. The beneficial owner possesses more than 25% of the voting rights in the limited liability company as stated in the AOA.
3. The beneficial owner receives more than 25% of the profits earned annually by the limited liability company.
4. The beneficial owner possesses the authority to appoint, replace and dismiss members of the BOD and BOC of the limited liability company.
5. The beneficial owner possesses authority or power to influence or control the limited liability company without the need to obtain authorization from any party.
6. The beneficial owner receives benefits from the limited liability company.
7. The beneficial owner is the actual owner of the fund used to subscribe to the shares of the limited liability company.

Social Enterprises have yet to be specifically regulated under Indonesian Law. However, in a draft bill regarding National Enterprises, Social Enterprises is finally recognized.

Under the draft bill regarding National Enterprises, Social Enterprise (Wirausaha Sosial) is now clearly defined, although the form of entities is still the same as the current existing forms i.e. foundations, associations, and cooperatives.

The characteristics of Social Entrepreneurship under the draft bill are as follows:

•  Social vision and mission to solve social problems in the community and/or provide positive changes to the welfare of society and the environment;
• Business activities where most of the profits are reused to carry out the social vision and mission;
• Involve participation and empower people or communities that are the focus of their business activities; and
• Apply the principles of good business governance.

The draft bill on National Enterprises is an encouraging start as an umbrella regulation. However, an implementing regulation regulating the technicalities of Social Enterprises is required. It would be ideal if the implementing regulation provides more incentives for Social Enterprise including an easier process for the establishment, licenses, and permit, as well as tax incentives.

For already established business entities, Indonesian law oblige companies to conduct CSR. However, there is no specific form of CSR to be followed by the companies. We are of the view that a dedicated standard ESG or CSR policies, including the incentives for the companies following the CSR, will serve as guidance as well as encourage companies to have a larger impact on society and the environment.

In addition to the above, we are anticipating the draft bill on National Enterprises that acknowledges Social Enterprise to be enacted soon.

No.