Everything You Need to Know to Establish a Foundation in Indonesia

Establishing a foundation in Indonesia can be a powerful way to make a positive impact on society. Foundations, known locally as "Yayasan," serve various purposes, such as promoting education, charity, religion, and more. By setting up a foundation, individuals and organizations can contribute to social welfare while benefiting from specific legal advantages. This article will guide you through the essential steps and legal requirements needed to establish a foundation in Indonesia. [ez-toc]

1. Understanding What a Foundation Is (Yayasan)

A foundation in Indonesia, known as a "Yayasan," is a legal entity formed for social, religious, or humanitarian purposes. Unlike companies, foundations are non-profit organizations. Common objectives for establishing a foundation include charitable activities, education, religious promotion, and health services. One significant distinction between a foundation and other entities is that a foundation cannot distribute profits to its founders or board members. Instead, it must reinvest any income toward its goals, ensuring its long-term sustainability.

2. Legal Requirements to Establish a Foundation in Indonesia

Basic Requirements

To establish a foundation in Indonesia, several legal requirements must be met. Firstly, foundations must operate under Indonesian law, which mandates specific rules regarding structure, capital, and founders. The law requires a foundation to have a minimum of IDR 10 million (approximately USD 700) in capital if established by Indonesian. If a foundation is established by a foreigner, minimum capital is IDR 100 million (approximately USD7,000). Additionally, the foundation must have assets and a clear purpose, whether it be social, religious, or humanitarian.

Legal Documentation

The foundation's structure is formalized through legal documentation, including the Articles of Association. These documents outline the foundation's objectives, operational guidelines, and governance structure. The Articles of Association must be made in notarial deed form and include the signatures of the founder(s), supervisors, and management board members.

Organizational Structure

Foundations in Indonesia must have a clear organizational structure, including:

• Governing Board (pembina): have authority that is not delegated to the executive board or supervisory board, such as appointment and dismissal of members of the Management and members of the Supervisory Board, determination of general policies of the Foundation based on the Articles of Association of the Foundation, ratification of the work program and draft annual budget of the Foundation, decisions regarding changes to the Articles of Association, and determination of decisions regarding the merger or dissolution of the Foundation. Usually, the founder of the foundation sit in the governing board  Executive Board (pengurus): consists at least of (i) a chairman, (ii) a secretary, and (iii) a treasurer. The executive board will manage the day-to-day activities of the foundation 
• Supervisory Board (pengawas): Responsible for overseeing the foundation's operations and its members of the Executive Board and ensuring compliance with its objectives.

It has to be noted that the governing board, executive board and supervisory board cannot be the same person. Each role carries specific legal responsibilities and must be formalized through the Articles of Association.

3. Step-by-Step Process to Establish a Foundation in Indonesia

Step 1: Preparing the Requirements

The first step in establishing a foundation is to define its purpose clearly. Whether the foundation is focused on charity, education, or religious activities, its mission must align with the legal framework governing foundations in Indonesia. Additionally, you will need to choose a unique name that is not currently in use by another organization. The complete requirements are as follows:

1. Please decide the foundation’s name
2. Address of the foundation
3. The objective and purpose of the foundation
4. Deciding the capital of the foundation
5. To appoint the person who will sit as governing board, executive board, and supervisory board.

Step 2: Preparing the Articles of Association

The Articles of Association are the legal backbone of the foundation. They must include detailed information about the foundation's purpose, structure, and operational guidelines. The articles should also specify the roles and responsibilities of the board members, including the founder, supervisors, and management.

Step 3: Notarizing the Foundation’s Documents

Once the Articles of Association are finalized, they must be notarized by a licensed notary public in Indonesia. This step legally formalizes the foundation and makes the documentation legally binding.

Step 4: Obtaining Legal Approval from the Ministry of Law and Human Rights

After notarizing the documents, you must submit them to the Ministry of Law and Human Rights for approval. This process involves a thorough review to ensure the foundation complies with Indonesian laws. Upon approval, the ministry will issue a decree that officially recognizes the foundation.

Step 5: Obtaining the General License

The final step is registering the foundation to obtain the relevant licenses.. You must obtain a Tax Identification Number (NPWP) for the foundation, which will allow it to operate legally and fulfill its tax obligations. Other than that, the foundation must also obtain Foundation Registration Certificate (TDY) and Foundation Activity Permit (izin kegiatan yayasan). Step 6: Obtaining Specific License In supporting your activity in the foundation, a specific license may be required. For example, if the foundation wants to do crowdfunding, then approval from the ministry is required. Whether a specific license is required or not, you have to check the relevant regulation or seek advice from a professional who understands the foundation.

4. Key Considerations When Establishing a Foundation in Indonesia

Foreign Involvement in Foundations

Foreigners can establish a foundation in Indonesia, but there are some restrictions.  One of the executive boards (either chairman, secretary, or treasurer) must appoint an Indonesian nationality. The foreign executive boards must also reside in Indonesia and obtaining a limited stay permit is mandatory.

Taxation Rules for Foundations

Foundations in Indonesia are subject to taxation. The monthly and annual tax return must be submitted in a timely manner. Specifically for monthly tax returns, the foundation must report the  withholding tax transactions. 

Ongoing Compliance and Reporting Obligations

Foundations must regularly report their activities and finances to the relevant authorities. This includes submitting annual financial reports (minimum assets applied), maintaining accurate records, and complying with any audits required by the government. Failure to comply with these obligations can result in penalties or the dissolution of the foundation.

5. Common Challenges and How to Overcome Them

Dealing with Bureaucracy

The process of establishing a foundation can be complex, particularly when navigating Indonesia's regulatory environment. Bureaucratic delays are common, so it’s crucial to work with experienced legal advisors and consultants who can help streamline the process.

Cultural and Operational Differences

Foreigners establishing a foundation in Indonesia may face challenges related to cultural and operational differences. It’s essential to build relationships with local stakeholders and ensure the foundation’s activities align with Indonesian norms and regulations.

6. Benefits of Establishing a Foundation in Indonesia

Positive Impact on Society

Foundations play a crucial role in addressing social, economic, and environmental challenges in Indonesia. By establishing a foundation, individuals and organizations can make a lasting difference in areas such as education, healthcare, poverty alleviation, and environmental sustainability.

Corporate Social Responsibility (CSR)

For companies, setting up a foundation can be an effective way to implement Corporate Social Responsibility (CSR) programs. Foundations provide a formal structure for companies to contribute to social causes, enhance their reputation, and engage with the community.

Access to Local and International Support

Foundations in Indonesia can collaborate with local NGOs, government agencies, and international organizations to amplify their impact. Additionally, foundations may be eligible for funding and grants from both domestic and international sources, which can help sustain their activities.

FAQs

1. What are the main legal requirements for establishing a foundation in Indonesia?

Foundations must meet certain legal criteria, including minimum capital, notarized documents, and compliance with the Ministry of Law and Human Rights.

2. Can foreign nationals establish a foundation in Indonesia?

Yes, foreign nationals can establish a foundation, but there are restrictions on management roles.

3. How long does the process of setting up a foundation typically take?

The process can take 1-2 months, depending on the complexity of the foundation and any bureaucratic delays.

4. What are the ongoing compliance requirements for foundations in Indonesia?

Foundations must submit annual reports, maintain accurate financial records, and comply with government audits.

Conclusion

Establishing a foundation in Indonesia offers numerous opportunities to create positive social change while navigating a well-defined legal framework. By following the steps outlined in this guide and working with legal advisors, you can ensure a smooth and successful process. Although there are challenges to overcome, the benefits of running a foundation in Indonesia make it a worthwhile endeavor for individuals and organizations alike. Ready to make a difference with your foundation in Indonesia? Partner with CPT Corporate to navigate the legal requirements and establish your foundation smoothly. Our expert team provides comprehensive support to ensure your foundation is set up for success and can effectively achieve its social impact goals. Contact us today to start your journey towards creating positive change.