Key Aspects of Establishing a Construction Company in Indonesia

Establishing a company in Indonesia has evolved significantly with the introduction of new regulations under Perppu No. 2/2022. These changes impact the business licensing processes and the overall framework for setting up legal entities, particularly in the construction sector. Understanding the requirements, from identifying the appropriate business category under the KBLI to navigating the licensing procedures via the Online Single Submission (OSS) system, is crucial for businesses aiming to operate successfully in Indonesia. This article provides a comprehensive overview of the key steps and qualifications needed to establish and license a construction company in the country. [ez-toc]

Overview of Construction Company Establishment in Indonesia

Under Indonesia’s regulatory framework, it is important to note that there are two types of legal entities available for foreign construction companies. There are:

1. Foreign owned Limited liability company (“PT PMA”);
2. Representative Office Foreign Construction Service Business Entities (“BUJKA”)

Both serve key differences in terms of maximum foreign ownership and minimum capital requirements. For PT PMA, there is maximum foreign ownership with the below details:

1. ASEAN Countries: maximum 70% foreign ownership
2. Non-ASEAN Countries: maximum 67% foreign ownership

The rest of the shares must be held by an Indonesian company who has a large scale construction license. An Indonesian individual cannot hold the rest of the shares. Therefore, it is important to note about the minimum structure before opening a PT PMA of a construction company in Indonesia. If you cannot find an Indonesian construction company to hold the shares, you can consider opening A BUJKA. There is no foreign ownership limitation. However, in carrying out a construction project in Indonesia, the BUJKA must form a joint operation (JO) with an Indonesian construction company. This option will provide flexibility in terms of partnering with Indonesian companies, unlike establishing a PT PMA whereby you will have a permanent Indonesian partner to carry out the projects. A minimum capital requirement to open a PT PMA construction is mandatory in the amount of IDR 10 billion. Meanwhile for BUJKA, there is no minimum capital requirement however the BUJKA must provide a list of company experiences minimum in the last 10 years with contract value above IDR 83.33 million/project. To establish either a PT PMA or BUJKA, it is crucial for business actors to identify their sector according to the Standard Classification of Indonesian Business Fields ("KBLI"), as stipulated by Central Bureau of Statistics Regulation No. 20 of 2020 ("BPS Regulation No. 2/2020"). The risk level associated with each KBLI category determines the required licenses of the business. Please see the below matrix to understand the required licenses for each of the risks:

No	Risk Category	License Required
1	Low Risk	NIB
2	Medium Risk	NIB and Standard Certificate (no verification is required)
3	Medium-High Risk	NIB and Verified Standard Certificate
3	High Risk	NIB and Permit (Izin)

Most construction businesses will be classified either as medium-high risk or high risk. This is due to several factors, such as safety concerns, environmental risks, financial unpredictability, and etc.

Licensing Procedures for Construction Companies

To obtain the necessary business licenses, construction companies (both PT PMA and BUJKA) must follow these procedures:

1. Submission of Construction Business Entity Certificate ("SBU"):

   • As per Article 100 of Government Regulation No. 5/2021, Construction Service Business Entities ("BUJK") must obtain an SBU in construction. The application is submitted to the Ministry of Public Works and Public Housing through the Business Entity Certification Agency ("LSBU"). The SBU is valid for three years and can be renewed.

2. Submission of Construction Work Skills Certificate ("SKK"):

   • Construction workers must obtain the SKK, as required by Article 101 of Government Regulation No. 5/2021. The SKK is obtained through a competency test conducted by a professional certification agency and is valid for five years, as registered with the Ministry of Public Works and Public Housing.

3. Licensing via the Online Single Submission ("OSS") System:

   • Applications for SBU and SKK must be submitted through the OSS system, following the steps of application, payment, verification, validation, and approval or rejection. Verification will depend on the business risk based on the KBLI. Therefore, it is important to conduct a prior check on the business classification that you choose.

4. Verification, Validation, and Payment of Business Licensing Submissions:

   • BUJK must pay the registration fee within seven days, and verification and validation will follow once all documents are submitted.

5. Issuance of Business Licensing:

   • The business license will be issued within 15 days if approved. If not approved, BUJK cannot seek compensation from LSBU, as outlined in Article 106 of Government Regulation No. 5/2021.

These licensing requirements also apply to the BUJKA seeking to obtain an SBU.

Qualification of Construction Companies

Under Government Regulation No. 5/2021, construction companies are classified based on their annual income and assets into Small, Medium, and Large categories. Qualifications for construction consulting services and construction work include Small, Medium, and Large classifications, whereas integrated construction work is limited to Large qualifications. PT PMA Construction and BUJKA are also categorized under Large qualifications. Article 97 of Government Regulation No. 5/2021 categorizes the construction services into:

1. General Construction Consulting Services:

   • Architecture
   • Landscape architecture and regional planning
   • Manipulation
   • Integrated engineering

2. General and Specialist Construction Work:

   • General work includes building and civil construction.
   • Specialist work includes equipment rental, construction preparation, special construction, prefabricated construction, installation work, and building completion.

3. Integrated Construction Work:

   • This includes building and civil construction.

Conclusion

Navigating the complexities of establishing a company in Indonesia, particularly in the construction sector, requires a thorough understanding of the latest regulations and licensing procedures. With the changes introduced under Perppu No. 2/2022, businesses must stay informed and compliant to operate effectively. Ensuring that your company meets all legal requirements, from obtaining the necessary certifications to following the correct procedures, is essential for success. CPT Corporate specializes in guiding businesses through these intricate processes. Whether you're setting up a new company or need assistance with business licensing in Indonesia, our expert team is here to help. Contact us today to streamline your company establishment and ensure compliance with Indonesian regulations.