Purpose of Establishment of a Foreign Construction Service Representative Office in Indonesia

The establishment of a foreign construction service representative office by an overseas parent company is a relatively standard and quick process. In general the purpose of a foreign construction service representative office is to take care of the interests of the overseas parent company and/or for preparation and development activities of future foreign investment activities in Indonesia. Therefore it is subject to certain requirements and restrictions, which will be discussed in this column.

Allowed activities of Foreign Construction Service Representative Office

Based on article 11 of the public works regulation 05/PRT/M/2011 (Public Works Regulation), a foreign construction service representative office is only allowed to be involved in construction projects which fulfill one or more of the following requirements:

1. Complex construction projects; and/or
2. High risk construction projects; and/or
3. High-tech construction projects.

For such projects a foreign construction service representative office is allowed to:

1. contact individuals / business entities / national government and private institutions in order to obtain market information of construction services; and
2. follow the procurement of construction works; and
3. appoint and assign local or foreign manpower.

Obligations of Foreign Construction Service Representative Office

The Public Works Regulation states the following obligations for the foreign construction service representative office:

1. It must form a joint operation with a local construction company (further explained below);
2. It must implement a transfer of knowledge system, where knowledge/expertise is transferred to the local construction company partner in the joint operation;
3. In the event a subcontractor is required to carry out part of the work, it must hire a local construction company which is in the possession of a Certificate of Business Entity (SBU) and a Business License for Construction Services (IUJK).
4. It must submit an annual activity report to the relevant authority in accordance with the format and requirements as stated in the Public Works Regulation.

Time Restrictions of Foreign Construction Service Representative Office

Based on article 13 of the Public Works Regulation, the validity period of a foreign trade representative office is maximum 3 years and may be extended. Such extension shall be subject to a recommendation from the supervisory team from the ministry of public works. The Public Works Regulation does not state a restriction as to the amount of extensions.

Joint Operation requirement for Foreign Construction Service Representative Office

As mentioned above, in order to conduct activities in Indonesia, the foreign construction service representative office is required to establish a so called joint operation with a local construction company. A joint operation can be defined as a cooperative effort between one or more foreign construction service representative office(s) and one or more local construction companies. The joint operation is temporary established for handling of one or several construction projects and is not considered a new legal entity.

Based on article 10 of the ministry of the Public Works Regulation the local construction company must fulfill the following requirements in order to be eligible as partner in the Joint Operation:

1. It is a Limited Liability Company (PT).
2. It has 100 percent shareholding by one or more Indonesian citizen and / or local construction companies.
3. It has a big qualification (kualifikasi besar [B1 or B2]).
4. It has a Certificate of Business Entity (SBU).
5. It has a Business License for Construction Services (IUJK).

This column is provided by PNB Law Firm

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