Setting up foundations in Indonesia

Have you ever thought of setting up a foundation to help people who are facing hardships? Foundations in Indonesia are a great resource to utilise when you are wanting to give back.

Foundations are a great way to give back to people and help make the world a better place.

The following information has been provided by Mona for anyone wanting to set up a foundation in Indonesia. If you have nay questions you can contact us for more information.

Source

YAYASAN (FOUNDATION)

Foreigners are allowed to establish Yayasan in Indonesia as long as the nature of the Yayasan will function as a social organization. As a social organization, the founders are prohibited from receiving profit for the Yayasan they founded. Thus, even if the foreigner acts as the founder, that person cannot take advantage of Yayasan’s income.

The Act of Yayasan also affirms that the founder who has separated their assets as the Yayasan’s initial capital, no longer has power over the assets for themselves as a person, because the wealth obtained by Yayasan fully belongs to the Yayasan as a legal entity.

This is including, other acquisitions for the Yayasan obtained in the form of non-binding donations or assistance, endowments, grants, wills, or other acquisitions, may not be transferred or given even privately owned by the management.

Based on the Government Regulation Number 63/2008:

1. Yayasan can be established by foreigners either owned by personal or foreign entities.

2. Requirements for foreigners when establishing Yayasan:

a. Required documentation of their identity such as passport

b. Allocated personal asset that will be gathered as the initial capital of Yayasan at least IDR 100 Million that should be proven by a declaration letter concerning the assets validity

c. A declaration letter that the activity in the Yayasan will not be harmful toward the society and the country.

3. Membership of Yayasan established by foreigners

a. One of the members of the management who serves as chairman, secretary or treasurer must be held by an Indonesian citizen.

b. Members of the management must reside in Indonesia.

c. Members of the management who are foreign citizens must hold a permit to carry out activities or businesses in Indonesia and hold ITAS/Limited stay visa

d. Members of the trustees who are foreign citizens, if residing in Indonesia must hold a permit to carry out activities or businesses in Indonesia and hold ITAS/Limited stay visa

e. Yayasan must also have at least one of both:

· Advisor

· Supervisor

How to establish Yayasan

The process of establishing Yayasan is most likely similar to PT. PMA.

Firstly, you need to liaise with public notary to prepare all legal documents needed (starting from requesting a name for Yayasan until legalizing the deed of Yayasan). If the documents are approved by the Ministry of Law and Human Rights, Yayasan can operate and should be liable upon the activity managed by the organization.

The lead time process of establishing a Yayasan is around 60 business days.

Does Law Allow Income or Compensation for a Foundation?

When it comes to foundations handling income, you are allowed to pay salaries from it. A foundation may also pay salaries to board members. Also, note that you may undertake public benefit activities.

However, you should not distribute or transfer (directly or indirectly) the assets (including cash, goods or other) among the members of the boards, the employees or any third parties.

Thus, a foundation in Indonesia also cannot be paying dividends.

Note that being a member of the Governing Board, Supervisory Board, or Executive Board, you must be a volunteer. This means you are prohibited from benefits and will not receive salary, wages or honoraria, expect from reimbursement of expenses.

Though as an exception and latest addition to the law, Executive Board members receive compensation in the following terms:

· Working for the foundation directly and full-time

· They are not the founders of the foundation

· They also have no association with the founders, neither the Governing Board, or the Supervisory Board

Principles of a Foundation

Based on the Law on Societal Organizations, you may follow through activities according to your organization’s non-profit purposes. However, also keep in mind the principles of the foundation in Indonesia:

· Guard the unity, integrity and integrality of Indonesia

· Maintain religious, cultural, moral and ethical values as well as decency

· Maintain public order and social peace

· Add benefits to the society

· Manage finances in transparent and accountable ways

Organizations choosing to work as foundations must know that their work is considered as not for profit. To set an example, a non-profit organization may do charity work, many operate in health care or child support. Some are also gathering activists in environmental research and further actions to improve the society’s behavior and ecological footprint.

Reporting Requirements for Foundation

Foundation must also keep track of timely reporting. In addition to filing periodic reports to the government or local government, foundation must also publish them. According to the Law on Societal Organizations Article 51, a foundation in Indonesia must publish reports in the Indonesia language news media.

Tax Regulations for A Foundation in Indonesia

Non-profit organizations in Indonesia are subject to Income Tax. However, there are exceptions.

Income is tax-exempt in the following cases

• Foundation uses income to provide scholarship funds

• Income of a foundation working in the area of education or research and development that is re-invested in its work (according to the timing requirements of the Income Tax law)

Though taxes do not apply to donations, keeping in mind there is no business or ownership between parties involved. As the foundation is a legal entity, you must withhold some of it from third parties, which include:

· Employees

· Vendors

Withholding Tax

2 % withholding tax for all services expenses

For example:

• Consultant services

• Engineering services

• Internet services

• Leasing asset

Final Tax depending on chosen service

• 10 % withholding tax is applicable to the transaction when renting a building, land or room

• 5 % tax when purchasing the building or the land

Additional Tax

Tax will be applicable to transactions like payroll or giving earnings to an individual

Tax Rate ranges from 5 % – 30 % depending on the amount of salary or earnings