Setting Up a Foundation in Indonesia

Yayasan, also known as a foundation in Indonesia, is one form of non-profit organisations. In this blog post, you will learn about the structure of a foundation in Indonesia and how you can build it up with least hassle and most transparency.

What is it?

Multiple regulations define it in Indonesia, taking Law No 28 of 2004 of Foundations as the basis. It can operate in three main fields:

  • Social
  • Religious
  • Humanitarian

Note that when a foundation decides on setting up its own company, the activities must also relate to the foundation’s statutory purposes. Being established based on the separation of assets, the law defines a foundation as a non-membership legal entity. Meanwhile, charitable bodies may benefit either the organisation’s stakeholders or the public.

Setup Process

Foundation is the only type of not-for-profit organisation which can be founded by foreigners. According to the Law on Foundations, it can be founded by one or several natural or legal persons. The stages to follow when setting it up in Indonesia are as follows:

Steps to Complete a Foundation (Yayasan) Establishment in Indonesia (Setting Up a Foundation in Indonesia - Greenhouse)

As a side note to the above, an important update in Indonesian legal system came from the Law No. 5 of 2014 on Validation of Foundations, making the process of establishing a foundation simpler. In short, securing and approving the foundation’s name became prompt from there on, as after the regulation was applied, all applicants were being processed electronically through the Legal Entities Administration System.

(If you need any help with creating a Deed of Establishment, check out our Market Entry Services.)

Structure

We discussed the corporate structure of a foreign-owned company in Indonesia in one of our recent blog posts. However, keep in mind the specific nature of foundation when filling its positions.

There must be at least one founder. A foundation in Indonesia with foreign founders must have at least one Indonesian citizen as a board member. Other than that, the board of your foundation should include at least one of each:

  • Chairman
  • Secretary
  • Treasury

Note that the foreign member of the board should also hold a working permit (IMTA) and temporary stay permit (KITAS). Read more about job employment for foreigners in Indonesia here.

In addition to the above, the foundation must also have at least one of both:

  • Advisor
  • Supervisor

Paid up Capital

As for any starting entity, you need to fit into initial equity requirements. For a foundation in Indonesia, the starting equity depends on the nationality of the founders:

  • Indonesian citizens, minimum IDR 10 million
  • Foreign citizens, minimum IDR 100 million

Income and Compensation

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, it 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

Based on the Law on Societal Organisations, you may follow through activities according to your organisation’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

Organisations choosing to work as foundations must know that their work is considered not for profit. To set an example, a non-profit organisation 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 behaviour and ecological footprint.

Reporting Requirements

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

Foundation Reporting in Indonesia (Setting Up a Foundation in Indonesia - Greenhouse)

Tax Regulations

Non-profit organisations in Indonesia are subject to Income Tax. However, there are exceptions. Income is tax-exempt in case:

  • A Foundation uses the 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. A foundation is a legal entity, you must withhold some of it from third parties, which include:

  • Employees
  • Vendors