Subsidiary Management in Indonesia: Managing Compliance for a Dormant Entity

Legal and tax guidance for managing a dormant subsidiary in Indonesia

A foreign-owned company held a subsidiary in Indonesia that had not commenced operations and remained dormant. While inactive, the entity was still subject to ongoing legal and tax compliance obligations. The client needed to determine whether to maintain the subsidiary in a compliant dormant state or proceed with formal liquidation to avoid recurring costs and long-term risk.

Dezan Shira & Associates Indonesia was engaged to assess both options from a legal and tax perspective and provide a clear recommendation based on cost, risk exposure, and regulatory timelines.

Challenge

Although the subsidiary had no business activity or revenue, Indonesian regulations still required it to meet recurring compliance obligations. These included annual shareholder meetings, corporate registry updates, investment reporting, manpower reporting, and monthly and annual tax filings. Failure to comply could result in penalties and administrative sanctions.

At the same time, formal liquidation presented its own challenges. The process can take up to two years and involves procedural complexity, regulatory approvals, and additional costs. The client needed to balance ongoing compliance burdens against the financial and operational implications of winding up the entity, making external legal and tax guidance essential to determine the most efficient path forward.

Solution

We conducted a structured legal and tax review of the subsidiary’s status and obligations. Our legal team reviewed the company’s corporate documents and advised on statutory requirements applicable to dormant entities, including shareholder meetings, registry maintenance, BKPM investment reporting, and mandatory manpower reporting to the Ministry of Employment. This provided clarity on the minimum legal obligations and costs associated with keeping the entity inactive but compliant.

In parallel, our tax team assessed ongoing tax obligations, including monthly withholding tax filings, VAT reporting where applicable, and annual corporate income tax returns. We explained the penalties and risks associated with late or missing filings, even in the absence of business activity.

To support decision-making, we prepared a Legal and Tax Memorandum comparing two scenarios. The first outlined the requirements, costs, and risks of maintaining the entity in a dormant but compliant state. The second detailed the liquidation process, including procedural steps, estimated costs, regulatory approvals, and an expected timeline of up to two years. We also developed a phased action plan to address pending obligations and guide next steps under either option.

Impact

The client received a clear cost-benefit and risk analysis comparing dormant maintenance and liquidation. Compliance responsibilities, regulatory exposure, and timelines were clearly mapped, enabling the client to make an informed decision regarding the subsidiary’s future.

Dezan Shira & Associates continues to assist the client in monitoring statutory obligations while the decision is finalized and stands ready to provide end-to-end legal and tax support should the liquidation route be pursued.

Strategic significance and key takeaways

Dormant entities in Indonesia continue to carry meaningful legal and tax obligations. Early assessment of compliance exposure versus liquidation costs allows companies to avoid penalties, manage risk, and allocate resources efficiently.

Key takeaways:

• Dormant status does not eliminate compliance obligations in Indonesia
• Non-compliance can trigger penalties even without operations
• A structured legal and tax comparison is critical before deciding to liquidate