Foundation is a legal entity consisting of a separate property and intended to achieve certain objections in social, religious, and humanitarian and prohibited to conducting commercial activities. Foundation may earn profit, however that commercial activities shall separate with the foundation activities. Foundation is allow undertake business activities to support its purposes and objectives by establishing a business entity and/or involving in a business entity through shareholder ownership up to 25% (twenty five percent) of its asset values.
Law No. 16 of 2001 as amended by Law No. 28 of 2004 on Foundation (“Foundation Law”);
Government Regulation No. 63 of 2008 on Implementation Regulation of Foundation Law (“GR 63/2008”).
Pursuant to Article 1 Paragraph 1 of Foundation Law stated that Foundation is as a legal entity that has separated assets and have purpose and objective in social, religious, and humanitarian sectors, and has no members. Foundation shall operated solely for the nonprofit purpose or social activities and not for commercial purpose.
One of the significant principle of foundation as a legal entity is the asset separation principle. This principle is regulated under Article 9 of Foundation Law, which stipulates that: “Foundation shall be established by one party or more by setting aside parts of assets of the founders as the initial assets.” its means, that foundation founder has no right over his/her assets that have been submitted into the foundation therefore the founder cannot be deemed as the owner of the foundation. In the procedures of foundation establishment the founder shall made and sign statement letter that stated such separation of asset. Under the asset separation principle, foundation becomes an independent legal entity that runs by the board of executives (pengurus)
Under the Foundation Law, foundation shall minimum have Board of Advisors (Dewan Pembina), Board of Executives (Dewan Pengurus) and Board of Supervisors (Dewan Pengawas) Article 2 of Foundation Law).
Board of Advisors is an organ of a foundation having authority, which not delegated to Board of Executives or Board of Supervisors (i) amend the article of association, (ii) appointed members of Board of Executives and Board of Supervisors, (iii) granting general policies according to the article of association, (iv) approved work programs and draft of annual budget of foundation, (v) decided and approved foundation merger or dissolution of foundation (Article 28 of Foundation Law).
Board of Executives is an organ of foundation executing the organization of the foundation and entitled to represent the foundation inside or outside of the court. Board of Executives is appointed by the Board of Advisors of foundation for a period of 5 (five) years and may be reappointed. Article 32 of Foundation Law provides that the composition of Board of Executives shall at least consist of: (i) chairman; (ii) secretary; and (iii) treasurer.
Board of Supervisors is an organ having task to supervising and giving advice to Board of Executives in undertaking activities of a foundation. Pursuant to Article 40 of Foundation Law provides that minimum foundation shall have one supervisor.
Deed of Establishment
First thing, which founder of foundation should do is draft and signing deed of establishment. Deed of establishment shall comprises of foundation article of association that contains information/internal foundation regulations this article of associations shall not contradiction or violence the prevailing foundation regulations
Deed of establishment shall be written in Indonesian language (Article 9 paragraph 2 of Foundation Law), in the absence of the founders, founders may appointed third parties using power of attorney (Article 10 paragraph 1 of Foundation Law);
Being signed by the founders or its proxy,,the deed of establishment shall be ratified by the Minister of Law and Human Rights. legal status of foundation shall be granted after this ratification. Ratification is conducted by chief of local office of Law and Human Rights Ministry as representative of Minister of Law and Human Rights. The ratification shall be given no later than 30 (thirty) days after the application was accepted. In the event the application is not completed, hence the Minister of Law and Human Rights will deliver written notification.
After foundation deed of establishment has been ratified, then the deed shall be announced in Supplement to the State Gazette. The announcement shall be conducted after the State Publishing Office receives the application from the Board of Executives or their proxy. The application shall be submitted no later than 30 (thirty) days after the ratification of the deed of establishment.
FOREIGN PARTICIPATION UNDER FOUNDATION LAW
Under Foundation Law, foreigners may conduct participation in foundation whether directly or indirectly. Direct foreign participation carries out by establish a new foundation in Indonesia pursuant to Foundation Law. The establishment shall be making by two ways: (i) foundation establish by foreigners (individually) or in cooperation with Indonesian citizens (Article 9 Paragraph (5) of Foundation Law juncto Article 10 to Article 14 of Chapter 5 of GR 63/2008), (ii) Establishing foundation representative office (Article 69 of Foundation Law juncto Article 26 of GR 63/2008). Having a status as representative office, the authority of representative office is limited rather than. Foreign foundation representative office is subject to laws and articles of association in their principal country (principal foundation).
Indirect foreign participation in Indonesia foundation is conducting by contribute or support and become a financial support a foundation, the fund allocation shall not contrary/violence prevailing regulations in Indonesia (Article 52 Paragraph 2 jo Article 72 Paragraph (1) of Foundation Law).
FOUNDATION ESTABLISHMENT BY FOREIGNERS
For foreigners having intends to establish foundation in Indonesia, minimum initial assets shall be in the minimum amount of IDR 100.000.000 (one hundred million Rupiah). In practice, proof of separation of the initial assets through evidence of assets deposit in the account of foundation or by a statement letter from the founder(s) of the assets deposit and a statement letter explaining that the statement of assets deposit is true.
Foundation Board of Executives
Board of Executives may comprise with one or more directors, one of them shall have Indonesian (nationality). All members of Board of Executives have to reside in Indonesia. For foreigners Board of Executives, they must obtain a temporary residence permit (KITAS) and permission to conduct activities or business in Indonesia. Such permits include work permits, study permits, permission to conduct religious activities, and business license in accordance with the Investment Law. Obligation to have such documents also applied for foreign member(s) in Board of Advisors and Board of Supervisors.
Foundation established by the foreigners or by the foreigners together with the Indonesian citizen(s) must submit additional documents, i.e.:
If the founder of foundation is a foreigner, then he/she must attach their passports. If the founder of foundation is a foreign legal entity, then it must be attached with the legitimacy of foreign the legal entity, which include the following basic budget changes and the enactment and a statement about the composition of the last caretaker of the foreign legal entities.
In addition to the above, the foreign founder(s) of foundation also attach a statement that the activities of foundation will not be detrimental to the society, the nation, and the Republic of Indonesia. We have been given to understand by our informal discussion with Law and Human Rights Ministry that the statement shall be made by the foreign founder(s) and signed by him/her with sufficient stamp duty.
FOREIGN FOUNDATION REPRESENTATIVE OFFICES
Representative offices may only carry out social, religious, and humanitarian activities and in the form of partnership with Indonesian foundation having same purposes and objectives. Following are the procedures and requirements to establish foreign foundation representative office.
Head office of foreign foundation submit application to Ministry of Foreign Affairs to open a representative office in Indonesia, that contains information: (i) purposes and objectives, (ii) representative office domicile plan and will taking activities, (ii) local foundation partners information, (iii) activities period of plan, in the event social activities conducted in the certain period (temporary).
Memorandum of Understanding
After the application examined by Ministry of Foreign Affairs, the Ministry of Foreign affair shall recommended which department/institution that appropriate to bind into memorandum of understanding in the form of partnership agreement with foreign foundation.
The proposal will be considered by Clearing House, i.e. State Intelligence Agency (BIN), Strategic Intelligence Agency (BIS), Ministry of Law and Human Rights, Ministry of Foreign Affairs, Ministry of Manpower, and Attorney General.
Ministry of Foreign Affairs will issue recommendation after considering all matters, especially in connection to state’s security and license with copy sent to Ministry of Home Affairs and Regional Autonomy after the memorandum of understanding was signed.
Local Government Approval
Local Government will issue permit to conduct foundation’s activities. Representative office of foreign foundation shall also fulfill the following requirements. To establish partnership with local non-government organization (NGO) registered in Ministry of Home Affairs and Regional Autonomy.
FOREIGN DONOR FOR INDONESIA FOUNDATION
Foundations which have received donations from overseas parties amounting to Rp.500,000,000.00 (five hundred thousand million rupiahs) or more in one accounting year must be audited by a public accountant and have their annual report summaries published in an Indonesian-language daily newspaper. (Article 52 Foundation Law jo Article 18 of GR 63/2008).
FOUNDATION PARTICIPATION IN BUSINESS ENTITY
Furthermore, Foundation may conduct business by establishing business entities. Foundation may also participate in any form of business entities with the following requirements: (i) investment (capital) does not exceed 25% of its entire foundation assets. (ii) revenue/profit that gained by the foundation through business entity, should be used to achieve foundation purposes and objectives, and (iii) foundation organ are prohibited holding double position as directors or management and commissioners or supervisors in the business entity.