Is Virtual Office Eligible For A Digital Startup Company?

“As an industrial activity, a digital startup company needs an industrial business license (Izin Usaha Industri (IUI) to use a virtual office.”

A virtual office is often used by the company as a business domicile, including a digital startup company. The digital startup company business that runs its business virtually by web or application for commercial use cannot use a virtual office as a business domicile.

It is because the digital startup company that runs a website portal or application is categorized as an industrial activity. Article 1 point 12 of Law Number 3 of 2014 on Industry (Undang-Undang Perindustrian) stated that:

“Industrial technology is a result of development, invention improvement, and/or innovation in process technology and product technology, including design and engineering, method and/or system that applied to industrial activity.”

Furthermore, Article 1 point 1 of the Ministry of Industry Regulation Number 15 of 2019 on Issuance of Industrial Business Permits and Expansion Permits in the Framework of Electronically Integrated Business Licensing Services (Peraturan Menteri Perindustrian No. 15/2019) stated that:

“Industry is a whole economic activity which involves processing raw materials and/or utilizing industrial resources to produce goods that have added values or higher benefits, including industrial services.”

From the two regulations stated above, the digital startup company producing a portal web or an application has an added value by managing the existing resources. It can be categorized as an industrial business activity.

As a consequence of being categorized as an industrial activity, the digital startup company needs an industrial business license (Izin Usaha Industri (IUI). To have an effective IUI, this company needs to fulfill a commitment. As stated on Article 13 of the Ministry of Industry Regulation Number 30 of 2019 on Amendments to the Ministry of Industry Regulation Number 15 of 2019 (Peraturan Menteri Perindustrian No. 30/2019), the digital startup company that already has an IUI is required to fulfill the commitment, as follows:

1. Have a SIINas account;
2. Obligatory located in an industrial location or have a letter of a statement of which is excluded from the obligation to be located in an industrial area;
3. Conveys industrial data;
4. Technical verification or conveys a readiness to operate a small industry.

Exceptions of the obligation to located in an industrial area are:

1. A company is located in a district or city that do not have an industrial area;
2. A company is classified as a small or medium industry with no potential for environmental pollution in a large impact;
3. An industry that uses particular materials and/or needs a particular location in a production process.

If the digital startup company does not fulfill the commitment, it is prohibited to run a business activity. Those who violate the rules, will be subjected to administrative sanctions in the form of written notice and administrative fine (Article 23 of the Ministry of Industry Regulation Number 30 of 2019).

Moreover, IUI applies to the digital startup company which runs:

1. Software publishing;
2. Computer programming activities;
3. Computer consulting and other computer facilities management activities;
4. Hosting activities;
5. Trading application development activities via the internet (e-commerce).

From the explanation above, it can be concluded that software publishing activities or other technology activities are categorized as industrial activities. Along these lines, the digital startup company is required to have an office in the industrial area, but it is excluded because the digital startup company is located in a district that does not have an industrial zone regulation. 

As there is an obligation to fulfill the commitment for industrial area activities, the digital startup company is prohibited from using virtual offices for its business domicile.

Read more : 5 Differences in Investment Procedure for Domestic Investment and Foreign Investment

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Author: Annisaa Azzahra