Given its close proximity and recent developments, Batam has been an emerging gateway for Singapore companies to gain direct market access to Indonesia. In 2020, Singaporean investors accounted for US$ 9.8 billion of Indonesia’s foreign direct investment – a 6.5% increase from the previous year, making Singapore, Indonesia’s top Investor.
Early this March, the two countries took a big step forward to deepen bilateral ties, by further discussing the ‘Three Bridges Cooperation’ in Batam. In this article, we’ll take a look at Batam’s state of investment and why it should remain on your radar when doing business in Indonesia and Singapore.
Bridging Batam to The Next Level
Both Indonesia and Singapore share mutual interests in expanding their Information and Communication Technology (ICT) sectors. To achieve this collective goal, both countries opened Nongsa Digital Park (NDP) in Batam to serve as a ‘digital bridge’ and entry point for Singapore-based IT companies to penetrate the Indonesian market. Glints, Infinite Studios, FWD Insurance, and LiquidPay are some notable companies that have been established in NDP.
To facilitate tourism, import, and export trade, Indonesia also plans to build a 6.4km bridge that will link Batam and Bintan islands by 2022. This bridge will serve as an ‘Infrastructure Bridge’ to support both economic and tourism connectivity between two ASEAN countries.
According to the Indonesian Coordinating Minister for Economic Affairs, Airlangga Hartarto, this infrastructure bridge will make the shipment of agricultural products from Bintan to Batam and thus Singapore more efficient. The two countries also plan to implement a travel bubble bridge as Bintan is a popular weekend holiday destination for Singaporeans.
Why is Batam a Good Place to Start Investment in Indonesia?
Proximity, easy market access, and connectivity to Singapore often remain as the top reasons, Singapore investors choose Batam. However, some other key factors include:
- Developed Infrastructure
Over 1,079km of newly-paved roads and highways link all centers of activities in Batam. These roads are continuously being improved with the addition of lanes to anticipate the rapid growth of traffic. Its Hang Nadim International Airport is also equipped with a 4,000m runway (the longest in Indonesia) to serve both cargo and wide-body passenger aircraft, and currently schedules 165 flights weekly to major cities in Indonesia.
- Economic incentives
For investors looking at diversifying their global supply chain, it is important to note that Batam is the archipelago’s only free trade zone. It boasts a range of exemptions – from Value Added Tax (VAT) and import/export duties on capital goods and raw materials, to double taxation avoidance with 56 countries.
Indonesia is also currently testing the Batam Logistics Ecosystem (BLE), a pilot project for its National Logistics Ecosystem (NLE) – an integrated logistics management platform designed to offer streamlined services and permits. The 24-hour digital system is expected to increase transparency, simplify processes and improve communication pertaining to logistics management.
- Ease of doing business
As part of Indonesia’s push to streamline and digitalize its processes, Batam Development Board (BP) processes foreign investment applications under a single roof. It’s also one of the industrial zones that is included in the Direct Construction Investments Easiness Service program, commonly referred to as KLIK (Kemudahan Layanan Investasi Langsung), which offers investors to build their own factories via Pelayanan Terpadu Satu Pintu – commonly referred to as One Door Integrated Service, where environmental and construction permits are managed together.
Bilateral Measures for Safeguarding Investor Interest
Early this March, Indonesia, and Singapore amended its Bilateral Investment Treaty (BIT) that expired in June 2016. According to Singapore’s Minister for Trade and Industry, Chan Chun Sing, this year’s treaty offers greater protection for Singapore investors venturing into the Indonesian market and vice versa.
BIT provides legal protection for Indonesian and Singaporean investors by enforcing various clauses most-favored-nation treatment, protection from expropriation, and dispute resolution/settlement under the International Centre for Settlement of Investment Disputes (ICSID).
The recent treaty also implemented an updated double taxation avoidance agreement (DTAA) that was signed by two countries in February last year.
How to Start a Company in Indonesia
Although the process of registering a company has been simplified, Indonesia is undergoing a massive change in its laws and regulations, brought on by its Job Creation Law. Foreign investors and companies should do their due diligence to pick the right company setup or company structure that best supports its company’s legal, financial, and operational needs. Here is an overview of the main four company setup/structure in Indonesia.
- Foreign-owned company (PT PMA): Foreign-owned limited liability company is a legal entity that can be fully owned by foreigners. However, the maximum foreign ownership is determined by the business sector and business activities. The restrictions are listed in a regulation called the Indonesian Positive Investment List. PT PMAs can join in on local tenders, hire foreign employees via a KITAS and apply for other business licenses necessary for a successful operation.
- Representative Office (RO): Foreign companies or investors that prefer to further research, network, and test the Indonesian market should consider the option of a Representative Office. The advantage of opening a RO is that it does not require a large capital investment, compared to a PT PMA, the process is a relatively easier and quicker method of establishing a legal entity in Indonesia. An RO provides foreign investors and companies 100 percent (foreign) control over the business and has no director or shareholder requirements.
- Shelf Company: A ready-made company that is already formed but has not conducted any operations. This structure is ideal for foreign entrepreneurs looking to set up a company that is already established.
We Can Help You
Company registration procedures and documentation vary on the basis of the type of registration a foreign investor is opting for. Company registration is one side of the coin, however, the other side of the coin is protecting the interest of investors.
To know more about how Cekindo’s solutions can help you register your company in Indonesia, please fill out the form below or talk to an expert on our chatbot.