How Can Foreign Investors Become Product Distributors in Indonesia?

Distribution in Indonesia is one of the most significant business sectors constituting wholesale, import, export, and retail operations. A distributor buys, stores, and then sells items through a distribution channel, acting as a middleman between producers and retailers. Typically, distributors link merchants and producers in a collaborative partnership, consequently becoming critical to manufacturers’ market expansion goals.

Indonesia presents a promising case for foreign investment in its distribution sector with the introduction of its Job Creation Law (Law Number 11 of 2020) and the New Investment List that relaxes foreign investment restrictions for investors across the globe.

Product Distributor Indonesia: All Foreign Investors Need to Know

Foreign Ownership

Prior to 2021, foreign investment restrictions were regulated by the Negative Investment List. As per this law, distribution not affiliated with production had maximum foreign ownership of 67%.

However, now, wholesale activities, such as distribution, importation, and exportation, are open to 100% foreign investment, with a minimum total investment of more than USD 700k, excluding land and building, thanks to the issuance of the New Investment List, regulated under Presidential Regulation No. 10 of 2021, as amended by Presidential Regulation No. 49 of 2021 (“PR 10/2021 as amended”).

Needs Partnership with Local Distributors or Agents

To expand their distribution business to Indonesia, foreign distributors have the option to appoint either a local distributor or an agent.

The commitment of an Indonesian Distributor is based on an agreement or appointment. The distributor will own or manage the products, will be rewarded based on a price margin specified in the agreement with the overseas distributor, and will be subject to VAT.

However, in the case of an Indonesian Agent, the agent does not own or control the goods. An agent is paid on commission and is not subject to VAT.

Distribution Flow in Indonesia

The distribution flow occurs in the following stages:

• The process of distribution begins with a manufacturer in Indonesia, whether foreign or entirely owned by an Indonesian.
• The items will subsequently be passed on to a foreign distributor by this manufacturer.
• The foreign distributor shall send over the items to an Indonesian distributor or agency, who would distribute the commodities to retailers, as required by MOT Reg. 24/2021.
• Retailers would subsequently sell them to end customers.

In a business-to-business situation, an Indonesian distributor or agent may sell items directly to intermediate customers.

How to Become A Product Distributor in Indonesia: A Guide for Foreign Investors

Risk-Based Business Licensing for Product Distribution Business

The followings are some KBLI (Indonesian Standard Industrial Classification) values and their accompanying license requirements for each risk level:

Low Risk

A Business Identification Number (Nomor Induk Berusaha or “NIB”) and a registration license are required. Business actors must also get a Type 1 Business License for low-risk distribution operations, according to MOT Regulation No. 8 of 2020.

Medium Risk

According to Ministry of Health Regulation No. 14 of 2021, business actors performing activities that are classified as medium-high risk business activity, require a NIB, a verified Standard Certificate, and an additional administration license.

High Risk

This category of risk necessitates a NIB as well as a technical license from the government.

Requirement for Product Distributor Business

According to Article 38 of Government Regulation No. 29 of 2021 regarding trade sector operations, both international and local distributors must meet the following requirements:

• Business License as a distributor;
• A registered business location with a permanent address;
• Controlling or owning a registered warehouse with a fixed address. The distributor may rent the warehouse from a third party, therefore “controlling” the facility. Controlling or owning a registered warehouse with a fixed address. The distributor may rent the warehouse from a third party, therefore “controlling” the facility; and
• A contract with the manufacturer, supplier, or importer of the items to be supplied to customers.

Foreign distributors must also appoint an Indonesian company to function as their distributor, exclusive distributor, agent, or exclusive agent. To establish the relationship between the foreign distributor and the Indonesian party, it is recommended to sign the legalized agreement in front of a notary. Note that, prior to agreeing with the Indonesian party, the foreign distributor must receive formal clearance from the major producer it represents.

How InCorp Can Assist You in Establishing Distribution Business in Indonesia

While making an investment in Indonesia’s distribution sector, InCorp will provide you with a seamless company registration experience. Our license specialists can assist you in the hassle-free acquisition of business licenses.

Moreover, InCorp Indonesia (an Ascentium Company) can assist you with your product registration. Furthermore, InCorp provides tax and accounting services and can act as your HR entity to carry out HR and recruitment services to help cut the overhead costs of setting up a department.