Hong Kong Business Investments in Indonesia

Indonesia offers Hong Kong businesses a great opportunity to explore new avenues for growth and expansion due to its strong economy and growing number of consumers.

The country invests in many infrastructure projects and has a rapidly growing digital economy, making it an attractive destination for Hong Kong businesses with an entrepreneurial spirit. 

The two regions have a lot of potential for collaboration and Indonesia’s growth presents a unique opportunity for Hong Kong businesses to diversify their operations.

Hong Kong and Indonesia Partnership

Hong Kong ranks third as the largest foreign investor in Indonesia, with a value of USD 5.2 billion from January to September 2023. Singapore and China hold the first and second positions, with investments of USD 12.1 billion and USD 5.6 billion, respectively.

The government’s support of downstream industries has positively contributed to investment realization, amounting to IDR 266.0 trillion, representing 25.3% of the total investment realization for this period.

Looking ahead, the government remains committed to the downstream mining sector’s program, particularly the development of the electric vehicle ecosystem and the expansion of renewable energy downstream of silica sand and quartz sand into solar panels.

Promising Sectors for Hong Kong Investment

Indonesia has more than 270 million people, making it a great potential market for Hong Kong investors. Although some businesses are waiting for the upcoming February election before investing, many others are confident and moving forward. Some industries that show promise for growth in Indonesia include:

1. Ibu Kota Nusantara (IKN)

Kevin Chiu, the director for Indonesia at the Hong Kong Trade Development Council (HKTDC), mentioned that some Hong Kong companies are eager to know more about the Nusantara New Capital project (IKN).

2. Energy Sector

Various sectors show potential, particularly the energy sector, as exemplified by Xinyi Glass’s commitment to invest USD 11.6 billion in constructing glass and solar panel manufacturing facilities on Rempang Island.

3. Manufacturing

Moreover, manufacturing companies, such as those producing toys and clothing, are exploring opportunities to focus on traditional OEM practices.

4. Services

Numerous service companies, including law and accounting firms, express a desire to assist foreign investors in entering Indonesia.

5. EV Battery

The Indonesian government, represented by PT Aneka Tambang Tbk (ANTAM), has entered into a collaboration with Hong Kong CBL Limited (CBL) through the signing of a Divestment Agreement for an Electric Vehicle (EV) Battery Project. 

This partnership aims to strengthen the supply chain for the lithium battery ecosystem in Indonesia.

READ MORE:

• Understanding Indonesia’s Role In The ASEAN Economy
• How Trade In Indonesia Benefits The Economy
• Maximizing Growth Potential In The ASEAN Economic Landscape

Benefits of Investing in Indonesia for Hong Kong Investors

Hong Kong investors who aim to invest in Indonesia may enjoy several benefits.

Benefits	Descriptions
Super Deduction Tax	This incentive applies to labor-intensive industries, vocational training programs, and research & development (R&D).
Tax Holiday	Apply to 18 industry groups with a minimum investment between IDR 100 and IDR 500 billion for Mini-tax holidays and a minimum of IDR 500 billion for tax holidays.
Tax Allowance	The benefits include 30% of the investment value in tangible fixed assets and a reduced corporate net income tax of 5% annually for six years.
Import Duty Facility	The facility applies for 2 to 4 years, depending on specific criteria.

Challenges and Considerations for Hong Kong Investors

The potential for political uncertainty may contribute to a slowdown in investments. Coupled with strict economic policies and the looming threat of El Niño affecting import-export activities, this could potentially trigger a global economic downturn.

A diverse domestic market, a growing middle class, demographic advantages, and abundant natural resources further underpin Indonesia’s economic strength. 

Nevertheless, the nation faces specific areas for improvement, notably in infrastructure, which requires continuous attention. Furthermore, high poverty, unemployment, and social and regional inequalities challenge Indonesia’s future economic growth.

Hong Kong investors eyeing business opportunities in Indonesia may also encounter general challenges.

1. Foreign Ownership Limits

Navigating Indonesia’s evolving business laws is crucial. Opportunities exist within specific sectors outlined in the Positive Investment List, subject to changing regulations. Foreign-owned Companies (PT PMA) or Representative Offices cater to different needs.

2. Government Regulations

Business registration in Indonesia can be intricate. Acquiring a principal license from the Indonesia Investment Coordinating Board (BKPM) involves multiple document submissions, with regulations subject to regular changes.

3. Taxation Complexity

Indonesia’s taxation system covers various aspects, and compliance is mandatory. Third-party services like InCorp Indonesia can assist in navigating this complexity.

4. Visa and Permit Challenges

Obtaining visas and permits in Indonesia can take time and effort. However, seeking assistance from InCorp’s visa and permit processing services can ensure a smooth process.

5. Language Barriers

Indonesia’s diverse culture presents a language barrier. Effective marketing involves localizing products; hiring locals fluent in relevant dialects can address this.

6. Infrastructure Development

Certain regions may have infrastructure challenges. Businesses may need to invest in or adapt to these limitations.

7. Cultural Sensitivity

Understanding and respecting Indonesian culture is crucial for building strong business relationships.

8. Competition and Saturation

Intense competition in Indonesia’s emerging market demands thorough research and unique value propositions.

9. Labor Regulations

Indonesian labor laws are complex. Adhering to regulations and establishing clear HR policies are essential.

10. Intellectual Property Protection

Safeguarding intellectual property rights requires registration and legal assistance.

Navigating these challenges demands research, local partnerships, and compliance. Adapting to the local business environment while maintaining integrity is key for Hong Kong investors in Indonesia.

Simplify Your Indonesian Expansion with InCorp

Indonesia offers a beautiful investment landscape for Hong Kong businesses. Entrepreneurs looking to explore investment opportunities in the country can benefit from the comprehensive services provided by InCorp Indonesia (an Ascentium Company).

Specializing in incorporation, licensing, and investor KITAS services, we streamline the entire process of setting up businesses in Indonesia. Fill out the form below for a free consultation.