Expand to Indonesia: A Guide for Malaysian Investors

The Indonesia-Malaysia diplomatic relations, which began on October 10, 1957, when Indonesia officially recognized Malaysia’s sovereignty, have evolved into a strategic partnership within ASEAN. This relationship, bolstered by geographical proximity, cultural similarities, and substantial economic interdependence, sets the stage for robust business opportunities. 

In recent years, trade and investment between Indonesia and Malaysia have experienced a significant upswing, with Malaysia consistently ranking as one of Indonesia’s top foreign investors. This trend underscores the growing potential for Malaysian investors in the Indonesian market.  

The relationship is further strengthened through strategic agreements and forums, such as the 2024 Indonesia-Malaysia Investment Forum, which showcased Indonesia’s potential as a lucrative destination for Malaysian businesses. 

Indonesia-Malaysia Investment Landscape 

From 2019 to mid-2024, Malaysia invested USD 12.9 billion in Indonesia, consistently positioning itself among its top foreign investors. In 2023, Malaysia ranked fifth out of 145 countries investing in Indonesia. The investments are distributed across several sectors, including: 

• Chemical and Pharmacy Industry: USD 4 billion 
• Transportation, Warehousing, and Telecommunication: USD 2.8 billion 
• Pulp and Printing Industry: USD 1.7 billion 
• Food Industry: USD 1.5 billion 
• Food Crops, Plantation, and Livestock: USD 1 billion 

Active Bilateral Agreements Between Indonesia and Malaysia 

As of January 2025, Indonesia and Malaysia maintain several active bilateral agreements that foster cooperation across various sectors. These agreements, including the Border Trade Agreement (BTA), the Bilateral Swap Agreement, and the Halal Certification Recognition, create a supportive regulatory environment for businesses. 

• Border Trade Agreement (BTA): The BTA, renewed in June 2023, enhances trade mechanisms and oversight for border communities. 
• Bilateral Swap Agreement: This agreement was renewed in September 2024, allowing a five-year $5.8 billion currency swap to strengthen financial stability. 
• Halal Certification Recognition: Signed in June 2023, this cooperation simplifies trade in halal products by mutually recognizing certifications. 

Why Should Malaysian Businesses Invest in Indonesia? 

Indonesia and Malaysia have maintained close ties for decades, fostering cooperation in various fields, especially trade and investment. This strong relationship makes Indonesia a natural choice for Malaysian businesses looking to expand regionally. 

• Indonesia is one of Southeast Asia’s largest economies, with a GDP exceeding USD 1.2 trillion in 2023. It is projected to grow by 5% annually over the next decade. 
• With over 270 million people and a growing middle class, Indonesia offers a massive consumer goods and services market. 
• Policies that reduce bureaucratic hurdles offer tax breaks and enhance transparency make Indonesia more appealing to investors. 

Promising Sectors for Malaysian Companies 

The Indonesia-Malaysia Business Forum recently highlighted key sectors where Malaysian businesses can thrive. Here are some promising areas: 

• Infrastructure Development: Opportunities include major national projects like roads, airports, and the new capital, Nusantara. 
• Digital Economy: The growing tech sector, including fintech and e-commerce, is ideal for Malaysian tech firms. 
• Manufacturing: Expanding industries such as chemicals, pharmaceuticals, and consumer goods provide a platform for collaboration. 
• Agriculture and Food Processing: Indonesia’s large agricultural base complements Malaysia’s expertise in modern farming and food innovation. 
• Renewable Energy: With increasing focus on sustainability, sectors like solar, wind, and hydropower are ripe for investment. 

READ MORE:

• Indonesia’s Electronic Manufacturing Industry: Potential and Challenges 
• Renewable Energy Investment in The Manufacturing Sector
• The Role of Digital Transformation in ASEAN’s Economy

Legal Requirements to Set Up a Business in Indonesia for Malaysian Investors 

Malaysian investors interested in entering the Indonesian market must understand the legal framework to establish and operate a business. Indonesia has streamlined its regulations to attract foreign direct investment (FDI), but compliance remains critical. Here are the key requirements: 

• Choosing the proper business structure 
• Registering with authorities 
• Meeting capital requirements 
• Obtaining permits 

Challenges of Investing in Indonesia for Malaysian Businesses 

While Indonesia is a promising market, Malaysian businesses may face several challenges that require careful navigation. Here are the main issues to consider: 

Business Visas 

Business visas have a limited scope and do not allow employment or salary earning. Using the wrong visa can lead to penalties, so it’s essential to understand which type suits your needs and comply with regulations. 

Business Culture 

Indonesia’s business culture values respect and politeness. For example: 

• Saying “yes” may indicate politeness, not agreement. Clarify details to avoid misunderstandings. 
• Greetings often involve handshakes; address elders with Bapak (Mr.), Ibu (Mrs.), or Kakak (elder). 
• Present cards with both hands and handle them respectfully—never fold or write on them. 
• Respect local customs, particularly in religious and professional settings. 

Tax Compliance 

Indonesia’s tax system requires strict adherence to deadlines. Late filings or payments can result in penalties. Professional assistance can help businesses manage these requirements effectively. 

Business Licenses 

Some industries require specific licenses to operate legally. Applying for these permits can be complex, but professional guidance ensures smooth compliance. Here are some common types of licenses: 

• General Business License: Required for trading goods or services. 
• Industrial Business License: Necessary for manufacturing businesses. 
• Specialized Licenses: Includes permits for construction, imports, cosmetics, food and beverages, and medical distribution. 

Expand Your Business to Indonesia with InCorp 

While challenges like regulatory requirements, cultural nuances, and tax compliance exist, they can be overcome with the right approach and expert assistance.  

InCorp Indonesia (an Ascentium Company) offers tailored services to help Malaysian investors succeed, including: 

• Company Registration: Streamline the process of legally establishing your business in Indonesia. 
• Investor KITAS: Simplify residency and work requirements for business owners. 

With the proper support, Malaysian businesses can unlock Indonesia’s potential and build lasting regional success. Fill out the form below to take the first step in this market.