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3 Key Considerations before Setting up a Business in Indonesia

Many global investors are still actively looking to invest in Indonesia in 2020. As the largest economy in Southeast Asia, Indonesia is also the 10th largest economy in the world based on its purchasing power parity.

In 2019, Indonesia’s economic growth reached 5.2%. Furthermore, its annual headline inflation has remained at less than 3.9% (3.2% in 2020) for the past four years and will continue until 2024.

On top of that, the prospering economy that makes Indonesia an investment haven is due to other main factors such as the dynamic tourism, abundant agricultural products for exports, booming manufacturing sector, and ever-advancing technology.

If you think this is the right time for you to set up a business in Indonesia, here are the three important things you need to consider.

Business Setup in Indonesia: 3 Key Considerations

Business Setup in Indonesia: 3 Key Considerations1. Company Setup

The first step in business setup in Indonesia is to choose the type of legal entity. There are several common types of legal entities available in Indonesia: Indonesian Limited Liability Company (PT), Foreign-owned Limited Liability Company (PT PMA), Representative Office, and Public Companies.

Once you have chosen your legal entity type, you need to consider if your business expansion needs physical office space in Indonesia, or you can hire employees in Indonesia remotely through a virtual office.

All business setup in Indonesia must comply with Indonesian Law following your company type, business category, and location.

2. Employment Regulations

If you need to hire employees to work for you, you will have to comply with all the employment regulations in Indonesia. Each country has its own set of employment and labour legislation, Indonesia is no exception.

So please bear in mind to never apply the employment law in your country in a foreign country such as Indonesia.

As an employer, you need to understand your responsibilities and your employee rights in your targeted market to ensure a successful global expansion.

Plus, getting familiar with local employment legislation can protect your company against legal implications. Non-compliance means heavy penalty, damaged reputation, imprisonment and/or business shutdown.

Several key items you have to pay attention to employment regulations and they are different for local and foreign employees. For example, ensure that you cover all aspects such as wages and benefits (paid holidays, sick leaves, maternity leaves, healthcare, overtime pay, and other compensation).

On top of that, make sure that you pay your employees and report all your taxes timely and correctly.

When it comes to foreign employment, do bear in mind that you can employ foreigners with a fixed-term employment agreement, known as PKWT, for a maximum of two years. Moreover, the foreigner must have a work permit to be able to have legal protections under Indonesian Law.

3. Business Licenses

Successful business setup in Indonesia means that you need to acquire certain compulsory business licenses. Without them, you won’t be able to operate your business legally in the country.

You may need to apply for additional specific permits as well depending on the type of your business and activities.

The most common type of license you need is a general business license. This license is necessary for you to run general business activities and provide goods and services.

If you are a manufacturing company, you will need an industrial business license, and if you are in the construction business, you must obtain a construction business license.

Cekindo, Your Trusted Advisor for Expansion to Indonesia

In today’s competitive business landscape, smart business owners know that getting assistance from an effective and professional business advisor is key to achieving success for your business setup in Indonesia.

The expectation that a business advisor simply handles your paperwork during your expansion is outdated.

Instead, a reputable business advisor like Cekindo can provide insightful and pragmatic advice, as well as adding value to your business operations once your business is successfully setup, ultimately leading to stellar business performance.

If you are looking for a professional, efficient, and reliable business consulting service for your business setup in Indonesia, contact Cekindo now. Our expert consultants will take care of all your business advisory needs.

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