key consideration before setting up a business in Indonesia

3 Key Considerations before Setting up a Business in Indonesia

  • InCorp Editorial Team
  • 8 August 2023
  • 4 minute reading time

Many global investors are still actively looking to setting up a business in Indonesia. As the largest economy in Southeast Asia, Indonesia is also the 10th largest economy in the world based on its purchasing power parity. In 2022, Indonesia’s economic growth reached 5.3%. 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 dynamic tourism, abundant agricultural products for exports, booming manufacturing sector, and ever-advancing technology. If you think this is the right time for a business setup in Indonesia, here are the three important things you must consider.

Business Setup in Indonesia: 3 Key Considerations

Setting up a Business in Indonesia

1. Company Setup

The first step in business setup in Indonesia is to choose the type of legal entity. Several common legal entities are available in Indonesia: Indonesian Limited Liability Companies (PT), Foreign-owned Limited Liability Companies (PT PMA), Representative Offices, 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 if you can hire employees in Indonesia remotely through a virtual office.

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

Read more: A Comprehensive Guide to Business Opportunities in Jakarta

2. Employment Regulations

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

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

As an employer, you must understand your responsibilities and 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 penalties, damaged reputation, imprisonment, and/or business shutdown.

You have to pay attention to several key items in employment regulations, and they are different for local and foreign employees. For example, ensure 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 correct.

Regarding foreign employment, do remember 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 acquiring certain compulsory business licenses, such as an Indonesia company registration certificate. Without them, you won’t be able to operate your business legally in the country.

You may also need to apply for additional specific permits, 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; if you are in the construction business, you must obtain a construction business license.

Read more: Developing A Company? Here are Business Startup Tips to Follow

InCorp, 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 handles your paperwork during your expansion is outdated.

Instead, a reputable business advisor like InCorp Indonesia can provide insightful and pragmatic advice, as well as add value to your business operations once your business is successfully set up, 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 InCorp now. Our expert consultants will take care of all your business advisory needs.

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Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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