Doing business in Indonesia: 5 Challenges You Must Know

Doing Business in Indonesia: The Challenges

InCorp Editorial Team

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Indonesia business climate as the largest economy in Southeast Asia, boasts a total GDP of over USD 888 billion and has set an ambitious target GDP growth rate of 5.2 percent. While the archipelago offers promising consumer-related market opportunities, the path to doing business in Indonesia has complexities. 

Successfully doing business in Indonesia requires understanding and overcoming several challenges. In this article, we will explore these challenges and offer insights on how to navigate them.

Challenges of Doing Business in Indonesia

When considering opening a business in Indonesia, foreign investors will encounter various challenges that can impact their success. Here are some key challenges that need to be addressed:

1. Foreign Ownership Limitations

Setting up a business in Indonesia can be tormenting for foreigners, but it’s essential to navigate to Indonesia business law and regulations. Foreign ownership limitations exist, but expats can still establish successful businesses due to high chance of Indonesia business opportunities. The Indonesian government allows foreigners to invest in specific sectors based on the Indonesian Positive Investment List, which outlines open sectors and the allowable percentage of foreign ownership. This list changes periodically, so it’s crucial to stay updated.

For those aiming for 100% foreign ownership, the Foreign-owned Company (PT PMA) option is available. Still, it requires a minimum investment of Rp 10 billion to be fulfilled within five years of establishment. Alternatively, a Representative Office offers a hassle-free way to set up a presence, although it can’t generate revenue and requires a parent company overseas.

2. Complex Government Regulations

Indonesia’s bureaucratic landscape can be daunting for business registration. Obtaining a principal license from the Indonesia Investment Coordinating Board (BKPM) involves multiple document submissions, including a certificate of domicile, taxpayer number proof, and Ministry of Law and Human Rights clearance. Keep in mind that regulations change regularly.

Read more: What Does Indonesia’s Upper Middle-Income Status Mean?

3. Elaborate Taxation System

Indonesia’s taxation system applies to individuals and companies, encompassing corporate income tax, employee withholding tax, value-added tax, and individual income tax. Even if a company is not generating profits, tax compliance is mandatory.

To navigate this labyrinth of taxation, consider using a third-party service like InCorp Indonesia, a leading PEO company in Indonesia. They can assist with HR-related concerns, payroll, legalities, insurance, accounting, auditing, and tax reporting.

4. Visa and Permit Processing Maze

Obtaining visas and permits in Indonesia can be a challenge. There are four types of licenses for business purposes: tourist visas (valid for 7-30 days), business visas (multiple-entry or single-entry), KITAS (allowing employment), and KITAP (permanent permit for expats married to Indonesians).

To avoid common mistakes and ensure visa compliance, seek assistance from InCorp’s visa and permit processing services. They handle the paperwork for a hassle-free stay in Indonesia.

Read more: 3 Surprisingly Nice Things Investors Should Know

5. The Language Barrier

Due to Indonesia business culture and numerous dialects (over 700) present a language barrier for businesses. Effective marketing requires localizing products and services for specific markets. Consider hiring local employees fluent in the relevant dialects to address this challenge.

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Tackle These Business Challenges with InCorp Indonesia

InCorp Indonesia, formerly known as Cekindo, is a leading provider of market entry and business solutions in Indonesia. They stay up-to-date with the ever-evolving regulations and offer expertise in localizing products and services.

Navigating Indonesia’s business landscape may be intricate, but your business can thrive in this dynamic economy with the proper guidance and services. For inquiries on how InCorp Indonesia can assist you in doing business in Indonesia, please get in touch with us through the form below.

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Pandu Biasramadhan

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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