• Indonesian

The Challenges of Doing Business in Indonesia and How to Tackle Them: Part 1

As the largest economy in Southeast Asia, Indonesia has a total GDP of USD888 million with target GDP growth set at 5.2 percent. The archipelago was ranked 91th out of 189 countries in the Ease of Doing Business 2017 report.

Indonesia certainly draws attention to many foreigners looking to establish their businesses in the country. Not forget to mention, Indonesia leading consumer-related market opportunities.

However, doing business in Indonesia is not as easy at it sounds, especially setting up the foundation of the business. Here are few of these challenges:

Doing Business in Indonesia: The Challenges Part 1

1. Foreign Ownership Limitations

doing business in indonesia 2

While a foreigner may be limited by Indonesian regulations in terms of owning businesses in the country, we’re not saying that they actually can’t. In fact, there exists a good number of successful businesses owned by expats in the archipelago.

Strategy-wise, a foreigner may also invest in companies they want to be part of. The Indonesian government allows foreigners to invest in certain business sectors depending on their categorization under the Indonesian Negative Investment List (DNI). The DNI enumerates the sectors or industries that are open for foreign investments as well as the percentage of the ownership allowed for non-Indonesians.

The DNI is listed into several categories from Closed to Investments, Reserved for Small and Medium Enterprises (SME), Through Partnership with SMEs, Limited Foreign Capital Ownership, Defined Location, Required a Special License, 100% Domestic Capital, and Foreign Capital Ownership.

Foreigners need to pay attention to the DNI since the authority would change it every few years.

Tackling the Challenge

  • Local Limited Liability Company (PT). Registering company under local nominee means letting Indonesian become the owner of the company. PT requires a minimum one local director, two local shareholders, and one local commissioner. Additionally, a company has to pay a capital of Rp50 million (USD4,000). However, if you plan to appoint a foreign director, the paid-up capital increases to Rp1.1 billion (USD82,700). Of course, as a local PT, your company would gain several benefits: Conducting several business activities limited to legal entities; Participating in all Indonesia’s tenders; Directing sponsorship for stay permits (for medium and big size company); More security. However, it is important to select a nominee that you trust. Fortunately, Indonesia’s top-notch one-stop service Cekindo offers the safest way to form an agreement between you and a local nominee. By ensuring your rights as a shareholder, you don’t have to worry about any possible risks.
  • Registering your company as PMA. This will make your company open to 100% foreign ownership (or less than 100% according to the regulation). You can only set up a PMA if your business is open for foreign investment. As PMA, you have to invest minimum Rp10 billion (USD1 million) in Indonesia. The company needs to fulfill the investment plan in 5 years. Also, pay for the minimum paid-up capital of Rp.2.5 billion (US$187,000) once the company established.
  • The last option is to set a representative office where you don’t need a paid-up capital or large investments. It is the most efficient and easiest way to set up your business in the country. However, do keep in mind that a representative office can only monitor and coordinate your business without generating revenue. You can open a representative office only if you have a parent company overseas.

 

2. Complex Government Regulations

doing business in indonesia 3

In order to successfully register a business in Indonesia, you have to get past through several government regulations and clearances. Additionally, you have to apply for a principal license from the Indonesia Investment Coordinating Board (BKPM).

There are several documents required to apply for this license including a certificate of domicile, proof of taxpayer number, clearance from the Ministry of Law and Human Rights, among others. Keep in mind that government is likely to renew or modify the Indonesian regulations on the matter regularly.

Tackling the Challenge

As the country’s leading provider of market-entry and business solutions, Cekindo keeps up with the latest regulations in the country so you do not have to worry about the complex rules and any of the new regulations. Cekindo’s top-notch team of legal consultants; lawyers; and payroll, accounting, and tax professionals make sure that your company is up to date and fully abiding by the country’s business regulations.

Cekindo Can Assist You in Doing Business in Indonesia

For further questions or inquiries about how Cekindo can help you and your business, please make time to visit and check out updates on their website or contact their customer-friendly staff through sales@cekindo.com.

     

     

    Image: Story Law Firm

     

    As the largest economy in Southeast Asia, Indonesia has a total GDP of USD888 million with target GDP growth set at 5.2 percent. The archipelago was ranked 91th out of 189 countries in the Ease of Doing Business 2017 report.

     

    Indonesia certainly draws attention to many foreigners looking to establish their businesses in the country. Not forget to mention, Indonesia leading consumer-related market opportunities.

     

    However, doing business in Indonesia is not as easy at it sounds, especially setting up the foundation of the business. Here are few of these challenges:

     

     

    • Foreign Ownership Limitations

     

    Image: Dealdey

     

    While a foreigner may be limited by Indonesian regulations in terms of owning businesses in the country, we’re not saying that they actually can’t. In fact, there exists a good number of successful businesses owned by expats in the archipelago.

     

    Strategy wise, a foreigner may also invest in companies they want to be part of. The Indonesian government allows foreigners to invest in certain business sectors depending on their categorisation under the Indonesian Negative Investment List (DNI). The DNI enumerates the sectors or industries that are open for foreign investments as well as the percentage of the ownerships allowed for non-Indonesians.

     

    The DNI is listed into several categories from Closed to Investments, Reserved for Small and Medium Enterprises (SME), Through Partnership with SMEs, Limited Foreign Capital Ownership, Defined Location, Required a Special License, 100% Domestic Capital, and Foreign Capital Ownership.  

     

    With the DNI being renewed every few years, it is critical to always pay close attention to it.

     

    Tackling the Challenge

     

    • Local Limited Liability Company (PT)

     

    To register your company under local nominee is to let an Indonesian be in charge of the

    ownership of the company. Indonesian PT requires a minimum one local director, two local shareholders, and one local commissioner. Additionally, to establish a PT, the company is required to pay a capital of Rp.50 million (US$4,000). However, if you plan to appoint foreign director, the paid-up capital increases to Rp.1.1 billion (US$82,700).

     

    Of course as a local PT, your company would gain several benefits such as to conduct several business activities limited to legal entities, to participate in all Indonesia’s tenders, direct sponsorship for stay permits (only for medium and big size company), and more security.

     

    However, it is important to select your most trusted nominee for the ownership. Fortunately, Indonesia’s top-notch one-stop service Cekindo offers the safest way to form an agreement between you and a local nominee. By ensuring your rights as shareholder, you do not have to worry about any possible risks of establishing a PT.

     

    • The second option is to register your company as PMA, which will make your company open to 100% foreign ownership (or in some cases, with less than 100% based on the regulation). You can only set up a PMA if your business is open for foreign investment according to the DNI.

     

    As PMA, you are required to invest Rp.10 billion (US$1 million) in minimum in Indonesia (and fulfill the investment plan in 5 years) and a minimum paid-up capital of Rp.2.5 billion (US$187,000).

     

    • The last option is to set a representative office where no paid-up capital or large investments are needed. It is also the most efficient and easiest way to set up your business in the country. However, do keep in mind that a representative office can only monitor and coordinate your business without generating revenue in the country.  A representative office can be opened when you have a parent company overseas.

     

     

    • Complex Government Regulations

     

    Image: Information Station

     

    In order to successfully register a business in Indonesia, you have to get past through several government regulations and clearances. Additionally, you are required to apply for a principal license from the Indonesia Investment Coordinating Board (BKPM).

     

    There are several documents required to apply for this license including a certificate of domicile, proof of taxpayer number, clearance from the Ministry of Law and Human Rights, among others. It should also be noted that Indonesian regulations on the matter are regularly renewed or modified.

     

    Tackling the Challenge

     

    As the country’s leading provider of market-entry and business solutions, Cekindo keeps up with the latest regulations in the country so you do not have to worry about the complex rules and any of the new regulations. Cekindo’s top-notch team of legal consultants; lawyers; and payroll, accounting, and tax professionals makes sure that your company is up to date and fully abiding with the country’s business regulations.

     

     

    • Elaborate Taxation System

     

     

    Taxation regulations in the country apply to both individuals and companies; there are regional levels and national levels tax system classifications.

     

    The monthly tax compliance in Indonesia ranges from corporate income tax, employee withholding tax, value added tax, and individual income tax.  In the same way that a company registered under a local nominee is required to follow Indonesian tax regulations, representative offices are also required to register as taxpayers and pay income tax to employees. Indonesian companies are required to make and submit their tax reports the moment they get their tax ID number even with the lack of business activity or profit.

     

    Tackling the Challenge

    To avoid dealing with taxes, auditing, and other accountings, consider using a third-party service. Cekindo is a PEO company leader in Indonesia that helps expats manage their businesses’ HR-related concerns from hiring, training, payroll, legalities, insurance, accounting, auditing, as well as tax and payroll reporting, among others.

     

     

    • Labyrinth of Visa and Permit Processing

     

     

    Image: PNB Immigration Law Firm

     

    Acquiring visa and stay permits is one of the most difficult challenges in doing business in Indonesia. It is important to understand that there are four types of permits required for someone who wants to stay (and do business) in the country.

     

    The first one being the tourist visa where you are required to have a return ticket back to your country of origin and a valid passport. The tourist visa limits your stay in the country between 7 to 30 days. If you stay in the country for more than 30 days with your tourist visa, you will get yourself arrested for overstaying.

     

    The second one is the business visa that authorizes you to do business in Indonesia, which can include attending business meetings, exhibitions, trainings, or seminars. Also there are two  types of business visas: the multiple-entry visa and single-entry visa. The former is valid for 1 year and grants a maximum of two months’ stay for one visit. The latter allows a visitor to stay in Indonesia for 60 days from his arrival date and expires once the holder leaves the country.

     

    Next is the KITAS. More advanced than the business visa, the KITAS allows expats to be employed in Indonesia. When applying for KITAS, the company has to explain why it needs foreign skills. On an important note, you have to carefully consider the number of foreign workers in your company. Currently, the ratio of local workers to foreign workers is limited to 10:1. A company’s expat director will have a KITAS valid for 1 year, while any other expat employee will have theirs valid for 6 months, both of which can be renewed.

     

    The last permit that you may take is KITAP. This is the permanent permit used by expats who are married to an Indonesian. KITAP may also be given if you apply for KITAS for three consecutive years.

     

    Tackling the Challenge

     

    While applying for visas and permits may not be that difficult, many foreigners make the most common mistake of not being mindful of their visas and permits, particularly keeping in mind the validity of their visas or the activities they are legally allowed to do with their permits.

     

    To avoid any problems with Immigration authorities, get help from Cekindo and its relevant visa and permit processing services that guarantee you a hassle-free stay in the country. You only need to provide the documents needed for your visa and/or permit processing, and Cekindo sorts everything out for you.

     

    1. The Language Barrier

    Image: Digital News Asia

     

    While the major cities of the country are located across the big islands in the archipelago, Indonesia has hundreds of inhabited islands where each has their own unique culture and means of conducting business. It should be noted too that there are more than 700 dialects spoken across the country, depending on where you’re at in the archipelago.

     

    It should go without saying that effectively marketing your product in Indonesia will require localizing it in the targeted market. To help your business with this concern, you may hire a local employee with the knowledge to speak the dialects that will help your business maximize your presence in your target market.

     

    Tackling the Challenge

    There are several consulting firms that can help foreigners settle in Indonesia; however, Cekindo takes pride in its experience of providing local knowledge and its prominence in terms of being well-versed on localizing your products or services and how to make your target market love what your business has to offer.

    For further questions or inquiries about how Cekindo can help you and your business, please make time to visit and check out updates on their website or contact their customer-friendly staff through indo@cekindo.com.

     

    ==END==

     

    Ref:

    http://2016.export.gov/indonesia/doingbusinessinindonesia/index.asp

    http://gpa-global.org/wp-content/uploads/2017/02/indonesia-2017-HBNW.pdf

    https://uk.practicallaw.thomsonreuters.com/5-501-2646?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1

    https://www.indonesia-investments.com/business/risks/infrastructure/item381

    http://emerhub.com/indonesia/how-to-register-company-in-indonesia/

    http://emerhub.com/indonesia/working-visa-permi-indonesia/

    http://emerhub.com/indonesia/compare-legal-entity-formats-indonesia/