Home Blog Doing Business in Indonesia: The Challenges Company Registration | Indonesia Doing Business in Indonesia: The Challenges InCorp Editorial Team 18 June 2024 7 minutes reading time Table of Contents Challenges of Doing Business in Indonesia Understanding Indonesian Business Culture for Foreigners Business Meetings and Etiquette Working with Local Colleagues Tackle These Business Challenges with InCorp Indonesia Indonesia’s 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 the 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’s business culture and numerous dialects (over 700), businesses have a language barrier. Effective marketing requires localizing products and services for specific markets. Consider hiring local employees fluent in the relevant dialects to address this challenge. 6. Infrastructure Development While Indonesia is a growing economy, some regions may face infrastructure challenges, such as inadequate transportation networks, unreliable power supply, and limited access to high-speed internet. Businesses may need to invest in infrastructure development or adapt their operations to accommodate these limitations. 7. Cultural Sensitivity and Etiquette Understanding and respecting Indonesian culture and etiquette is crucial. Missteps in cultural sensitivity can harm business relationships. For example, being aware of proper greetings, gestures, and the significance of hierarchy can make a significant difference in building rapport with local partners and clients. 8. Competition and Market Saturation Indonesia’s emerging market economy attracts businesses worldwide, leading to intense competition across various sectors. Market saturation can make it challenging for new entrants to gain a foothold. Understanding the competitive landscape, conducting thorough market research, and developing unique value propositions are essential to succeed in this competitive environment. Building strong relationships with local partners can also provide valuable insights and help navigate the competitive market effectively. 9. Labor Regulations and Disputes Indonesian labor laws can be complex, and disputes between employers and employees are not uncommon. Understanding and complying with labor regulations, including hiring, termination, and employment contracts, is essential. Establishing clear HR policies and seeking legal advice can help mitigate labor-related challenges. 10. Intellectual Property Protection Protecting intellectual property (IP) rights can be a concern in Indonesia. Companies should diligently register and enforce their IP rights to prevent counterfeiting and unauthorized use of their products or trademarks. Legal assistance and IP registrations are advisable steps to safeguard valuable assets. Navigating these challenges requires thorough research, local partnerships, and a commitment to compliance with Indonesian laws and regulations. Adapting to the local business environment while maintaining transparency and integrity is key to achieving success in Indonesia’s dynamic market. Understanding Indonesian Business Culture for Foreigners Indonesia’s business culture is richly influenced by its core values, which are vital for foreigners to comprehend when engaging in business interactions. Here’s a comprehensive overview: 1. Group Harmony Indonesians prioritize the collective harmony and cohesion of the group. Business decisions often aim to maintain this harmony, emphasizing collaboration over individual interests. 2. Hierarchy Respect for authority and seniority is deeply ingrained in Indonesian culture. Superiors are afforded deference, and their decisions hold great significance. This hierarchical structure differs from more egalitarian Western cultures. 3. Individual Reputation Personal reputation is highly esteemed in Indonesia. Your conduct in business dealings directly influences your reputation, so upholding integrity and honor is imperative. Business Meetings and Etiquette 1. Personalized Approach Business is undeniably personal in Indonesia. Building strong relationships through effective communication is crucial. Face-to-face meetings are often considered the most effective way to conduct business. 2. Greetings A common greeting involves a handshake accompanied by the word “Selamat.” Handshakes are generally light, and it’s essential to approach the eldest or most senior person first when meeting a group of people. 3. Business Cards Treat business cards with respect. Give or accept them with two hands or the right hand, and take a moment to examine the card before putting it away. For a positive impression, consider having your business cards in Indonesian as a sign of respect. 4. Dress Code Business attire in Indonesia is typically conservative. Women should be well-covered from ankle to neck, avoiding tight-fitting clothes. Given the hot climate, lightweight clothing, preferably cotton, is advisable. 5. Communication Indonesians tend to speak quietly with a subdued tone. Loud behavior can be perceived as slightly aggressive. 6. Respect for Religious Practices Many Indonesians are practicing Muslims who pray five times a day. When scheduling meetings or lunch dates, it’s important to avoid overlapping with prayer times out of respect for their religious commitments. Working with Local Colleagues 1. Decision-Making While senior leaders are expected to make final decisions, Indonesians value group discussions and consensus-building. Decision-making is often preceded by extensive deliberation within the team. 2. Criticism and Refusal Saving face is a significant cultural norm in Indonesia. Indonesians tend to be polite and may find it challenging to criticize or refuse. Bahasa Indonesia offers multiple ways to express agreement or disagreement subtly, which can sometimes be challenging to interpret for foreigners. By understanding and respecting these cultural nuances, foreign business professionals can navigate the Indonesian business landscape effectively, fostering fruitful relationships and successful collaborations. Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Subscribe Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe 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 contact us through the form below. Read Full Bio Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.