Home Blog Setting Up a Small Business Indonesia: The Challenges and Solutions Uncategorized Setting Up a Small Business Indonesia: The Challenges and Solutions InCorp Editorial Team 19 December 2023 4 minutes reading time Table of Contents Challenges for Starting a Small business Indonesia Solutions for Starting a Small Business Indonesia Due to the reforms and improvements by the Jokowi’s administration in recent years, Indonesia’s economy having a big jump. The current on-a-roll economy also opens the door to the rapid business development of doing business in Indonesia. Challenges for Starting a Small business Indonesia Setting up a small business in Indonesia encompasses challenges. Traditionally speaking, the higher the challenges or risks are, the sweeter the fruitful results can become. Investors and entrepreneurs need to prepare themselves for the following key obstacles. # High Minimum Capital to Make the First Move BKPM requiring foreign investors to have the minimum capital to set up a company in Indonesia (PMA); the amount costs IDR 10 billion. In addition to this, the minimum paid-up capital amount is also IDR 10 billion. # Restrictions on Foreign Ownership The restriction of the percentage of foreign ownership is one of the obstacles the foreign investors must overcome; according to the Negative Investment List and Invest Law in Indonesia. # Infrastructure Limitations Lack of sufficient quantity and quality of infrastructures and their uneven distribution has barred the business development in Indonesia to reaching its full potential. Most of the infrastructures are highly concentrated in Java but not the other parts of the country. # Governance and Inconsistent Law Apart from the lack of financial transparency and inconsistent laws and regulations that change over time, complex processes have also negatively influenced the business development and performance in this immense archipelago. # Foreign Hiring According to the Ministry of Labor in Indonesia, the priority of hiring is reserved for local people. While investors can obtain their work and stay permits quite easily, foreign hiring is relatively challenging. Foreign hiring is usually approved if that particular position is impossible to be fulfilled by local hiring. Solutions for Starting a Small Business Indonesia # Be cautious on the Local Partners selection process. Unless you are married to an Indonesian you can trust and have obtained a permanent residency (KITAP) after 2 years of marriage, always be cautious when choosing a local partner. The local partner can take over your business entity at any time when they want it. # Start the business small and with more than minimum capital. It is easy to start a small business in Indonesia as the government doesn’t always monitor the paid-up capital. However, once your company is up and running, it is advisable to expand your business with sufficient funds. Most of the time, businesses stay small and informal because becoming big is very costly. As a result, limited by-laws, they lack access to capital, foreign hiring, and thereby find it harder to hit mega success. # Acquire legal possession of entity outside of Indonesia. In most circumstances, especially for those online businesses, the country in which you registered your company does not matter to your customers. You can thereby choose a country where it has less hassle to oversee and manage your business. The only issue, however, is that you will be traveling back and forth between Indonesia and another country every 2 months; alternatively, you may delegate a foreign partner who can take turns to do the traveling with you. Indonesia had survived the last global economic crisis and all the existing challenges; Indonesia still remains Southeast Asia’s largest economic hub and has outperformed many Asian countries such as Singapore, Malaysia, and Thailand. If you want to be part of Indonesia’s fast-growing economy, you should be able to find reliable help setting up a small business in Indonesia to start with. Cekindo, you can find help and comfortably talk with our friendly consultants and market-entry specialists now. Read Full Bio Verified by 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. Frequently Asked Questions What other things should be considered when hiring local and foreign employees in Indonesia? There are a few things to consider, such as: Prohibit any form of discrimination and provide equal opportunity for Indonesians and expatriates Increase the competence of workers by giving or encouraging job training. Follow the termination procedures (Terminating an employee in Indonesia can be long, tedious, and expensive. Observe working hours, holidays, and overtime regulations Give mandatory employee benefits, including social security and health insurance Withhold only the right amount of income tax on behalf of the employees Follow the wages and other benefits outlined by the law Process work permits for foreign employees How long does it take to set up a PMA company, and how soon can it begin commercial operations? Establishing a PMA Company in Indonesia typically takes around two weeks after completing document requirements. Following establishment, additional steps such as obtaining licenses and registering for Tax ID vary based on business type. Last, some licensing processes may take time, necessitating thorough planning and preliminary assessments of the business plan for a smoother process. If investors intend to conduct business in Indonesia, what kind of organization must they establish? Within the scope of foreign direct investment in Indonesia, foreign investors can typically do business in two ways: Set up a PMA (Perusahaan Modal Asing) PMA is a local subsidiary in the form of a limited liability corporation for foreign investment reasons Set up a RO (Representative Office) According to Law No. 25/2007 on Investment, foreign investors are required to establish a PMA company in order to make direct investments and conduct commercial and business activities in Indonesia. A PMA firm in Indonesia is a legally recognized business entity that can engage in various commercial and business operations as long as it complies with the current laws and regulations. As for RO, its purposes include conducting market feasibility studies and liaison activities. What is the minimum shareholder requirement to incorporate a PT? The minimum number of shareholders to incorporate a PT is two Get in touch with us. 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Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind. We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials. We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website. More on Uncategorized [2020 Update] Bank Indonesia Launches Regulation on Fintech Read more The Launch of OSS System’s New Version on November 4 2019: What to Know Read more AEP – Portuguese Chamber of Commerce & Industry Read more