DOING BUSINESS IN INDONESIA IN 2020
Since 2003, Healy Consultants Group PLC has been effectively assisting our Clients with i) business registration ii) Indonesian corporate banking solutions iii) resident director and iv) accounting and legal requirements.
|Compare different Indonesia entities||Wholly foreign owned LLC||Fast business setup solution||Free zone LLC||Local nominee owned LLC||Representative Office|
|Also known as||PMA||PT-PMA conversion||KPB company||PT||KPPA|
|Best use of company?||All products and services||Close a customer deal now||Manufacturing and export trading||To secure public funding||Marketing & research|
|How soon can you invoice Clients/sign sales contracts?||3 months||6 weeks||3 months||6 weeks||Cannot|
|How soon can you hire staff?||3 months||6 weeks||3 months||6 weeks||3 months|
|How soon can you sign a lease agreement?||1 week||1 week||1 week||1 week||1 week|
|How long to supply corporate bank account numbers?||4 months||10 weeks||4 months||10 weeks||4 months|
|How long to supply company registration/tax numbers?||3 months||6 weeks||3 months||6 weeks||3 months|
|Corporate tax rate on annual net profits?||25%||25%||25%||25%||0%|
|Limited liability entity?||Yes||Yes||Yes||Yes||No|
|Government grants available?||Yes||Yes||Yes||Yes||No|
|Government approval required for foreign owners?||Yes||Yes||Yes||Yes||Yes|
|Resident director/partner/manager/ legal representative required?||Yes||Yes||Yes||Yes||Yes|
|Minimum paid up share capital?||US$300,000||US$300,000||US$300,000||From US$3,745||none|
|Can bid for Government contracts?||Yes||Yes||Yes||Yes||No|
|Corporate bank account location?||Bank Negara||SCB Indonesia||Citibank Indonesia||Bank Mandiri||DBS Indonesia|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes|
|VAT payable on sales to local customers?||10%||10%||10%||10%||None|
|Average total business set up engagement costs?||US$16,950||US$64,100||US$18,100||US$13,500||US$19,250|
|Average total engagement period?||4 months||4 months||4 months||3 months||4 months|
|Accounting and tax considerations||Wholly foreign owned LLC||Fast business setup solution||Free zone LLC||Local nominee owned LLC||Representative Office|
|Statutory corporate tax payable?||25%||25%||25%||25%||0%|
|Legally tax exempt if properly structured?||No||No||Yes||No||Yes|
|Group HQ tax incentives?||Yes||Yes||Yes||No||No|
|Must file an annual tax return?||Yes||Yes||Yes||Yes||Yes|
|Must file annual financial statements?||Yes||Yes||Yes||Yes||Yes|
|Must appoint an auditor?||No||No||No||No||No|
|Access to double taxation treaties?||Yes||Yes||Yes||Yes||No|
|Withholding tax on payments to foreign shareholders?||20%||20%||20%||20%||None|
|Company Registration||Wholly foreign owned LLC||Fast business setup solution||Free zone LLC||Local nominee owned LLC||Representative Office|
|Resident director/partner/manager/ legal representative required?||Yes||Yes||Yes||Yes||Yes|
|Minimum number of shareholders/partners?||2||2||2||2||Parent company|
|Maximum shareholding for foreigners?||100%||100%||100%||0%||100%|
|Minimum statutory paid up share capital?||US$300,000||US$300,000||US$300,000||From US$3,745||none|
|Security deposit to be kept with Government?||No||No||No||No||No|
|Shelf companies available?||Yes||Yes||Yes||Yes||No|
|Time to incorporate a new entity?||3 months||6 weeks||3 months||3 months||3 months|
|Can easily convert to a PLC?||No||No||No||Yes||No|
|Public register of shareholders and directors?||Yes||Yes||Yes||Yes||Yes|
|Can have preference shareholders?||Yes||Yes||Yes||Yes||No|
|Business Considerations||Wholly foreign owned LLC||Fast business setup solution||Free zone LLC||Local nominee owned LLC||Representative Office|
|Good entity for trademark registration?||Yes||Yes||Yes||Yes||No|
|Can secure an import and export license?||Yes||Yes||Yes||Yes||No|
|Sponsorship by a local citizen required?||No, except for a PT company|
|Our Client needs to travel to Indonesia for business set up?||No|
|Temporary physical office solutions available?||Yes|
|You need a local resident as bank signatory?||Yes|
|Can be wholly foreign owned?||Yes|
|The entity will likely be regulated by?||BKPM|
|Minimum number of directors/managers?||1|
|Monthly VAT reporting to the Government?||Yes|
|Must sign an office lease agreement during incorporation?||Yes|
|Shareholders & directors documents to be attested/translated?||Yes|
|Each foreign director needs a personal income tax number?||No|
|Foreign director needs a residence visa?||No|
|Maximum number of staff allowed?||No limit|
|Expatriate to local staff ratio?||1:4|
|Can secure residence visa for business owner?||Yes|
|Other useful information|
|What will be included in my customer sales invoice?||Click link|
|This country has signed free trade agreements?||Yes|
|This country is a member of WIPO/TRIPS?||Yes|
|This country is a member of the ICSID?||Yes|
|Average custom duties suffered?||9.5%|
|Government foreign investment approval required?||Yes|
|Average monthly office rental? (US$ per sq m)||27|
|Minimum statutory monthly salary?||US$252|
|Average monthly US$ salary for local skilled employees?||US$1,200|
|US$ deposit interest rate? (1 year average)||4.5 - 6.5%|
|Overseas remittance currency controls?||For transactions above or equivalent to US$100,000|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Excellent|
|Crowd funding available in this country?||Yes|
Indonesia business setup summary
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Benefits of doing business in Indonesia
- Multi-national Clients like to open a subsidiary in Jakarta because of access to Asia’s third-largest domestic market (after China and India) of 260 million people. Indonesia is the world’s fourth most populated country, and its economy is projected to be the world’s seventh largest by 2030. Current GDP exceeds US$ 1 trillion.
- Indonesia is surrounded by economies from China to India, South Korea and Japan, all of which are thirsty for natural resources. Indonesia is i) the world’s largest producer and exporter of crude palm oil ii) the world’s second largest coal exporter iii) the world’s second-largest producer of cocoa and tin and iv) the world’s fourth largest natural gas exporter. This is why 44% of GDP comes from exports to Asian economies. Indonesia is also part of the free trade zone of ASEAN, which allows free movement of goods and services with 0% VAT and import and export duties. As Chinese and USA trade tensions exacerbate, China does more trade with Indonesia, increasing the health of the economy.
- Multi-national Clients are attracted to the Indonesian consumer market because:
- 60% of the population is under the age of 30, is IT-savvy and is interested in new international brands.
- The middle class is expected to almost double from 88 million (in 2014) to 141 million people by December 2020. Demand from the new middle class is increasing for i) modern retail and consumer goods ii) healthcare iii) education and professional qualifications iv) information and communications technology v) fashion for clothing and footwear and vi) sportswear and vii) baby products and viii) consumer durables.
- International surveys show that Indonesians are trusting consumers, highly receptive to advertising and keen to try new things.
- E-commerce is limitless because Indonesia has over 100 million internet users. It is the world’s third-largest Facebook market and fifth-largest Twitter market. Indonesia is the fourth-largest mobile market in the world.
- Indonesian business set up is easy if you know how. Company incorporation can be completed within two weeks including i) exemption from BKPM approval ii) 100% foreign ownership permitted in most sectors of the economy iii) no mandatory requirement to translate nor legalise overseas documents incorporating a foreign entity.
- Over the coming years, the Indonesian government plans to inject US$1.5 trillion into the local economy to improve the country’s infrastructure. This presents opportunities to multi-national Clients to supply professional services including pre-feasibility studies, technical advisory, architectural design, financial and legal advisory, project management, operation and maintenance. Examples of infrastructure projects include i) the Jakarta-Surabaya rail project and ii) the Jakarta-Bandung rail link iii) Soekarno-Hatta International Airport Rail Link iv) Soekarno-Hatta International Airport terminal expansion v) Bandung Light Rail Transit vi) Surabaya Mass Rapid Transit vii) Kertajati (West Java) Airport viii) Kulonprogo (Yogyakarta) Airport ix) 15 new airports being built across the country x) the building of nine new air cargo facilities and xi) the redevelopment of 100 existing airports.
- Foreign entrepreneurs can legally own land and other property in Indonesia.
- If properly structured, an Indonesian LLC can legally minimise corporation tax with i) a five- to 20 year tax holiday for investments above US$34 million ii) carrying forward of business tax losses for up to 10 years iii) reduced withholding tax on dividends thanks to DTAAs with 66 countries and iv) low or zero tariffs when doing business with other ASEAN countries v) exemption from import and export duty through the Batam Special Economic Zone (SEZ) and vi) no VAT or local service tax on imported goods through the SEZ.
- Indonesia is a low-cost manufacturing base because i) wages average US$190 per month and ii) average annual warehouse rental near Jakarta is US$1.24/square metre and iii) low electricity prices and iv) low land prices.
- Indonesia annually imports a lot of products and services from the rest of the world including i) boilers and machinery ii) mineral fuels, oils, distillation products iii) electrical and electronic equipment iv) plastics and plastic products v) iron and steel vi) motor vehicles vii) organic chemicals viii) cereals ix) residues, food industry waste and animal fodder.
- The Indonesian government plans to increase the use of renewable energy from 6% of the total energy mix at present to at least 23% by 2025. Indonesia has 40% of the world’s known geothermal resources. Multi-national Clients are invited to submit tenders for projects on i) biomass and biogas and municipal waste ii) hydropower and geothermal iii) solar and wind. There are Feed-In Tariff (FIT) schemes to encourage the growth of renewable energy projects.
Problems with doing business in Indonesia
- Indonesian laws favour Indonesian citizens and do not adequately protect foreign investors. To exacerbate matters, there is limited enforcement of intellectual property laws.
- Out of 188 countries, Indonesia is the world’s 72nd easiest place to do business, according to the World Bank. This means that doing business in Indonesia is difficult because:
- The primary business language is Indonesian (Bahasa). All government documents are in Indonesian. The local courts only hear cases in the local language. It is therefore important to hire a local Commissioner to liaise with governments and banks.
- The country is rated quite poorly in terms of technology readiness.
- Because of an excess number of cars and a poor transport network, the average person spends 400 hours a year in traffic congestion.
- There are foreign currency capital controls on remittances overseas.
- Foreign companies are not permitted to establish a branch office.
- A subsidiary must appoint at least two shareholders and one resident director and inject a high minimum paid-up share capital of US$190,000.
- Multi-national Clients are not allowed do business in industry sectors on the negative investment list.
- Because of government control, the majority of businesses require a special business licence from the government.
- Indonesia is the 85th least corrupt country on the planet. Personal bribes are common. There is widespread corruption in both private and government sectors.
- Indonesia has inefficient transport and logistics networks to facilitate international trade and handle imports/exports.
- Frequent power cuts in major business hubs hurt manufacturing businesses.
- Digital currencies are not allowed.
- It is part of the local culture to not pay outstanding debts or default on legal contracts. Consequently, Balance Sheet write off of customer receivables is common, causing significant cash flow losses to some companies. Specifically, it takes on average 498 days to enforce a contract and incurs a sizeable legal cost. The same can be said of insolvency cases, where the average time is 5.5 years and the recovery rate is a lowly 14.2 cents on the dollar, compared to the OECD average of 70.6 cents.
- Indonesia has a business culture where companies will rarely respond to emails.
- Indonesian multi-currency corporate bank account opening is challenging and slow because i) local banks require a non-resident bank signatory to secure an Indonesian work permit (KITAS). This process may take up to two months ii) local banks may require foreign language documents to be translated into Indonesian Bahasa iii) local banks require a lot of foreign documents to be attested in the nearest Indonesian embassy in your country and iv) the initial paid-up share capital of US$300,000 must be deposited before company incorporation is complete.
- Unfortunately, the Indonesian government limits expatriates to 20% of the company workforce. Securing quality local employees in Indonesia is difficult because i) language barriers due to very low English language proficiency and ii) the absence of highly skilled workforce because only 40% of workers in Indonesia complete high school and iii) an inefficient labour force and lack of highly motivated employees iv) high unemployment of 5.3% in 2019 v) low tertiary education of 16% vi) low computer literacy of 4.69% in 2019. The United Nations Human Development Index (HDI), for instance, ranks Indonesia 113th out of 188 countries, indicating Medium Human Development.
- Without quality simple, practical advice, multi-national Clients can pay unnecessary Indonesian high taxes including i) corporation tax of 25% and ii) VAT of 10% iii) capital gains up to 25% and iv) withholding tax of 20%. There are a massive 51 different tax payments to be made each year, taking approximately 259 man hours.
- Because of crime and terrorism, most expatriates live in gated compounds. Air pollution is a serious problem.
- The health of the Indonesian economy is linked to the global price of commodities because a large % of GDP comes from local coal, tin, copper, nickel, bauxite, oil and gas. Above ground, its vast land mass grows palm oil, rubber, coffee, cocoa and rice.
- A global depression will highlight the weaknesses of Indonesian banks health and the increased risk of bank bankruptcies.
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Useful links for IndonesiaGovernment and public authority websites:
- Tax Authority
- Ministry of Finance
- Central Bank of Indonesia
- Stock Exchange
- Investment Authority
- Chamber of Commerce
- Indonesia airport
- Doing Business Indonesia Economy Profile
- EY Worldwide Corporate Tax Guide – Indonesia
- PWC – Indonesia Tax Summary
- Indonesia Companies Act
- Indonesian Immigration Law