DOING BUSINESS IN INDONESIA IN 2023
Since 2003, Healy Consultants Group 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?||22%||22%||22%||22%||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$700,000||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$30,840||US$64,100||US$18,100||US$13,500||US$20,970|
|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?||22%||22%||22%||22%||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$100,000|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Excellent|
|Crowd funding available in this country?||Yes|
Indonesia business setup summary
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Benefits of doing business in Indonesia
- Multi-national Clients like to open a subsidiary in Jakarta to access Asia’s third-largest domestic market of 260 million people (after China and India). This economy is projected to be the world’s seventh largest by 2030. Current GDP exceeds US$ 1 trillion.
- Indonesia is surrounded by strong economies including China, India, South Korea, Japan and Australia. Indonesia is the world’s largest producer and exporter of crude palm oil, the second largest exporter of coal, the second largest producer of cocoa and tin and the fourth largest exporter of natural gas. This is why 44% of GDP comes from exports to Asian economies. Indonesia is also part of the ASEAN free trade zone, which allows free movement of goods and services enjoying exemption from VAT and import and export duties. As Chinese and USA trade tensions escalate, China does more trade with Indonesia, increasing the health of its economy.
- Multi-national Clients are attracted to the Indonesian consumer market because:
- 60% of the population under the age of 30 are IT-savvy and interested in new international brands.
- Half of the Indonesian population is under 30 years of age, and in 2020 the country became an upper middle income country. Demand from a rapidly expanding middle class is increasing for i) modern retail and consumer goods and ii) healthcare and iii) education and professional qualifications and iv) information and communications technology and v) fashion for clothing and footwear and vi) sportswear and vii) baby products.
- International surveys show that Indonesians are trusting consumers, highly receptive to advertising and keen to try new things.
- Foreign investors can legally own land and other Indonesian property.
- E-commerce is limitless because Indonesia boasts over 100 million internet users. It is the world’s third-largest Facebook market and fifth-largest Twitter market. Indonesia is the world’s fourth-largest mobile market.
- Indonesian business set up is easy if you know how. Company incorporation is completed within 2 weeks including i) exemption from BKPM approval and ii) 100% foreign ownership permitted in most sectors of the economy and iii) no mandatory requirement to neither translate nor legalize overseas documents incorporating a foreign entity and iv) streamlined online incorporation application v) no need to travel to Indonesia to sign forms.
- 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 stimulus package 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) Jakarta-Surabaya rail project and ii) Jakarta-Bandung rail link and iii) Soekarno-Hatta International Airport Rail Link and iv) Soekarno-Hatta International Airport terminal expansion and v) Bandung Light Rail Transit and vi) Surabaya Mass Rapid Transit and vii) Kertajati (West Java) Airport and viii) Kulonprogo (Yogyakarta) Airport and ix) build 15 new airports and x) build 9 new air cargo facilities and xi) redevelop 100 existing airports and xii) build a fourth terminal at Jakarta’s Soekarno-Hatta International Airport.
- If properly structured, an Indonesian LLC can legally minimise corporation tax with i) 5 to 20 years tax holiday for investments above US$34 million and ii) carry forward business tax losses for up to 10 years and 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 and v) 12.5% corporation tax rate for 5 years for projects valued between US$7mil and US$35mil and vi) exemption from import and export duty through the Batam Special Economic Zone (SEZ) and vii) no VAT or local service tax on imported goods through the SEZ.
- Indonesia is a low-cost manufacturing base because of i) availability of relatively cheap labor, with wages averaging US$190 per month and ii) average annual warehouse rental near Jakarta is US$1.24psm and iii) low electricity prices iv) availability of over 70 industrial areas in 20 regions throughout Indonesia v) easy and cost-effective access to water and road infrastructure.
- Annually, Indonesia imports a lot of products and services from the rest of the world including i) boilers and machinery and ii) mineral fuels, oils, distillation products and iii) electrical and electronic equipment and iv) plastics and plastic products and v) iron and steel and vi) and motor vehicles vii) and organic chemicals and viii) and cereals ix) and residues, food industry waste, animal fodder.
- By 2025, the Indonesian government plans to increase the use of renewable energy from 6% to at least 23%. Indonesia has 40% of the world’s known geothermal reserves. Multi-national Clients are invited to submit tenders for projects on i) biomass and biogas and municipal waste and ii) hydropower and geothermal and 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.
- It is part of the local culture to not pay outstanding debts or default on legal contracts. Consequently, Balance Sheet write offs 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.
- Out of 188 countries and according to the World Bank, Indonesia is poorly ranked in 72nd place as a place to do business . This means that doing business in Indonesia is difficult because:
- The primary business language is Bahasa Indonesia. Consequently, all government documents are in Indonesian. The local courts only hear cases in the local language. Consequently, it is important to hire a local commissioner to liaise with governments and banks.
- The country is rated quite poorly (click link) in terms of technological readiness. Furthermore, digital currencies are not allowed.
- Because of the large car population, poor transportation network and chronic traffic congestion, average car travel time to and from work is 3 hours!
- Multi-national Clients are not allowed do business in industry sectors on the negative investment list. And foreign companies are not permitted to establish an Indonesian branch office.
- A subsidiary must appoint at least two shareholders and one resident director and high minimum paid-up share capital of at least US$190,000.
- Because of Government control, the majority of businesses require a special business license from the Government.
- Indonesia is the 95th most corrupt country on the planet. Personal bribes are common. There is widespread corruption in both private and government sectors.
- A poor-quality transport and logistics network inadequately supports international trade and handling of imports/exports.
- Manufacturing businesses in major business hubs are hurt by frequent power cuts.
- Of a business culture where companies will rarely respond to emails.
- Indonesian multi-currency corporate bank account opening is challenging and slow because local banks require non-resident bank signatories to secure an Indonesian work permit (KITAS). This process may take up to two months and local banks may require i) foreign language documents to be translated into Indonesian Bahasa ii) a lot of foreign documents to be attested in the nearest Indonesian embassy in your country and iii) the minimum initial deposit of US$10,000 to be deposited immediately after bank account opening.
- Unfortunately, the Indonesian government limits expatriates to 20% of the company workforce. Securing quality local employees in Indonesia is difficult because of i) language barriers due to very low English language proficiency and ii) absence of a highly skilled workforce because only 40% of workers in Indonesia complete high school iii) an inefficient labor force and lack of highly motivated employees iv) a high unemployment rate of 7 % and v) low tertiary education of 14%. The United Nations’ Human Development Index (HDI), for instance, ranks Indonesia 111th out of 188 countries, indicating medium human development.
- Without quality simple, practical advice, multi-national Clients can pay unnecessarily high Indonesian taxes including i) corporation tax of 22% and ii) VAT of 10% iii) capital gains up to 25% and iv) withholding tax of 20%. Annually, there are a massive 51 different tax payments to be made to the government; taking approximately 259 man hours.
- Because of crime and terrorism, many 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 percentage of the 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 expose weaknesses in the health of the Indonesian banking system, with increased risk of bank failures.
- Indonesia’s government is prioritising large foreign direct investments. In 2021, the minimum paid-up capital for a foreign-owned business was more than doubled to US$700,000.
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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