Since 2003, Healy Consultants Group has been effectively assisting our Clients with i) Indonesia company registration ii) Indonesian corporate banking solutions iii) resident director and iv) accounting and legal requirements.

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Indonesia company registration benefits and problems

• Multi-national Clients’ can wholly foreign own Indonesian company registration and engage in business activities including i) oil and gas construction and ii) electricity generation and iii) supermarkets and department stores and iv) airport supporting services and v) telecommunications and vi) the pharmaceutical industry. The positive investment list liberalizes over 200 business lines to 100 percent foreign investment; and
• The Indonesian Government has identified infrastructure development as their key priority, creating investment opportunities for our multi-national Clients’. Specifically, the Government is spending approximately US$ 500 billion to deliver major infrastructure projects. Consequently, the BKPM’s new priority sectors include i) manufacturing and ii) infrastructure (including power plants) and iii) agriculture and iv) the maritime sector and v) tourism and vi) special economic zones (SEZs) and vii) industrial estates. 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. Furthermore, our Clients’ operating a business in these priority sectors will enjoy corporation tax exemption on annual net profits; and
• Indonesia’s ICT market is currently in a period of rapid expansion, with the Government’s rollout of 4G and 5G networks. Indonesia is one of the world’s biggest mobile phone markets, with 354 million mobile phone subscriptions in 2023. Consequently, the technology and telecommunications sectors are attractive to our multi-national Clients’. Digital marketing methods are becoming more common as smartphone penetration continues to grow. Online marketplaces are a popular way to enter the Indonesian market, with platforms like Shopee, Tokopedia and Lazada. Top product categories for online sales include electronics, toys, fashion, furniture, and personal and household care; and
• To achieve its 2030 goal of an extra 35 GW in power generation capacity, the Indonesian Government is exploring ways to increase supply of renewable energy. By 2030, the government aims to grow renewables to 23 per cent of the energy mix. Indonesia has 40% of the world’s known geothermal reserves. After Indonesian company registration, 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 and iv) electric vehicles. There are Feed-In Tariff (FIT) schemes to encourage the growth of renewable energy projects; and
• For some of our multi-national Clients’, there is a big opportunity to supply mining equipment and technology and services (METS). To meet growing global demand for critical minerals, Indonesia needs help to modernise its mining sector. This is an opportunity for Clients’ to supply a wide range of equipment, technologies and services to boost productivity, improve safety and facilitate processing. Furthermore, the Indonesian Government has a demand for sustainable mining services and technologies that increase efficiency and reduce carbon emissions; and
• After Indonesian company registration, multi-national Clients’ can enjoy the following benefits:
  • A five-year, 50% corporate income tax reduction for investments between US$6.9 million and US$34.9 million; and
  • Between 5 and 20 years, a 100% corporation tax reduction for investments over US$35m; and
  • Amortisation of 30% of the total investment for six years; and
  • A special withholding tax rate on dividends of 10 percent; and
  • Tax losses carried forward for up to 10 years; and
  • Taxpayers that engage in R&D initiatives can receive a tax incentive of 300 percent in gross income reduction of total costs incurred. To avail of this incentive, the taxpayer must be conducting R&D that is assessed by the government to be advancing the national economy, new industries, and technologies, or transfer of foreign technology to local businesses; and
  • Exemption from import and export duty through the Batam Special Economic Zone (SEZ); and
  • Manufacturing companies can obtain Masterlist facilities to reduce taxes and duties on the import of capital equipment and raw materials; and
  • There’s a variety of income tax incentives available for businesses investing in specific provinces (such as Aceh, Greater Jakarta, and Riau) and industries, such as marine and fisheries, pharmaceuticals, IT, and energy; and
  • Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), thus trading with members countries is tax free;

• Indonesian business set up is difficult because
  • Depending on the Positive Investment List, foreign ownership varies between 0% – 100%. During company registration, the proportion of a company’s shares that can be owned by foreign companies varies from industry to industry. Depending on the proposed business activity, our Client may need an Indonesian nominee professional, passive resident director and or shareholder; and
  • Obtaining a principal license from the Indonesian Investment Coordinating Board (BKPM) involves multiple document submissions, including i) a certificate of domicile and ii) taxpayer number proof and iii) Ministry of Law and Human Rights clearance. Keep in mind that regulations change regularly; and
  • Depending on the proposed business activity of company registration, the BKPM may demand a high paid-up share capital; and
  • After at least 5 months, our Clients’ can legally conduct business after i) company registration and ii) multi-currency corporate bank account opening and iii) securing Government license approvals and iv) securing a tax identification number; and
  • In practice, Indonesia’s tax regulations require you to have a director with a Tax ID. Only an Indonesian or a foreigner with a work permit can obtain a Tax ID. However, this director does not need to remain in Indonesia throughout the year; and
  • During the company registration process and to determine the risk level, the Indonesian government conducts a risk analysis of each PT PMA application, before deciding to issue a business license. Based on this risk-based approach, the higher the deemed business risk, the longer the business licensing requirements will be and vice versa; and
  • Most companies require a business license to legally conduct business activities in Indonesia. If you do not secure a business license, the government will close your business. For example, our multi-national Clients’ should secure an industrial business license if they plan to engage in the manufacturing industry; and
  • Indonesia is relatively strict about foreigners being employed in their country. It takes time, effort and documentation to obtain a limited stay permit, commonly used by expats employed in Indonesia (KITAS). After Indonesian company registration, your Firm will need to justify why the position you are applying for needs an overseas specialist. The Ministry of Manpower can reject applications if they find your company already has too many foreigners, usually if it’s over 20% of the staff headcount; and
  • 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;
• Doing business in Indonesia is difficult because:
  • There is widespread corruption from top to bottom of the country, including in the Government parliament and courts. For example, Indonesia’s procurement sector lucrative contracts are often awarded to companies associated with Indonesian state officials. Consequently, foreign investors face a higher degree of legal uncertainty; and
  • Lack of sufficient quality and quantity of infrastructure in Indonesia hinders economic and social development. For example, inadequate transportation networks, unreliable power supply, and limited access to high-speed internet. The country is rated quite poorly in terms of technology readiness. Manufacturing businesses in major business hubs are hurt by frequent power cuts. Consequently, our multi-national Clients’ will need to invest in infrastructure development or adapt their operations to accommodate these limitations; and
  • Indonesia’s bureaucracy is known to be complicated and seems to be a ‘power center’ in its own right, thus effectively resisting efforts toward reforms, while bribery remains rife. Incompetent and unaccountable civil servants have slowed the performance of the entire bureaucracy. As such, it creates or perpetuates inefficiency at the central and local government level; and
  • Indonesia is a very complex market, with thousands of islands, hundreds of traditional languages, and various cultures. The variations in all those aspects create a complex and tricky market. Investors who wish to do business in Indonesia must conduct serious market research and know their customer segment; and
  • The vast majority of the Indonesian workforce lacks a tertiary education, thus a lack of educated employees. Consequently, employers need to invest significant time and effort to improve employee skills; and
  • There is low protection of intellectual property rights. It’s difficult for the Government to monitor infringements over a territory as large as Indonesia. Immediately after company registration and to prevent counterfeiting and unauthorized use of their products or trademarks, our multi-national Clients’ should diligently register and enforce their IP rights; and
  • Before allowing overseas bank transfers from Indonesia of US$100,000 or more, our multi-national Clients’ must supply the Bank of Indonesia with supporting documentation; and
  • Supply chain risk is moderate because of i) given the varying quality of Indonesia’s infrastructure and logistics networks and ii) prevalence of corruption and iii) relatively low levels of supply chain visibility. FM Global’s 2023 Global Resilience Index ranked Indonesia 55^th out of 130 countries for supply chain resilience; and
  • Indonesia’s geographic and climatic position make it vulnerable to the economic impacts of climate change. More severe tropical cyclones and heavier rainfall will have major impacts on economic development and labour productivity. The total cost of these and other climate-related impacts is expected to reach 1.2 per cent of GDP by 2030 and 7 per cent of GDP in the 2060s; and
  • The government introduced a blanket ban on e-commerce platforms selling foreign goods worth less than USD 100 (AUD 150) per unit and a ban on purchases via social media platforms, both of which will limit low-value cross-border transactions; and
  • Unfortunately, Indonesia has a complex tax system requiring a total of 51 tax payments to be made annually, requiring an average of 259 hours of business time to complete; and
  • Indonesian labor laws can be complex, and disputes between employers and employees are common. 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; and
  • Indonesian laws favour Indonesian citizens and do not adequately protect foreign investors. For example, 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 an average of 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; and
  • 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; and
  • Because of the large car population, poor transportation network and chronic traffic congestion, average car travel time to and from work is 3 hours! Because of crime and terrorism, many expatriates live in gated compounds. Air pollution is a serious problem; and
  • 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;
• Corruption remains a challenge for Indonesia and acts as a major deterrent to business and investment. Indonesia’s corruption rankings have declined in recent years, with corruption being a regular feature of business life in customs, public service, public procurement and the tax administration. It ranked 115th of 180 countries in Transparency International’s 2023 International Corruption Index; and
• Indonesia’s IP protection and enforcement is underdeveloped. The country has limited participation in international IP treaties. And barriers exist for licencing and commercialisation of IP assets and the copyright environment is challenging with high levels of piracy and counterfeiting. The 2023 Global Innovation Policy Centre’s International IP Index scored Indonesia 30 out of 100 across nine IP protection categories, below the Asia average of 56. So-called ‘squatters’ register trademarks with no intention of using them, and distributors have been known to register a foreign brand’s IP to secure ‘insurance’ in contract renegotiations. We recommend our multi-national Clients’ conduct detailed due diligence of their potential distributors and partners and ensure contracts and distribution agreements have an IP protection clause;

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