Setting up a new firm or developing a business in Indonesia will not be the most straightforward task. The World Bank’s 2018 Doing Business index ranking report captures this circumstance. Indonesia now holds the 72nd spot in the report.
Getting all the appropriate permissions is among the toughest challenges in developing a business in Indonesia. It might take a long time and be costly to get a license.
It is crucial to have a strong network with the government and businesses for company development in Indonesia to be successful. Foreign business owners need to be aware of the value of these networks and try to expand them.
Fortunately, creating such a connection is not hard since Indonesians like collaborating with foreign entrepreneurs. To understand how to interact with Indonesian clients and workers and the country’s “business culture,” it is highly advised first to investigate cultural values. This will mainly increase your company’s effectiveness and efficiency in the long term.
Also read: What You Need to Know About Indonesia Company Registry
Table of Content:
Table of Content
Overview
Indonesia’s economy is diverse. Both private and public businesses do commerce. Some sectors are more heavily regulated or, in some circumstances, controlled by the government via public enterprises because they are essential for the public interest.
The most critical sectors in Indonesia include those that need a lot of labor, such as food manufacturing and textile manufacturing and those that depend on natural resources, including mining, oil and gas, agribusiness, and metal production. In Indonesia, there are more than 700 regional languages among the different cultures, besides Indonesian (Bahasa Indonesia), the country’s primary language.
Indonesia typically operates on a five-day workweek. In Indonesia, businesses typically operate from 8 am to 5 pm. About 16 national holidays are recognized in Indonesia. These days include those that specific government departments observe as “collective leave” (cuti bersama). Recent laws and initiatives aim to lower the obstacles to developing business in Indonesia for foreign investors.
Legal System
The concept of civil law serves as the foundation for Indonesia’s judicial system. As a nation, Indonesia does not use a federated political structure in its government. However, there is significant regional autonomy, and regional administrations have the right to make regional legislation for some subjects and topics.
Foreign Investor
Starting a company or other legal organization in Indonesia may be risky for foreigners, especially for newcomers with no background knowledge of the nation and no reliable connections. Given its low score in the World Bank’s Doing Business Index, Indonesia is not the most business-friendly nation in the world. Additionally, it has unique cultural characteristics that, from the outside, may seem to complicate things.
Overseas investors limited liability corporation (PT PMA, or Perseroan Terbatas Penanaman Modal Asing, in Indonesian) and a representative office is the two legal organizations foreigners can establish in Indonesia (in Indonesian Kantor Perwakilan Perusahaan Asing, or KPPA). This section tries to provide you with all the information you need for the creation of a:
- Overseas Investment Group (PT PMA)
- Representation Office (KPPA)
Business Vehicles
Legal or business entities are the primary business vehicles in Indonesia. A commercial entity does not acknowledge the division of assets between the founder and the new entity, but a legal entity does. While creating a commercial entity needs government registration, creating a legal entity demands the authorization of many government agencies. And foreign companies must be made via a PT unless regulation (such as oil and gas) is approved.
Samples of legal entities include:
- Limited liability corporations (Perseroan Terbatas) (PT).
- Co-operative.
- Pension fund.
Business entities include:
- Company.
- Representative office.
- Permanent establishment.
- Limited partnership (comanditer venootschap) (CV).
At least two owners must form a PT, a share-based legal entity. Due to their lower liability and more specific capitalization regulations, PTs are standard business vehicles. PTs might be private or public companies. Indonesia does not acknowledge the notion of trust.
Also read: Here is Why You Should do Business Expansion to Indonesia
Environment
Generally speaking, any business actor must adhere to the following standards:
- Depending on the nature of its economic operation, get an environmental license or a declaration letter on environmental management oversight capabilities.
- Respect the legal framework and/or the pollutant quality standard (Baku Mutu) as appropriate for the kind of company.
- Manage all of the trash generated as a consequence of their company activities. A firm that handles trash must have the proper licenses for itself or other parties.
- The local authority must receive periodic reports from various stakeholders who are obliged to get environmental permissions or waste disposal licensing on their pollution control operations.
Marketing Agreement
Foreign companies may set up a marketing office in Indonesia if it does not sell anything. To sell products or services, they may use a franchise, distributor, or agency to sell products or services (see below).
- Agency: The MOT regulates agencies via MOT Regulation No. 24 of 2021, Commitments for Distributor or Agent Distribution of Goods. A foreign company must hire a local distributor or reseller to sell in Indonesia.
- Distributor: The MOT has established regulations for distribution in MOT Reg 24/2021. A producer must qualify and get an STP, which has a two-year maximum validity period and is extendable.
- Franchising: Government Regulation No. 42 of 2007 respecting Franchise (GR 42/2007) governs franchising. Without registering a franchise contract to the MOT (SPTW), you cannot obtain a franchise certification license (Surat Tanda Pendaftaran Waralaba) without a franchise contract being registered with the MOT (STPW). An STPW is eligible for just an additional five years and is extendable.
Business Columns
The Indonesia Investments website’s Business Columns area covers topics relevant to Indonesia’s industrial economy and environment. These columns give a thorough overview of Indonesia’s business environment and might inspire or discourage investment in various areas of the Indonesian economy.
There are many columns they provide; for example, on 09 Oktober 2022, “What About the Economy of Indonesia Amid Persistently Turbulent International Conditions?” is one of the topics, and on 26 September 2022, “How To Secure IoT Devices To Minimize Cybersecurity Risks?” is one of the topics and many more.
Commodities
Indonesia’s economy (and government income) relies heavily on its large and diverse range of commodities, which comprise around 60% of all exports. However, Indonesia is especially susceptible to the impacts of price volatility on international commodity markets since it is a large producer and exporter of commodities. Effective policies are essential in this circumstance when commodity prices increase or decrease.
The government, which exports raw resources, is focusing on encouraging the establishment of downstream processing companies to create goods with added value. This approach will affect certain export-oriented businesses like mining and minerals. The Business Column and News Column on The Indonesia Investments website address changes in government policies that impact the environment for investing in this sector.
Also read:5 Ways to Expand Your Business to Indonesia
Industries and Sectors
Due to Indonesia’s improving economy, bureaucracy, and investment reforms, many international investors are considering opening a company there. Indonesia is a lucrative place to invest, thanks to foreign businesses. This point of view exists because Indonesian enterprises have enormous growth potential. While adjusting to the Indonesian market, businesses may acquire plentiful labor and raw resources. Indonesia’s five most promising business sectors are:
- Hotel and tourism industry
- Trade and retail sector
- Online sales
- Infrastructure and construction
- Factory and farm
Risks
There is always a risk that comes with investing. It is generally true that the potential reward increases with risk. This “rule” is especially relevant to rising market nations like Indonesia. Indonesia’s dynamics and features may derail investments and disrupt the investment climate. Therefore investing there is riskier. The secret to investing in any nation is constant planning and proper research.
The list of potential risks that can materialize and disturb Indonesia’s investment environment is provided below by Indonesia Investments:
- Corruption
- Infrastructure
- Government
- Natural disasters
- Ethnic and religious violence
- Radical Islam
- Macroeconomic situation
Work and Living
Setting up a company in Indonesia may be difficult for foreigners, particularly newcomers with no expertise or trustworthy relationships. Indonesia may not be the most business-friendly nation, and it also has cultural characteristics that, to foreigners, might be confusing. Numerous firms and entities (commercial consultants and property brokers in Jakarta) contribute to this part to ensure its quality.
Knowing how to connect with Indonesians and comprehend the Indonesian language is necessary since it’s distinct from Western and Asian practices. Adapting to new cultural and ethical norms is crucial to living in a new country. The longer you remain in Indonesia, the more beneficial it will be for you to be open-minded and optimistic.
Visa
The granting of work and temporary resident visas requires meticulous consideration, much like creating a legitimate corporate firm. The steps involved in applying for a visa are described in great depth in this section. You may handle this procedure with several professional organizations in Jakarta.
Living and working accommodation
Specific descriptions about renting and buying homes and workplaces in Jakarta may be available in this area. In addition to the lodging’s quality, the lodging’s location is given significant consideration. This is significant since traveling in Jakarta might be time-consuming because traffic is frequently stuck.
Entertainment in Jakarta
Jakarta, Indonesia’s social and economic hub, is one of the world’s most significant cities. Despite traffic congestion, Jakarta boasts numerous fantastic locations to dine and drink, tourist destinations, and other activities. The locations in Jakarta that Indonesia Investments thinks are worth visiting belong to this section.
Social behavior advice
When considering it from a Western viewpoint, Indonesia might be thought of as a very distinct location. Particular cultural dynamics in Indonesia are challenging for foreigners to comprehend or explain. It would be best to discover this modern social domain, which has distinct conventions, norms, and values from Western countries. There are some recommendations for mingling with Indonesian society in this section.
Business culture in Indonesia
Indonesia’s different population and cultural beliefs contribute to the country’s appealing composite culture. Developing business in Indonesia should be conducted differently from most Western nations since culture impacts individuals in various ways. Various business development methods depend on a person’s background, education, and ethnic heritage.
Advantages of Doing Business in Indonesia
Due to the US-China trade dispute, Indonesia is becoming a significant market for American investments and goods. According to an estimate, the Indonesian economy is expected to expand by around 5.4% in 2020. Due to Indonesia’s goal of establishing a more business-friendly environment, there are various advantages to developing business operations there.
Government support
Both domestic and international businesses get active backing from the Indonesian government. The government creates rules beneficial to entrepreneurs and developing businesses to promote more significant foreign investment. Most foreign cash is utilized for Indonesia’s economic development and other government activities.
Instantaneous commercial operations are possible because of Indonesia’s efficient business procedures. Also, complex regulations and terrible investments won’t exist in the future. This offers international investors greater freedom and flexibility.
Low startup costs
Low beginning expenses are another plus that attracts companies and investors to Indonesia. Starting a company is expensive in many nations, but not in Indonesia. It is far cheaper to fulfill Indonesian criteria, get permits, and outsource administrative operations. With these adaptable alternatives, company owners may save long-term leasing, office setup, administrative, utility, and maintenance costs. In addition, the Indonesian rupiah exchange rate is better for doing commerce in Indonesia when compared to other different currencies.
Conclusion
The nation provides unique advantages that few other nations can give company owners, domestic or international. A crucial nation like Indonesia might be a game-changer for developing your business if you register a corporation there. You have a wealth of prospects in Indonesia for developing your business. Even though registering a corporation in Indonesia is relatively straightforward compared to other nations, you still need to prepare much paperwork.
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