7 Important Things to know before starting a Business in Indonesia

7 Important Things to know before starting a Business in Indonesia

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Indonesia has become a fast-growing nation that attracts tourists and business owners from around the world. The Badan Koordinasi Penanaman Modal (BKPM) reports that the total investment earned from international and local economies amounts to IDR 692.8 billion, up 16.4 percent annually. Anyone can develop their own company in Indonesia with a large number of business projects and startups. To start a legitimized enterprise, there are some criteria. Follow these simple steps to help you fulfill the criteria if you want to start a new business in the region. Indonesia is full of business prospects with a vast number of people, diverse markets, cheap work, a fast-growing economy, and plenty of natural resources. Therefore, last year in Indonesia there are a steadily increasing number of foreign investors and foreign direct investments (FDI).

Why Business in Indonesia?

Indonesia has many investment opportunities to sell as an increasing economic force. The country’s agriculture, natural oil and gas industries are particularly well known. However, other industries, such as logistics, travel, production, digital industry, and lifestyle, have also gained momentum in recent years.

Moreover, it has also worked to make it possible for foreigners to invest in Indonesia. In the past few years, Indonesia has seen gradual progress. FDI is now simpler than ever before in Indonesia. The BKPM also has a One-Stop-Service (OSS-C) Centre, which directly aims at the improvement of the facilities and the bureaucratic process for foreigners. The BKPM even has its own office.

7 things to consider before starting a Business in Indonesia

You’ll have to take a few things before you make your investment and start up your business in Indonesia.

1. Ensure the negative investment list

To establish a foreign direct investment company in Indonesia or PT PMA, you must determine following the Indonesian Standard Market Classification which business sectors or industries you want to invest in Investment (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI). Then you must decide whether a business sector is subject to requirements or closed for foreign direct investments depending on the Presidential Regulation that applies to the negative investment list (Daftar Negatif Investasi or DNI).

If the business sector is not restricted and the ministries do not impose any other restrictions, the foreign direct investment would be 100 percent free. In 2019, a variety of sectors may have been partly open to international ownership. This list will help you to find out whether you need a local affiliate or not.

More positively, the government plans to create a ‘positive’ investment list to support a range of sectors that are open to domestic and foreign investments. In the future, Indonesia is welcoming foreign investors and entrepreneurs with a priority list instead of excluding foreigners from buying any companies.

2. Preparing Location

Another key phase is to determine the location of your company. For various regions and categories of enterprises, specific ground rules exist, and you must follow them. Under Industrial Law No 3 of 2014 and Government Regulation No 142 of 2015, any industry operations must be situated in industrial estates.

Only the provincial capitals (e.g., Jakarta, Surabaya, Denpasar, Medan, and many others) may form representative offices and they must be housed in a building. Following your choice of office, you could send the domicile letter and other documents required.

3. Sector

Few markets and businesses remain entirely beyond the limits of international investors.  The foreign investment limits for various industries vary from zero (0 percent) to 95. (95 percent). Didn’t let that discourage you. Any sectors may be owned entirely from abroad. Moreover, small business associates for the limited industries can also be found.

4. High minimum capital

The BKPM involves the development of a business in Indonesia through foreign investors of a certain amount of minimum money. It isn’t at all small in size, especially in comparison with other developed countries—the sum is 10 billion IDR (about 750,000 dollars). In addition, IDR 2.5 bn (approx. $180,000) is the minimum sum paid up. However, once you have the money, it should be easy to start and run your business.

5. Infrastructure availability

Development was always one of Indonesia’s most challenging issues. The country’s growth has centered largely on Java Island. There is a strong concentration of all the necessary infrastructures and services that companies require. While more focus is now being paid to other places of the region, there could still be a shortage of adequate infrastructure. Your company can’t start outside Java, but it will be a struggle.

6. Issues with Human Resources

While Indonesia is the fourth most populated country in the world, not everyone is productive enough to invest in the world of industry and industry. This is because the education rate does not vary across the country evenly. That’s why it could be difficult to find enough talent pools beyond Java, the most developed island in the country.

7. Foreign-Owned Company (PT PMA)

You must have a foreign investment liability company, known as Perseroan Terbatas Penanaman Modal Asing (PT PMA) if you are to produce revenue or sell directly in Indonesia. This is the legal body from which a foreign investor can operate in Indonesia commercially. A PT PMA can be owned either 100% by foreigners or partly by foreigners.

Again, consider your Negative Investment List before forming the PT PMA. Furthermore, you must arrange several legal papers and pursue an oft-misleading bureaucracy procedure to establish a PT PMA.

Procedures to start a Business in Indonesia

A PT PMA must be set up by at least two shareholders, and one of them at least should be a foreigner. You will require a tax number (NPWP) and a work permit as a foreigner who is to build a PT PMA (KITAS). You can then contact the BKPM, the service provider in Indonesia for foreign investment. Otherwise, you can opt for the services of a LOCAL company that focuses on establishing PT PMA’s or representative offices for foreigners if you do not want to deal with the bureaucracy on your own. Make sure you trust your agent and he has references and information, and knowledge that the BKPM rules change daily. You will only have to send them the paperwork until you have selected a reliable agent and they will handle all the procedures at the BKPM on behalf of you.

To create a PT PMA, you have to meet the current minimum capital conditions of IDR 10 billion and additional minimum paid-up capital of IDR 2.5 billion for foreign investment. In certain industries, even more, paid-up capital might be needed. But, in most industries, a PT PMA may be set up without the need to transfer the money paid up to an Indonesian bank account for foreign investors. This is necessary as long as the owners of PT PMA sign a letter stating that the capital paid-up will be moved, if necessary. This is not possible.

Which documents are required for a Business in Indonesia?

You need the following licenses/documents to establish a PT PMA in Indonesia:

  • BKPM’s principal license and business license (Izin Usaha) / Identity Number for a single business (Nomor Induk Berusaha or NIB)
  • Commercial or Operational License (Izin Komersial or Operasional) can be obtained via an (OSS) online single submission.
  • A certificate of establishment is legalized by a notary public. The founders, board of governors, board of directors, and shareholders should be explained in detail.
  • The Ministry of Law and Human Rights’ Legal Entity status of PT PMA (SK HAM).
  • A local district council’s domicile letter.
  • Confirmation of a tax identification number (Nomor Pokok Wajib Pajak or NPWP) and taxable entrepreneur confirmation (PKP).
  • (TDP) company registration certificate for (BPPT) integrated licensing services.
  • 2 reports from the Ministry of Manpower a manpower report, and a company welfare report.

Once the PT PTMA is established, always keep track of taxes on time, as the authorities in Indonesia take a close look at this. You should also be informed that (BPJS) Health insurance is now mandatory and each PT PMA has to disclose its investments.

A Parting Tip

A local nominee company (PT) is your solution if you want to establish a business in a sector that would be included in the Negative Investment List. It’s also a good choice, whereas PT requires less initial capital than PT PMA once you’re short of capital. You may negotiate a deal in Indonesia with local people to build up a business.

You will need 2 shareholders with 1 local Director, and 1 Commissioner To establish your PT. Remember that only 100% Indonesian citizenship is authorized by this type of company. This would then require a local nominee to set it up and hence cannot get 100% power or ownership. However, by owning PT’s shares you can also take control of much of the company’s operations.

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