Since the end of its authoritative regime in 1998, successive Indonesian governments have consistently adopted pro-business activities. It has contributed to an Ease of Doing Business ranking of 73. With increases in consumer spending, investors find starting a business in Indonesia enticing.
Over the past two decades, the government has reduced tax rates, introduced Public-Private Partnership (PPP) schemes, amended mining and shipping regulations.
From a strategic point of view for businesses, Indonesia’s presence in the ASEAN grants employers tax-free trade access to nine other countries. Its proximity to countries like Singapore and Australia make it suitable to set up liaison office to perform sales, marketing, and other services.
Benefits of Starting a Business in Indonesia
The Emerald of the Equator is home to one of the largest and youngest workforces. The nation also boasts a rating of 73 in the Ease of Doing Business Index. Lately, the government has decided to move the capital to facilitate better mobility, tackle natural disasters, and develop infrastructure.
Starting a business in Indonesia offers several strategic, marketing, and operational advantages such as:
- Largest economy in southeast Asia
- Highly skilled young workforce
- High consumer spending
- Improving business environment
- Strategic location in the ASEAN
Indonesia has 19 Special Economic Zones (SEZs) with exclusive economic and taxation conditions conducive for both foreign and domestic businesses. These zones make setting up a company in Indonesia a pro-investor affair.
Businesses functioning in these zones are entitled to benefits such as:
- Reduction of import duty tariff
- Tax allowance
- Tax holiday
- Investment allowance
- Super deduction for R&D
- Super deduction for vocation
It should be noted that when starting a business in Indonesia, investors have to fulfill certain conditions to avail these benefits. These conditions aim to use FDIs and new businesses to boost job creation and infrastructure in the country.
Moreover, the government maintains four pillars – convenience, certainty, efficiency, and transparency- to attract investors. Keeping this in mind, the Ministry of Investment has framed several policies to attract foreign and domestic investments.
Requirements for Starting a Business in Indonesia
Employers need to complete several formalities to start a business in Indonesia. Below is the list of documents businesses require for company registration in Indonesia.
- Deed of Appointment
- Articles of Association
- Memorandum of Association
- Notarised company documents
- Approval of the name of the company
- Akta Notaris (Notarial Deed)
- Approval from the Ministry of Law and Human Rights
- Domicile letter
- Copy of authentic assports
- Letter of Appointment (for directors and shareholders) from the foreign company. Branch offices and representative offices must submit these documents
- Registration at the Chamber of Commerce
- Letter of intent (for branch office and representative office)
Types of Business Entities in Indonesia
Although business structures in Indonesia aren’t different from other countries, foreign employers must understand the processes, formalities, types of liability, tax concerns, costs to start a business in Indonesia.
Key Considerations When Choosing a Business Structure in Indonesia
- Nature of the business
- Number of owners
- Investment Capital
- Risk appetite and liabilities
- Long term plans for the business
Minimum share capital or paid capital
Minimum share capital is the amount of cash invested by the founder/s of the company in exchange for owning the shares of the company.
When starting a business in Indonesia, employers must inject a minimum share capital into the business.
The paid-up capital would vary with the type of business:
Minimum number of shareholders
The minimum number of shareholders would vary based on each company. For a foreign-owned company, it is required to disclose one director and one shareholder.
Physical location
Given Indonesia’s localised administration, it is essential to identify a place for your business even before incorporating your business in Indonesia.
Again, the rules for address vary from city to city. For example, in Jakarta, the address must be a building with a legitimate building permit (IMB). The building permit is explicit permission for the building to operate as an office.
Many businesses now establish virtual offices to cut down operational expenses. This saves you from the hassles associated with basing operations in building with business permits. You can use your address as an office, and when switching to a physical location, the address of your virtual office can still function as your official address.
Minimum Number of Directors
Registering a PMA or a foreign-owned business requires employers to register one director. For all other companies, employers are required to register a minimum of two directors.
How To Register a Company in Indonesia
Several guidelines grace the employer’s journey to start a company in Indonesia, and they vary concerning the type of company.
The following steps chart the course of a foreign-owned business when they plan to enter Indonesia:
1. Choose a business structure
Employers have to choose a business structure to get a clear idea of the formalities to pursue.
2. Reserve a name
Reserving your company’s name is the first step in registering a company in Indonesia. The foreign company must reserve its name with the Ministry of Law and Human Rights (MOLHR). The company’s name and legitimacy are governed by the Government Regulation No. 43 of 2011. The regulation provides legal protection to the user of the company name, thus preserving the company’s name officially.
The regulation requires employers to comply with the following rules:
- Company name should be written with Latin letter
- The name should have never been legally used by another company
- Does not violate or contradict public order or morality
Ensure that your company’s name is approved from the Notary Public. This is a sign that your business is a legal entity.
3. Approval related to the Articles of Association
The Articles of Association is similar to a manual to do business. The Articles of Association (AOA) takes the form of a document and stipulates procedures and rules for businesses to follow. Before starting a business in Indonesia, it is essential to understand these rules.
The foreign employer then signs the document before a notary public and files it for approval with the MOLHR. The submission must occur within 60 days from signing the deed of establishment containing the AOA.
The applicant must submit the articles of association to the MOLHR online. This can be carried out by the respective notary.
Employers must submit the above documents within 60 days from the time of execution of the deed of establishment, which contains the articles of association.
4. Approval of Company
After submission, the MOLHR will review the application. The MOLHR will notify the employer if the application is approved within 14 days. The foreign firm can start doing business in Indonesia as an LLC. This approval lawfully permits the company to carry out business.
5. LLC domicile
Next, the business must get a domicile registered from the respective Sub-district office. Since the Indonesian government offers more autonomy and legislation for local administrative institutions, approvals for a domicile or a formal address.
6. Tax Registration Number
A tax registration number is obtained from the local tax office.
7. Registration with the MOHLR
The notary submits the application to the MOLHR to register the company. The notary acts as a proxy for the founding shareholders.
8. Securing Ministry of Trade Approval (MOT)
Once the MOLHR provides approval, the business should seek approval from the Ministry of Trade. This should be carried out in the office of the MOT based in the region of the business’ formal address.
Post this, the employer should submit the application in the Online Single Submission system to obtain a registration number or the Nomor Induk Berusaha or NIB
9. Publication
Once the aforementioned approvals are secured, the Articles must be submitted to the State Printing Office. The registration is then published in the State Gazette. This process has to be carried out by the notary. Such a process would be carried out 14 days from approval.
How Much Does it Cost to Incorporate a Company in Indonesia?
The costs to incorporate a company in Indonesia differs with each business entity.
Government Assistance for Foreign-Owned Businesses
The government has reduced several complications and red tapes to start a business in Indonesia. Moreover, the Ministry of Investments or the Badan Koordinasi Penanaman Modal (BKPM) has encouraged financial and tax-related incentives to encourage foreign investors.
Incentives are granted for businesses which:
- Employ local workforce who make practical contributions to the company in exchange for monetary income
- Are environmentally friendly and sustainable
- Operate in a pioneering industry
- Add to infrastructure development
- Are export-oriented
Tax holiday:
The government completely exempts businesses from Corporate Income Tax (CIT) due for 5 to 20 years from the commencement of commercial production. After 20 years, companies can avail of exemptions for up to 50% for two years.
Tax benefits in special economic zones:
For businesses operating in SEZs, the Indonesian government offers 100% corporate tax reductions for up to 25 years, provided they meet investment requirements.
Import and excise duties:
Businesses that procure capital goods to develop SEZs can see exemption from import duties, tax on the import, and excise duties for five years. For tourism SEZs, entry of goods to be sold in shops and consumable raw materials are exempted from excise duties.
The government has also signed several Free trade agreements with Europe and Australia to ease costs in trade. In 2020, the government signed the Regional Comprehensive Economic Partnership (RCEP). One of the benefits of this agreement offers a 92% tariff reduction on traded goods.
How Multiplier Can Help?
Although the government has promoted many business-friendly policies, Indonesia’s labor laws are still hard to navigate.
Moreover, with the costs of company registration and the daunting tasks involved, does setting up a business yourself seem worthwhile?
Outsourcing the hassles of registering to various partners can help you here. However, haggling over who will be responsible for what takes a big chunk out of your time.
If you plan to start a business in Indonesia purely to tap into a talent or test the market, a global employment solution will surely make life easier. Multiplier can help you enter new markets, no matter how complex, and employ talent without the risks of violating compliance and labor laws.
Talk to our experts to know more.