The Challenges of Doing Business in Indonesia and How to Tackle Them September 2017

1) Foreign Ownership Limitation

Foreigners rights are limited by Indonesian regulations in terms of owning businesses in the country.

Strategy wise, a foreigner may invest in companies they want to be part of. The Indonesian government allowsforeigners to invest in certain business sectors, depend on the Indonesian Negative Investment List (DNI). The DNI enumerates the sectors or industries that are open for foreign investments as well as the percentage of the ownerships allowed for non-Indonesians.

The categories: Closed to Investments, Reserved for Small and Medium Enterprises (SME), Through Partnership with SMEs, Limited Foreign Capital Ownership, Defined Location, Required a Special License, 100% Domestic Capital, and Foreign Capital Ownership. The DNI since the authority would change it every few years.

TACKLING THE CHALLENGE

Local Limited Liability Company (PT). Registering company under local nominee means letting Indonesian become the owner of the company. PT requires a minimum one local director, two local shareholders, and one local commissioner. Additionally, a company has to pay a capital of Rp50 million (USD4,000). The paid-up capital increases to Rp1.1 billion (USD82,700) if you appoint a foreign director. Benefits: - Conducting several business activities limited to legal entities - Participating in all Indonesia’s tenders - Directing sponsorship for stay permits (for medium and big size company) - More security.

It is important to select a nominee that you trust.

Foreign Owned Company (PT PMA). The company open to 100% foreign ownership (or <100% based on DNI). You can only set up a PMA if your business is open for foreign investment. The paid-up capital for PMA is Rp.2.5 billion or US$187,000 (once the company established) from the total investment plan, minimum Rp10 billion (USD1 million) which need to be fulfill in 5 years.

Representative Office. No paid-up capital or large investments. It is the most efficient and easiest way to set up your business in the country. A representative office can only monitor and coordinate your business without generating revenue. You can open a representative office only if you have a parent company overseas.

TACKLING THE CHALLENGE

2) Complex Government Regulations

In order to successfully register a business in Indonesia, you have to get past through several government regulations and clearances. Additionally, you have to apply for a principal license from the Indonesia Investment Coordinating Board (BKPM).

There are several documents required to apply for this license including a certificate of domicile, proof of taxpayer number, clearance from the Ministry of Law and Human Rights, among others. Keep in mind that government is likely to renew or modify the Indonesian regulations on the matter regularly.

TACKLING THE CHALLENGEAs the country’s leading provider of market-entry and business solutions, Cekindo keeps up with the latest regulations in the country so you do not have to worry about the complex rules and any of the new regulations. Cekindo’s top-notch team of legal consultants; lawyers; and payroll, accounting, and tax professionals make sure that your company is up to date and fully abiding by the country’s business regulations.

3) Elaborate Taxation System

Taxation regulations in the country apply to both individuals and companies; there is regional levels and national levels tax system classifications.

The monthly tax compliance in Indonesia ranges from corporate income tax, employee withholding tax, value added tax, and individual income tax. A foreign that registered the company under a local nominee needs to follow Indonesian tax regulations.

The same with representative offices which have to register as taxpayers and pay income tax to employees. Indonesian companies have to make and submit their tax reports the moment they get their tax ID number. This also a requirement even for a company with lack of business activity or profit.

TACKLING THE CHALLENGETo avoid dealing with taxes, auditing, and other accountings, consider using a third-party service. Therefore, Cekindo present as a PEO company leader in Indonesia that helps expats manage their businesses’ HR-related concerns from hiring, training, payroll, legalities, insurance, accounting, auditing, as well as tax and payroll reporting, among others.

4) Labyrinth & Visa Permit ProcessingAcquiring visa and stay permits is one of the most difficult challenges in doing business in Indonesia. There are four types of permits to stay (doing business) in the country.

FIRST, tourist visa. You are required to have a return ticket back to your country of origin and a valid passport. The can only stay for 7 to 30 days.

SECOND, business visa. You can do business in Indonesia (attending meetings, exhibitions, training, or seminars). There is two types of business visas: the multiple-entry visa (valid for 1 year and grants a maximum of two months’ stay for one visit) and single-entry visa (valid for 60 and will expire once leaving the country).

THIRD, KITAS. This allows expats to be employed. When applying for KITAS, the company has to explain why it needs foreign skills. But, the limitation ratio of local workers to foreign workers is 10:1.

A company’s expat director will have a KITAS valid for 1 year, while others only valid for 6 months. They can renew the visa once the validity over.

FOURTH, KITAP. This is the permanent permit for expats who are married to an Indonesian. A Foreigner may also apply for KITAP if they already applied KITAS for three consecutive years

TACKLING THE CHALLENGEWe can say that applying for visas and permits may not be that difficult. But, many foreigners make the most common mistake of not being mindful of their visas and permits. Particularly, keeping in mind the visas validity or the activities they can do with their permits.

Furthermore, to avoid any problems with Immigration authorities, get help from Cekindo and its relevant visa and permit processing services that guarantee you a hassle-free stay in the country. You only need to provide the documents needed for your visa and/or permit processing, and Cekindo sorts everything out for you.

5) The Language Barriers

The major cities of the country located across the big islands in the archipelago. Indonesia has hundreds of inhabited islands where each has their own unique culture and means of conducting business. You need to know that there are more than 700 dialects spoken across the country. For this reason, you need to adapt to the language on where you’re at in the archipelago.

It should go without saying that effectively marketing your product in Indonesia will require localizing it in the targeted market. To help your business with this concern, you may hire a local employee with the knowledge to speak the dialects that will help your business maximize your presence in your target market.

TACKLING THE CHALLENGEThere are several consulting firms that can help foreigners settle in Indonesia. However, Cekido takes pride in its experience of providing local knowledge and its prominence. Cekindo’s team are well-versed on localizing your products or services. We will also help make your target market love what your business has to offer.

References:

http://2016.export.gov/indonesia/doing-businessinindonesia/index.asp

http://gpa-global.org/wp-content/up-loads/2017/02/indonesia-2017-HBNW.pdf

https://uk.practicallaw.thomsonreuters.com/5-501-2646?transitionType=De-fault&contextData=(sc.Default)&first-Page=true&bhcp=1

https://www.indonesia-investments.com/business/risks/infrastructure/item381

PT. Cekindo Bisnis Grup is a leading consulting firm of Market-Entry and Corporate secretarial services to clients expanding and operating in Indonesia and further to Southeast Asia.

Our VisionTo be leading consulting firm of business services to clients expanding and operating in Indonesia.

Our Mission To provide full-range of market-entry and corporate services to enable our clients to focus on their core business and activities in Indonesia and beyond.

Our ValuesC lient-focusedE xcellence performanceK nowledgable locallyI ntegrity moralN ormative operations standardsD elivered on-timeO ne stop services provider

C O M P A N Y P R O F I L E

Cekindo’s main services:

PT. Cekindo Bisnis Grup

Business Park Kebon Jeruk, Blok H1-2Jl. Meruya Ilir No.88Kebon Jeruk, Jakarta Barat, 11620Indonesia

info@cekindo.com

+6221 80660999

www.cekindo.com cekindo @Cekindo Cekindo Business Group, PTCekindo Business Group

W

S E L E C T E D C L I E N T S