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Why Indonesia?

Located in South-Eastern Asia, an archipelago between the Indian Ocean and the Pacific Ocean, Indonesia is one of the fastest growing economies in the Asia-Pacific region. Having trade relations with China, Japan, United States, Australia and other countries, Indonesia is a major exporter of oil, gas, electrical equipment and machinery. Being a member of the Organization of the Petroleum Exporting Countries, G-20 and a driving force within the ASEAN countries, Indonesia has become a leading economy at the regional and multilateral levels. Indonesia has most important bilateral relationships with Australia, especially in driving regional prosperity and security. Though, the Bahasa Indonesia is the official language there are more than 700 languages and dialects spoken across the Indonesian archipelago.


Trans-Pacific Partnership

 Being a Trans-Pacific Partnership member, Indonesia is a host of potential benefits for its participants, the most obvious of which are:

  • reduction or elimination of an estimated 18,000 tariff and non-tariff barriers;
  • fair trade practices;
  • regulations calling for small and medium-sized enterprise (SME); and
  • TPP also includes foreign equity rules, which stipulate that foreigners will be able to hold a majority stake in businesses within TPP member countries.

Free Trade Agreements

 Indonesia is a member of the free trade arrangement between ten ASEAN member states, China and other countries eliminates trade barriers, which:

  • reinforce its role as a regional services hub;
  • attract more inward Foreign Direct Investment; and
  • secure preferential treatment and legal protection for Indonesian investments abroad.

Foreigner’s access to Land Ownership

As per Indonesian government regulation, expatriates have the right to reside with the land and house ownership. However, the following rights in respect of estate is provided to foreigners:

  • right to build (hak guna bangunan);
  • right of cultivation (hak guna usaha); and
  • right to use (hak pakai).

Not affected by the Global Financial Crisis

As it is well known that the economic crisis attacked the whole world in 2007 and 2008, but Indonesia remained tough. The Indonesian financial situation was unbeatable due to the following reasons:

  • the domestic consumption stayed stable; and
  • awesome site for the globe’s business people to build up a company.

Foreign Direct Investment (FDI)

 Asian climate and geographical location is very much attractive for the investors.  FDI  into Indonesia has a significant increase which is about 12% out of 8.3 billion USD in 2017’s third quarter. In terms of economic growth, Indonesia is ranked 16th in terms of normal GDP (Gross Domestic Product) and 7th in GDP (PPP).

Simple Tax Regime

Like other countries, Indonesia operates a self-assessed taxation system that is divided into state and local taxes. State taxes include income tax (corporate, individual, withholding), VAT, stamp duty, and customs tax while local taxes are mainly related to commercial subjects such as property, vehicle, promotional and leisure activities. In Indonesia, the income tax system are applied both to individual and corporate systems and the fiscal year is the calendar year from January, 1 to December, 31.

Corporate tax rate:

for resident company, will be divided as follows:

  • For income up to IDR 4.8 billion – 0.5% of annual turnover (final) ;
  • income from IDR 4.8 billion – IDR 50 billion – 12,5- 25% from net profit; and
  • more than IDR 50 million – 25% from net profit.

The timeline for Tax Obligation is, end of the 4th month after the tax year ends.

Individual Income Tax:

following are applicable income tax rates for the individual taxpayer:

  • Up to IDR 50 million – 5%;
  • Over IDR 50 million – 15%;
  • Over IDR 250 million to IDR 500 million 25%; and
  • Over IDR 500 million – 30%.

The timeline for Tax obligation is, at the end of the 3rd month after the tax year ends.

While, non-resident taxpayers, are subject to a final withholding tax of 20% on gross income but may be at a lower rate under the tax treaty. VAT is applicable at a rate of 10% on the deliveries of goods and services within the Indonesian Customs area.

Indonesian Companies

While setting up a company in Indonesia one should need to consider the following factors:

  • Business Factors:

-The industry and type of business,

-Nationality of the headquarters/individual(s), and

-Presence of existing trade agreements or relationship.

  • Location factor – Separate cities and regions may have different rules, costs, and availability.
  • Regional Language may be an influence.

Types of business entities available are:

Representative Office

Foreign companies are allowed to establish a RO in Indonesia, subject to significant restrictions, and only certain sectors, including trading, services, oil and gas mining and banking.

Limited Liability Company

An LLC must go through the entire registration and incorporation process and is the most costly business structure to set up in Indonesia. The procedure need to be followed to form an LLC are:

  • payment of fees for obtaining clearance of the company name;
  • notarize company documents;
  • approval of the deed of establishment;
  • pay non-tax state revenue fees for legal services;
  • obtain company registration certificate; and
  • register with the Ministry of Manpower.

Joint Venture

In Joint Venture, foreign and Indonesian investors, forms a partnership to shares the profits, losses and management together. Procedure need to be followed to form JV are:

  • Register Business License;
  • Obtain Certificate of Approval; and
  • Name Internal Supervisor.

Indonesia has most important bilateral relationships with Australia, especially in driving regional prosperity and security. Though, the Bahasa Indonesia is the official language, but there are more than 700 languages and dialects are spoken across the Indonesian archipelago.

Author: Chandrawat & Partners

Date: April 2022

Topic: Doing Business in Indonesia

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