Doing business in Indonesia is attractive for many due to its growing economy and strategic location in Southeast Asia. However, several key aspects need to be understood before diving into the Indonesian business world.
What you need to know about doing business in Indonesia
First, navigating Indonesia’s business landscape requires a thorough understanding of its regulations and rules. Foreign companies should be familiar with the Negative Investment List, which outlines sectors where foreign investment is restricted or prohibited.
Additionally, although there have been improvements in streamlining business registration processes, challenges still exist in dealing with bureaucracy and comprehending local laws. Therefore, it is essential for foreigners looking to start a business in Indonesia to establish a PT PMA (foreign-owned investment company), which allows them to conduct business activities in Indonesia, subject to certain ownership restrictions and requirements.
Start doing business in Indonesia in 7 steps
The following step-by-step guide explains how to begin doing business in Indonesia.
Step 1: Market research
Conducting thorough research is crucial to understanding the nuances of the Indonesian market. This includes analyzing consumer behavior, identifying local competitors, and understanding regulatory requirements specific to your industry. Utilizing online resources and seeking local expertise will provide valuable insights to guide your strategy when doing business in Indonesia.
Step 2: Legal entity setup
Establishing a PT PMA (foreign-owned investment company) is fundamental for foreigners wishing to start a business in Indonesia. This involves deciding on your business sector, ensuring it aligns with the Negative Investment List, and preparing a detailed business plan. The plan should outline your business activities, investment value, and employment plans for Indonesians.
Step 3: Business registration
Once your PT PMA proposal is approved by the Investment Coordinating Board (BKPM), you must register your company with the Ministry of Law and Human Rights. This step formalizes your business’s legal status. It entails submitting your company’s deed of establishment, obtaining a company registration number (NIB), and registering with the Online Single Submission (OSS) system for your business licenses.
Step 4: Tax and licenses
After registering your business, the next step is to apply for a Taxpayer Identification Number (NPWP) from the Indonesian Tax Office. This is crucial for tax reporting and compliance. Depending on your business sector, you may also need to obtain specific licenses and permits, ranging from industry-specific licenses to operational permits for your business premises.
Step 5: Open a business bank account
Opening a corporate bank account in Indonesia is a straightforward yet vital step when doing business in Indonesia. You will need to present your company’s legal documents, including the NPWP and the approval from BKPM. A local bank account is necessary for conducting business transactions, paying employees, and dealing with local taxes.
Step 6: Compliance with Indonesian laws
Staying compliant with Indonesian laws and regulations is an ongoing process. This includes adhering to employment laws, such as minimum wage requirements, and complying with environmental regulations. It’s also essential to ensure that your business operations do not violate local norms or laws. Regularly consulting with legal experts or hiring a local compliance officer can help navigate the complexities of doing business in Indonesia.
Understanding business culture in Indonesia
Indonesia’s diverse cultures, languages, and religions heavily influence its business culture. To navigate this environment successfully, it is essential to grasp and adapt to business etiquette in Indonesia:
- Prioritizing relationships: Building strong personal relationships is crucial before engaging in business dealings. Indonesians prefer to do business with individuals they know and trust. Initiating small talk at the beginning of meetings can foster a sense of camaraderie.
- Hierarchy and respect: Indonesian business culture places a significant emphasis on hierarchy. Respecting elders and individuals in higher positions is of utmost importance in business etiquette in Indonesia. Always address the most senior person in the room first and wait for them to invite you to sit or speak.
- Communication style: Communication in Indonesia tends to be indirect and subtle. Indonesians may avoid saying ‘no’ to maintain harmony and save face. Attention to non-verbal cues and reading between the lines is essential for understanding their actual response.
- Consensus and decision-making: All stakeholders often make decisions by reaching a consensus. This process can be time-consuming, as it involves discussions and consultations with various organization members. Patience is critical in such situations.
- Flexibility and time: Time is viewed flexibly in Indonesia. Meetings may start later than scheduled, and deadlines can be seen as fluid. It is essential to remain patient and adaptable.
- Business attire: Business attire in Indonesia is formal but can be adapted to the tropical climate. Lightweight suits for men and conservative dresses or suits for women are recommended.
Understanding and respecting these business etiquette in Indonesia greatly influences success in doing business in Indonesia. It facilitates the formation of lasting partnerships and eases the navigation of local business practices.
The rights of business owners in Indonesia
Business owners in Indonesia, including foreigners, enjoy several rights under the law to protect and manage their investments:
- Ownership and investment protection: The Indonesian government provides protections for foreign investments, including legal guarantees against nationalization and measures that ensure fair treatment of foreign investors.
- Intellectual property rights: Indonesia adheres to international standards for protecting intellectual property, enabling businesses to register patents, trademarks, and copyrights. This safeguards their innovations and brand identity under Indonesian law.
- Profit and capital repatriation: Foreign business owners can repatriate profits and capital in foreign currency. This is crucial for investors looking to move their earnings back to their home country, subject to compliance with tax obligations.
- Employment of foreign nationals: Foreign companies can hire expats for specific positions, particularly in areas requiring particular expertise. However, companies must navigate work permit and visa regulations, prioritizing Indonesian workers for most roles.
- Legal recourse and dispute resolution: Under Indonesian law, business owners have access to legal recourse in disputes, including arbitration and litigation. The legal system provides mechanisms for resolving business disputes, though the process can be complex and time-consuming.
- Access to financing: While navigating the financial system can be challenging for foreigners, business owners in Indonesia have the right to seek funding from banks and other financial institutions, subject to compliance with relevant regulations.
Understanding these rights is essential for doing business in Indonesia. It empowers foreign investors to make informed decisions about their investments.
Need help starting your business in Indonesia?
Starting a business in Indonesia can be complex, but our expert team is here to assist you. Leave your name and email below, and we’ll guide you through every step of the process, ensuring a smooth and successful establishment. Whether you have questions or need comprehensive support, we’re ready to help you confidently start your business. You can also email us at hello@ownpropertyabroad.com for personalized assistance. Get started on your business journey today!
Frequently Asked Questions (FAQs)
What are the risks of doing business in Indonesia?
Doing business in Indonesia presents several risks, including bureaucratic hurdles, complex regulations, and a challenging legal environment. Investors may also face corruption, infrastructure gaps, and cultural differences in business practices. To navigate these challenges effectively, conducting thorough market research and seeking local expertise is crucial.
How much is the cost of doing business in Indonesia?
The cost of doing business in Indonesia varies based on business type, location, and scale. Initial costs include company registration, legal fees, and licensing, ranging from a few thousand to tens of thousands of dollars. Operational costs of doing business in Indonesia, such as rent, labor, and utilities, vary widely across regions and industries.
How do I start doing business and investing in Indonesia?
To start doing business and investing in Indonesia, follow these steps: conduct detailed market research, establish a legal entity such as a PT PMA for foreign investors, register your business and obtain necessary licenses through the Online Single Submission (OSS) system, comply with tax regulations by obtaining a Taxpayer Identification Number (NPWP), and understand and adhere to local business culture and practices.
What is the business etiquette in Indonesia?
Business etiquette in Indonesia emphasizes respect, hierarchy, and relationships. According to the business culture in Indonesia, it is essential to address senior individuals first, engage in small talk before meetings, and avoid confrontation to maintain harmony. Punctuality is appreciated, though flexibility with time is often practiced. Dressing formally and understanding indirect communication styles are vital to successful business interactions in Indonesia.
