By: Julia Tchezganova, first published on Bali Expat
With a population of nearly 240 million people, with more than 17,000 islands, and with a significant political and economic place in Southeast Asia, Indonesia is playing an increasingly prominent role in global economy. As a result, not only is Indonesia clearly of interest to foreign investors, but it also sparks excitement in foreigners who wish to come to the archipelagic state in order to enjoy its beauty and culture while setting up their business in a growing market.
It is outside of the scope of this article to cover every aspect of doing business in Indonesia, however, it will serve as a guide in terms of where to look for information and what to look for. In addition, there will be a closer analysis of business structure options available for foreigners in Indonesia.
According to “Doing Business 2013: Indonesia”, this country is ranked 165th out of 185 economies on the ease of starting a business. As a comparison, China is ranked 151st and Malaysia is 54th.
This means that while the market is a tempting one, it must be very well analyzed and researched by foreigners wishing to do business in Indonesia.
After selecting an appropriate location and market, foreign investors should consider the following issues from a legal perspective: dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, and enforcing contracts.
The concerns mentioned above are especially important to consider if there is intent to open a local office. The common structures established by foreigners include a Representative Office, a Regional Representative Office, or a Foreign Joint Venture company.
If a foreigner wishes to sell products or services without the need to be present in Indonesia, the options include appointing an Agent or a Distributor.
A Representative Office (RO) allows legal presence in Indonesia and is cheaper and simpler to establish. However, ROs generally perform promotional activities or gather information, as they are not allowed to perform operational business or trading activities, such as receiving sales payments in Indonesia. ROs are mainly set up for the purpose of marketing, market research, buying or selling agents, monitoring the company’s brand, and keeping in close contact with distributors and customers.
Regional Representative Office (RRO) is usually set up by a multinational company in order to manage its operation. It is limited to employing two expatriates who may only coordinate and monitor management activities in the region.
Foreign Joint Venture companies (PMA) must always take the form of a limited liability establishment (PT) and can involve legal entities (corporations) or individuals. Any company owning any percentage of foreign shareholding is a PMA company. A joint venture company can be established with a 100% foreign ownership; however, within 15 years the company must sell (some) shares to Indonesian investors through direct placement or indirectly through the domestic stock exchange.
Most investment projects have to be approved by the Indonesia Investment Coordinating Board (BKPM) and business licenses that are formally granted for 30 years now remain valid for as long as the operations proceed.
The amount of capital to be invested in a foreign-owned company is decided by parties themselves, and BKPM approval is based on the scale and economics of the project.
Things that are sensible to consider for foreign investors include: finding a good lawyer, understanding business visa travel, ensuring that intellectual property rights are protected, understanding taxation and tax incentives, ensuring that the business follows through with the accounting and auditing requirements, proper employment of both expatriates and local employees, repatriating the profits, and fulfilling the obligations of corporate social responsibility, among other things.
It is recommended that anyone with an interest of doing business in Indonesia downloads an Economic Profile provided by The World Bank. It includes detailed information on starting a business in Indonesia, the country’s economic environment, details on laws and regulations that apply to foreign businesses, procedures for set up and development, and how to deal with arising concerns.
This is where you can find this clear and comprehensive information: http://www.doingbusiness.org/data/exploreeconomies/indonesia. You may download the Economic Profile for free.
In addition, http://www.nzte.govt.nz/explore-export-markets is also a great site for understanding Indonesia’s business environment.
(Anything written in this article is intended to provide information only and is not intended to serve as legal advice).