Indonesia - Market Entry & Business Opportunities

Indonesia, with Jakarta as its capital, is a diverse country in Southeast Asia. The official language is Indonesian, spoken by a population of approximately 276 million people. The country is known for its cultural richness, home to over 1,300 ethnic groups. With a land area of about 1,904,569 sq. km, Indonesia is strategically located between the Indian and Pacific Oceans, sharing borders with Papua New Guinea and Malaysia. The currency used is the Indonesian Rupiah.

Economic Overview

Indonesia follows a 20-year economic development plan, focusing on enhancing human capital and increasing competitiveness. The pandemic shifted the country's income status, and the poverty rate slightly increased. However, GDP growth is projected to reach 5.1% in 2022, supported by commodity exports and fiscal policies. Progress has been made in reducing the stunting rate, but more efforts are needed for robust human capital development. Indonesia remains committed to its long-term plan for sustainable growth and development.

Market Overview

Indonesia's economy rebounded in 2021 with a growth rate of 3.69% after the contraction caused by the Covid-19 pandemic. The country's solid fundamentals, including social stability, strong domestic demand, and stable prices, contribute to its attractiveness for business and investment. Barriers such as trade restrictions and corruption still exist, but ongoing policy reforms aim to improve the business environment. The government's medium-term development plan focuses on infrastructure, education, healthcare, and social assistance. The planned relocation of the capital city also presents opportunities. Despite global economic challenges, Indonesia is projected to maintain its recovery momentum, with a 5.3% growth rate predicted for 2022 by the IMF.

Bilateral Relations between India-Indonesia

• Prime Minister Narendra Modi, along with a prominent delegation, visited Bali, Indonesia from November 14-16, 2022, to participate in the 17th G20 Summit. The summit, held under the theme of "Recover Together, Recover Stronger," provided an opportunity for G20 leaders to discuss and address critical global issues.
• During the G7 Summit in Elmau, Germany on June 27, 2022, Prime Minister Shri Narendra Modi had a meeting with President Joko Widodo of Indonesia. The discussions between the two leaders covered a range of bilateral matters, including trade and cultural relations, with an emphasis on strengthening ties between India and Indonesia. The longstanding and robust bond between the two countries is highly valued by India.
• In May 2018, Prime Minister Shri Narendra Modi undertook a visit to Jakarta upon the invitation of President Joko Widodo of Indonesia. During this visit, the two leaders mutually agreed to enhance cooperation across various sectors and establish a New Comprehensive Strategic Partnership, ushering in a new era for the bilateral relationship between Indonesia and India.

Taxation and Subsidies in Indonesia

Indonesia has a diverse range of taxes that individuals, investors, and companies are required to adhere to. Here is an overview of the different types of taxes in Indonesia-

• Corporate Income Tax: Standard rate of 25%, with exemptions and reduced rates for specific categories of companies.
• Individual Income Tax: Different rates and withholding tax based on residency status and income sources.
• Value Added Tax (VAT): Standard rate of 10% on various taxable goods, services, imports, and exports.
• Luxury-Goods Sale Tax: Variable rates from 10% to 125% on luxury goods to discourage excessive consumption.
• Customs and Excise: Reduced or eliminated import duty rates to facilitate trade and cross-border commerce.

Financing Business in Indonesia

Government grants are often seen as a convenient way to start a business, but obtaining them can be challenging due to EU legislation restricting funding to public sector ventures. In Indonesia, websites and local councils offer grants to small businesses, but they are often limited and provided through competitions. Loans are typically reserved for well-established businesses, making it difficult for start-ups to qualify. As an alternative, entrepreneurs may seek funding from Angel Investors and Venture Capitalists who provide significant funding in exchange for a stake or control in the business. While government grants may be challenging to obtain, alternative funding sources like Angel Investors and Venture Capitalists can offer financial support and valuable guidance to start-ups.

TOP 10 COMPANIES IN INDONESIA – 2022

Rank	Company	Industry	Revenue in 2022 (USD)
1	Astra International	Conglomerate	$ 20.62 B
2	Bank Rakyat Indonesia	Financial Services	$ 11.22 B
3	Telekom Indonesia	Telecommunication	$ 9.78 B
4	Adaro Energy	Mining	$ 8.71 B
5	United Tractors	Mining	$ 8.62 B
6	Bank Mandiri	Financial Services	$ 8.29 B
7	Gudang Guram	Tobacco	$ 8.26 B
8	Indofood	Food	$ 7.49 B
9	Sampoerna	Tobacco	$ 7.39 B
10	Alfamart	Retail	$ 6.61 B

MOST POPULAR E-COMMERCE COMPANIES IN INDONESIA – 2022

RANK	COMPANY	Headquarter
1	Shopee	Singapore
2	Tokopedia	Indonesia
3	Blibli	Indonesia
4	Lazada	Phillipines
5	Bukalapak	Indonesia
6	Bhinneka	Indonesia
7	Orami	Indonesia
8	Ralali	Indonesia
9	Sociolla	Indonesia
10	Zalora	Singapore

TOP 5 START-UPS IN INDONESIA – 2022

RANK	COMPANY	INDUSTRY	FOUNDED IN
1	Kopi Kenangan	Restaurant	2017
2	iSeller	Information Technology	2016
3	Lemonilo	Marketplace	2015
4	Paxel.co	Logistics	2017
5	Astro	E-commerce	2021

Business Clusters in Indonesia

Indonesia has several business clusters that contribute to the country's economic growth and development. These business clusters are formed based on specific industries or geographical regions and aim to promote collaboration, innovation, and competitiveness within their respective sectors.

• Jakarta International Business District (JIBD): Focuses on finance, banking, and professional services.
• Batam-Muka Kuning Industrial Park: Specializes in manufacturing and industrial activities, particularly electronics, shipbuilding, and oil and gas.
• Bandung Creative City: Dedicated to creative industries such as fashion, design, film, and digital media.
• Surabaya Industrial Estate Rungkut (SIER): Manufacturing-oriented cluster with a focus on automotive, electronics, machinery, and logistics.
• Medan Industrial Estate KIM: Renowned for palm oil and agribusiness sectors, including processing and trading of agricultural commodities.
• Bali Tourism Cluster: Revolves around the tourism and hospitality industry, supporting the development of hotels, resorts, and tourism-related businesses.

How to set up Business in Indonesia?

Following are the three types of legal entities that can be set up in Indonesia:

• Foreign-Owned Limited Liability (PT PMA)
• Local Company (PT)
• Representative Office (RO)

To establish a foreign-owned company, a PT PMA is required with a minimum paid-up capital of Rp2.5 billion. The corporate structure includes shareholders, a board of commissioners, and a board of directors. Following steps are to be undertaken to set up the Company ensuring legal operation of a PT PMA in Indonesia.

• Approval of the company name
• Drafting the Deed of Incorporation
• Submitting the documents and seeking approval by the Ministry of Law and Human Rights
• Tax ID registration
• Obtaining a domicile letter
• Registration in the single submission system
• Issuance of the NIB
• Any sector specific registration depending upon the nature of business

Best Locations to set up Business in Indonesia

Indonesia offers several favourable locations for setting up a business. Some of them are -

• Jakarta: Capital city and economic hub with a large consumer market and diverse industries.
• Surabaya: Second-largest city with a well-developed infrastructure and significant sectors like shipping and manufacturing.
• Bandung: Thriving city known for its creative and entrepreneurial culture, suitable for creative industries and technology.
• Bali: Popular tourist destination and emerging business hub, ideal for tourism, hospitality, and creative industries.
• Medan: Major commercial and trading hub with a strategic location and strong manufacturing sector.
• Batam: Free trade zone and Special Economic Zone with tax incentives, attractive for manufacturing and offshore industries.
• Yogyakarta: Cultural and arts hub with a growing entrepreneurial ecosystem, offering opportunities in tourism and technology.

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Visa and Immigration

• Business Visa - The Business Visa in Indonesia is a short-term visa that allows foreigners to visit the country for business purposes. It enables individuals to participate in activities such as training, conferences, meetings, and business negotiations. There are two types of business visas: single-entry and multiple-entry. The single-entry visa is valid for 60 days, while the multiple-entry visa allows for multiple visits within a year. However, citizens of certain countries may not be eligible for an Indonesian business visa. To apply for a Business Visa, applicants need to meet specific requirements, including a valid passport with a minimum 18-month validity, a bank account statement showing a minimum balance, a plane ticket to Indonesia, and other documents based on the sponsoring company. A sponsorship letter from a registered Indonesian company is also necessary. By fulfilling these requirements and obtaining the necessary documents, individuals can apply for a Business Visa and engage in various business activities during their stay in Indonesia.
• Investor KITAS - Investors planning to invest in a PT PMA company in Indonesia can apply for an Investor KITAS visa. Two types of Investor KITAS visas are available, with validity for 1 year or 2 years. To be eligible, investors must invest a minimum of 1 billion IDR and the company should have a minimum capital investment of 10 billion IDR. The application process involves submitting various documents such as the company's Article of Association, NIB, operational license, and tax-related documents. The procedure takes around 4 weeks and is done online. Applicants need a valid passport, a minimum bank balance, and other personal documents. Once the e-Visa is obtained and the investor arrives in Indonesia, they must visit the immigration office within 7 days for visa registration. The KITAS will be issued online. By fulfilling these requirements, investors can legally work in Indonesia for their PT PMA company.
• Permanent Stay Permit (KITAP) - The KITAP Visa is a highly sought-after permanent resident permit in Indonesia for foreign investors, directors, or commissioners in PT PMA companies. It offers benefits such as a five-year Indonesian ID, local driver's license, access to loans, and convenient entry and exit from the country. Requirements include passport copies, KITAS copies, company documents, and payment of annual fees. The KITAS remains valid for five years, and renewal is required afterward.

With strong economy, large consumer market and business friendly environment, Indonesia is among the top locations for foreign investment. The Country offers opportunities across sectors including FMCG, healthcare, infrastructure, information technology and others. Although there are some regulatory and cultural challenges but with a proper market research and strategic planning one can easily enter the Indonesian market and set up their business.

We at India Law Offices have built a strong global footprint by forging strategic alliances with premier law firms that enable us to cater our clients from around the world. In Indonesia, we work very closely with NUSANTARA LEGAL PARTNERSHIP, a reputable law firm headquartered in Jakarta, Indonesia that specializes in various key areas of business law with special focus on General Corporate and Commercial Law, Merger & Acquisition, Foreign Direct Investment, Banking and Finance, Labor and Industrial Relation.

If you are from Indonesia seeking legal assistance in India or an India national or corporate planning to enter the Indonesia market, our firm can provide the necessary legal guidance and support you require.


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