Starting a business in Indonesia

The Indonesian economy is the largest in Southeast
Asia and the 15th largest in the world, with annual gross domestic product (GDP) valued at approximately USD$940.9 billion (2016). In 2014, the services sector was the most prominent employer in Indonesia, accounting for 45% of local workers (compared to only a third in 1990). This was followed by the agriculture sector which employs 34% of local workers (down from 56% in 1990) and the industry sector (including manufacturing) which accounts for 21% of local workers (having become more prominent in recent years).

Location

Companies looking to enter the Indonesian market for the first time face a great number of location options, and the choice of location is becoming increasingly about serving specific niches and less about trying to offer all things to all customers. In recent years, Indonesia has launched a system of designated special economic zones (SEZ) which offer various administrative incentives such as easier licensing processes, tax concessions and advanced infrastructure to encourage the establishment of businesses and industries. Prioritised industries include manufacturing, maritime, transportation, banking and tourism.

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Financing your Indonesian business venture

The main differences compared to operating in Australia may include:

  • A longer cash flow cycle, which could increase the pressure on cash flow and working capital
  • Being further away from clients, which can increase the risk of non-payment and can make it more difficult to collect debts
  • Getting paid in other currencies, which can expose you to foreign exchange risk and affect profit margins
  • Greater difficulty accessing finance, as Australian banks are often reluctant to accept overseas assets as security for loans
  • A longer timeframe to recover the upfront costs of establishing operations, which can reduce the cash flow and working capital available for your domestic operations.

Adequate funding will be critical to your success – so having a detailed financial plan is crucial.

Researching Indonesia

Comprehensive research is crucial when entering the Indonesian market because of its unique features, including:

  • Geographical and cultural complexity
  • The speed with which the market can change and evolve
  • Rapid change in rules, regulations and the focus of enforcement authorities
  • A lack of consumer information and vague regulations
  • A shortage of publicly available information to assist with understanding processes and rules. Public databases are in short supply. 
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Risks

While Asia presents Australian businesses with numerous opportunities for growth, going offshore entails increased risks that need to be identified, managed, and reduced as far as possible. Your business’s risk management strategy also has to include thorough due diligence. Due diligence also has 
to be actively practised with steps taken to protect intellectual property in the Indonesian context.

The Indonesian government is implementing changes to reduce corruption, increase respect for the rule of law and reform the judiciary and taxation system - all with the aim to foster more foreign investment. Indonesia’s business climate can be difficult when compared to other Asian countries.

Setting up your Business

Appoint a local agent or distributor

  • Register arrangement with Ministry of Trade
  • Agency/distributorship agreement (notarised by a notary public) and statement letter from the Attache of Trade Mission to be submitted

Representative office

  • Available in certain sectors (e.g. trading, services, banking, engineering consultant and construction)
  • Cannot undertake commercial activities or generate revenue in Indonesia, except for construction sectors
  • Allowed for marketing or promotional activities, market research, review business opportunities

Branch

  • Require permit from the appropriate government agency
  • Generally only available for the banking sector
  • Can be used to conduct operational activities (trading or business transactions)

Indonesian Limited Liability Company (PMA)

  • At least two shareholders who can be local or foreign
  • Meet the requirements under the Negative Investment List
  • Having investment of at least USD 1.2 million (for trading and services). Higher amount might be applied for other sectors.
  • Appoint at least one director and one commissioner. 

Want to learn more? Explore our other Indonesia information categories or download the Indonesia Country Starter Pack.