Market Entry Guide Indonesia.
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- Introduction
- Modes of Setting up a Business in Indonesia
- Procedures for Immigration
- Social Security System in Indonesia
- Special Economic Zones in Indonesia
- Opening a Bank Account in Indonesia
- Recruitment of Local Staff
- Taxation
- Appendix
Appendix I: Useful Links and Addresses
Appendix II: Item/Sectors Prohibited under FDI Policy as per the Negative List 2007
- Disclaimer
1 Introduction
Download PDF
- Introduction
- Modes of Setting up a Business in Indonesia
- Procedures for Immigration
- Social Security System in Indonesia
- Special Economic Zones in Indonesia
- Opening a Bank Account in Indonesia
- Recruitment of Local Staff
- Taxation
- Appendix
Appendix I: Useful Links and Addresses
Appendix II: Item/Sectors Prohibited under FDI Policy as per the Negative List 2007 - Disclaimer
1 Introduction
Indonesia is one of the largest countries in the world with a total of 17,508 islands populated by more than 230 million people, with half of them located on the island of Java. After the country overcame the Asian financial crisis in 1997-98, it has slowly stabilized its economy and was able to reach an average GDP growth of five percent in the last five years (2004-08). Despite being blessed with abundant natural resources such as crude oil, natural gas, and many others, the country is still struggling to develop its poor infrastructure, complex regulatory environment and issues of poverty and corruption.1
Indonesia is today the most active country in business regulation reforms. Despite being a mostly agricultural economy with 40 percent of employees in the agricultural sector, the major contributor to recent economic growth has been the industrial sector, accounting for almost half of the country’s GDP in 2009. Under the administration of President Yudohoyono, the business and regulatory environment in Indonesia has been moving towards efficiency and quality. Since 2004, the country has undergone fundamental changes through new government regulations, especially in implementing decentralisation and democratisation. Payments and trade surpluses have been balanced, debt/GDP ratio was reduced, and the inflation rate has declined.2
During the reforms, the government has released several new policies focusing on new investment climate, tariff harmonization in exports and imports, anti-corruption especially in customs, as well as improvement in patents, copyrights, and other intellectual property.3
As a result of the reforms, foreign direct investment (FDI) in the county has doubled from 548 projects in 2004 (EUR 3.47 billion) to 1,138 projects in 2008 (EUR 11.3 billion). Investment in the tertiary sector accounted for more than three-quarters of overall FDI with transportation and telecommunications being the biggest contributors.4
Following the example of India’s development, Indonesian companies are also trying to further expand overseas in order to gain additional US-dollar revenue. From EUR 228 million in 2003/2004, the outbound direct investment of local Indonesian companies increased substantially to approximately EUR 6.08- 9.12 billion in 2008. The main destinations for these investments are neighbouring countries such as Singapore, Myanmar, Vietnam, Australia, and also others such as Zambia and UAE.5
The Indonesian stock market emerged as a destination for foreign investors looking to emerging markets following the liquidity issues in their home countries. Foreign investors have been dominating the Indonesian stock market recently, accounting for two-thirds of the overall stock market value in 2008 with total assets of EUR 45.22 billion, accounting for 45.7 percent while local investors only accounted for just one-third with assets worth EUR 14.71 billion during the same year.6
The following report aims to discuss the most important issues pertaining to the administrative, legal and financial aspects of setting up businesses and hiring personnel, as well as the living conditions in Indonesia.
2 Modes of Setting up a Business in Indonesia
This section discusses the common investment vehicles available to foreign investors, the procedures to be followed in order to establish them and related regulations for each investment mode.
Table 1 lists the most common modes of setting up businesses by foreign investors and the legal particularities involved in each process.
Table 1: Different Modes of Setting up Business in Indonesia
| MODES OF SETING UP A BUSINESS | DEFINITION |
|---|---|
| As an incorporated entity under the New Investment Law No. 25 of 2007 (April 26, 2007): |
|
| As an office of a foreign entity: |
|
Source: Indonesia Government Website
2.1 As an Incorporated Entity
The New Investment Law No. 25 of 2007 released on April 26, 2007 regulates the establishment of foreign companies in Indonesia while The Capital Investment Coordinating Board (BKPM) governs the process of setting up a company—both JV and PT PMA—in Indonesia.
2.1.1 Type of Foreign Ownership7
PT PMA is a wholly-owned subsidiary of the foreign investor without involving local parties. PT PMA is required to divest itself of a portion of its shares to the benefit of any Indonesian party within 15 years after the start of the commercial operation.
A JV is required to involve a local investor with at least a 5-percent stake at the time of establishment, and is not required to divest itself of its shares to the benefit of additional Indonesian parties within 15 years of the commencement of commercial operation.
Both the PT PMA and a JV are to meet the requirements listed in the ‘Negative List’ (please refer to Appendix II for details) for the minimum shares allowed to be held by foreigners in companies in certain industry sectors.
2.1.2 Steps to Establish a New Company8
To establish a new company (referring to Perseroan Terbatas/PT), an investor should refer to the following procedures:
name through a notary public (as the submission must go through computerised system available only through a notary public). The submitted name will be assessed by the Ministry of Justice and Human Rights with the consideration that the same name has not been used by another Indonesian company. This process requires seven working days and costs EUR 26.95 as a name clearance and reservation fee.
Company documents need to be notarised before a notary public. The notarisation process requires seven working days and costs EUR 176.9.
Payment of non-tax state revenue (PNBP) fees for legal services as detailed in the Government Regulation No. 19 of 2007, which regulates the establishment of Perseroan Terbatas (PT). The investor needs to pay EUR 14 and will obtain the PNBP receipt within one day.
Submission of the company establishment to the Ministry of Law and Human Right online as per Company Law No. 40 of 2007. The following files are required to be attached to the submission:
- Bank account certificate
- Copy of the bank transmittal advice
- Tax registration number (NPWP)
- Company domicile certificate
Legalisation on the establishment requires a 14-day processing time and will be announced in the Supplement State Gazette (TBNRI) within 14 days of the Ministry’s Approval Letter. The investor is required to pay EUR 70 for the approval letter and EUR 40.60 for the TBNRI publication.
Company registration with the Department of Trade is required to obtain the registration certificate (TDP). No official fee is required during this stage. However, an estimated EUR 35 in fees for unofficial purposes should be set aside. The whole process can be completed within 15 days of the registration submission.
A Taxpayer Registration Number (NPWP) and a VAT collector number (NPPKP) would be required before moving to the next step as per the Regulation of Directorate General of Taxation No. 44/PJ/2008. Both can be obtained through registration with the relevant Tax Office or through online registration. This process can be completed within two days of the registration date and no fee is required.
As per the Regulation of Ministry of Trading No. 36/M-Dag/ PER/9/2007, the company requires a permanent business trading licence (Surat Izin Usaha Perdagangan/SIUP) to conduct any trading activities. This can be obtained through the Ministry of Industry and Trade by submitting an application with the following data:
- Copy of the articles of association/company
- Location and address of the company’s offices
- Tax registration number
- ID card of the President/Director of the company
No official charge is required; however, unofficial administrative fees of EUR 28-70 may be required during the process, depending on the company size. This process requires five working days after registration.
Registration at the Ministry of Manpower as per Law No. 7/1981. Companies with 10 workers or a monthly payroll of EUR 70 are obliged to register by filing the manpower compulsory report. An unofficial fee of EUR 70 may be required to complete the process within the standard timeline of 14 days.
Application for Workers Social Security Programme (Jamsostek Programme) according to Law No. 3/1992. This is a mandatory process for each company with 10 or more employees or with an employee payroll of EUR 70 per month for each employee. For companies offering independent employee social security programme better than the Package of Basic Health Maintenance Security (as per the Government Regulation No. 14/1993 and amended by Government Regulation No. 28/2002) is exempted from this Jamsostek Programme. The approval may require seven to nine working days free of charge.
2.1.3 Foreign Investment Company (PT PMA) 9
2.1.3.1 Limitation of PT PMA in Indonesia
PT PMA is not allowed to participate in the following sectors:
- Public harbours and shipping
- Production, transmission, and distribution of electric power to the public
- Telecommunication
- Aviation
- Public drinking water
- Public railway
- Atomic reactors
- and mass media.
PT PMA also needs to refer the Negative List released by the Indonesian Government
2.1.3.2 Approval Formalities for the PT PMA
In order to obtain approval for establishing PT PMA, the foreign investor is required to meet the following procedures:
Submission of Model I PMA application to BKPM with certain documents to be enclosed such as:
- A copy of Articles of Association
- Description on production process flowchart
- Attorney reference letter if the Model I PM is submitted by the investor
After the approval from BKPM, PMA needs to execute and process the articles of association with the Department of Law and Human Rights, as well as fulfilling the administrative procedure as per the Company Law.
Additional licences are required to complete the process including domicile permit, company registration, importer licences, original lists of equipment and raw material for import privileges, NPWP, work and stay permits for expatriates, and certain licences for specific business activities.
The whole process requires four to six months until the PMA obtains all the licences necessary.
2.1.4 Joint Ventures with an Indonesian Investor10
Foreign investors who would like to establish a JV in Indonesia have the option of establishing a new company or acquiring shares of an Indonesian company.
2.1.4.1 Establishing New JV
The establishment of a new JV in Indonesia is stipulated by Government Regulation No. 20/1994 with the following details:
A JV company is required to be established as a Limited Liability Company and located in any territory in Indonesia (preferably in the Bonded Zone and Industrial Estate).
A business licence is granted for up to 30 years after the commercial operation commencement and may be renewed by the BKPM to continue if it is beneficial to the national economy and development.
A JV company is allowed to participate in several sectors in which PMA is not allowed, such as harbour and shipping, distribution of electricity for public use, telecommunications, aviation, public railways, atomic reactions, as well as mass media.
A JV company requires Indonesian investors to have at least a 5-percent stake of the total paid-up capital upon establishment. The investors may refer to Indonesian citizens or Indonesian legal entities with direct ownership.
The approval formalities of establishing a new JV refers to the procedures of setting up a new business in Indonesia as detailed in point 2.1.2.
2.1.4.2 Acquiring Shares of an Indonesian Listed Company
In order to establish a presence in Indonesia, foreign investors are also allowed to acquire shares of Indonesian listed companies as regulated by the Capital Market Supervisory Board (BAPEPAM) with the following details:
The acquisition can take place within a JV company or a completely new company. This acquisition has to be reported to BAPEPAM within 10 days of the completed transaction date.
For acquisition within its own JV company, the process should be completed through domestic stock exchange.
In case of the acquirement of more than 25 percent of the shares, this needs to be launched through a tender circulated by at least two daily newspapers in Indonesia, among which one should have national coverage.
2.2 As an Unincorporated Entity11
2.2.1 Foreign Company Representative Office
As per Article 1 of Presidential Decree No. 90 of 2000, a foreign company may establish a representative office in Indonesia with the following details:
Its activities are limited to the act of supervisor, connector, coordinator, or management of the interests of the company and its affiliates;
It is not allowed to be involved in the management of the foreign company, including its subsidiary and branches in Indonesia;
The representative office may not generate revenue from any activity including sales, purchase of goods or services with domestic companies or persons.
2.2.1.1 Establishment of Foreign Company Representative Office
To establish a representative office in Indonesia, the foreign company should submit its application to the BKPM by fulfilling the following requirements:
A Letter of Approval from BKPM as the main licence
A Domicile Letter by the local government
A NPWP from the tax office
A Company Registration Certificate from the Company Registration Office
2.2.2 Foreign Trade Company Representative Office
As per the Regulation of Minister of Trade No. 10/M-DAG/ PER/3/2006, a foreign trade company (FTC) can be established in the form of either a selling agent, manufacturers’ agent, and/ or a purchasing agent with the following approved activities:
Conducting marketing activities including the introduction and promotion of the products manufactured overseas by the foreign company and affiliates;
Providing information or instruction of usage and imports of products to companies and/or users. The foreign company shall appoint a domestic company to act as an agent in this regard;
Carrying out market research and supervising product sales related to the promotion of the products in Indonesia;
Conducting market research related to the product supply domestically;
Liaising and providing information and guidelines to any prospects in Indonesia regarding importing products;
Signing contracts with any domestic entities on behalf of the foreign company related to exports.
A trade representative office can only carry out sales, trade or transactions until it is completely established and not allowed to conduct the following during the process of establishment:
Launching tender applications
Signing contracts
Conducting claims
Other sales or transaction activities
2.2.2.1 Establishment of a Foreign Trade Company Representative Office
A foreign trade company representative office can be established by obtaining the Trade Business Licence (SIUP3A), which is valid for a maximum of three years unless stated differently in the appointment letter and may be renewed upon renewal of the appointment letter. SIUP3A may be obtained by filing the Application Implementation Plan to the Directorate Business Management and Registration of Company through a SIUP3A Issuer Officer.
A foreign trade company representative office is obliged to fulfil the following:
Payment of deposit money to the Bank of Indonesia
Company registration should be completed within three months after the SIUP3A
Submission of Realization Activity Report to the SIUP3A Issuance officer
Submission of report and data on the realisation of activities at any time required by the Minister of SIUP3A Issuance officer
Upon closure, the trade representative office needs to submit a written report to the SIUP3A Issuance officer and return the SIUP3A of the company.
2.2.3 Foreign Construction Service Provider Representative Office
As per the Minister of Public Works Regulation No. 28/ PRT/M/2006, foreign companies may establish a consultation service provider representative office in the field of construction planning, implementation, and/or supervision. The construction service provider representative office is permitted to conduct the following activities:
Exploration of construction works
Signing a construction works deal under the approval of the Head of Representative Office in the name of the parent company
Carrying out the construction work including projects with high-risk and/or having high technology and/or having high cost through joint operation
2.2.3.1 Establishment of a Foreign Construction Service Provider Representative Office
To establish a foreign construction service provider representative office in Indonesia, the foreign company needs to obtain the Licence of Foreign Construction Representative Office from the National Construction Service Company, which will be valid for three years and is available for renewal. This licence is not to be obtained until the National Construction Service Company receives the certificate for the participation, competence, classification, and qualification from the Institution of Construction Service Development.
To obtain the licence, the representative office must submit the registration form to the Head of Construction Development Board, Human Resources of the Public Works Department, and the National Institution of Construction Service Development. The following data should be provided by the representative office:
Company profile
Personal data
Business description, including classification and qualification
Letter of competency as provided by the authorised body and legalised by the Indonesian embassy in the respective country
Statement letter from the Representative of Indonesia of the respective country which stated the company existence
Appointment letter of the Head of Representative Office from the parent company
NPWP of the company
Administrative payment receipt
Curriculum vitae of the Head Representative Office candidate
2.3 Average Time (in Days) Required for Setting up a Business
In order to start a business, a certain number of legal and bureaucratic hurdles have to be overcome by companies/entrepreneurs.
Table 2 lists the data released by the World Bank related to starting a business in Indonesia.
Table2 : Starting a Business in Indonesia
| DATA RELATED TO STARTING A BUSINESS | YEAR – 2010 |
|---|---|
| Rank | 161st (in the world) |
| Procedures (number) | 9 |
| Duration | 60 days |
| Cost (GNI per capita) | 26% |
| Paid in Minimum Capital (GNI per capita) | 59.7% |
Source: Doing Business
According to a World Bank report, the average time taken to start a business in Indonesia is high in comparison to other countries within East Asia and the Pacific rim as well as OECD countries, despite the relatively fewer procedures to be followed.
Figure 1 illustrates the obstacles inherent in starting business ventures in various countries.
Table2 : Starting a Business in Indonesia
Source: Doing Business
Note: OECD = Organization for Economic Cooperation and Development
3 Procedures for Immigration
3.1 Available Visa12
To enter Indonesia and stay in the country, foreigners need a visa authorisation from the Department of Foreign Affairs of Indonesia, which can be submitted through Indonesian embassies and/ or Consulate Generals or Consulates of Indonesia overseas.
There are several Visa classifications available for entering or staying in Indonesia:
Diplomatic Visa
Official Visa
Transit Visa
Tourist Visa
Socio-cultural Visa
Single and Multiple Journey Business Visa
Limited Stay Visa
Visa on Arrival
3.1.1 Diplomatic Visa
Foreign nationals entering Indonesia on a Diplomatic Visa are eligible for single entry only. This visa category is only available for foreigners holding Diplomatic Passports for purposes of diplomatic assignments. Applicants are not required to pay any fee to apply for this Visa under the following provisions:
Two 3x4cm colour photographs
6-month validity or above of original Diplomatic Passports since their issuance
Reference note from the Foreign Government or Diplomatic Mission
3.1.2 Official Visa
This visa category is only provided to foreign nationals with Official or Laissez Passer (UN) Passports for the purpose of nondiplomatic assignments in Indonesia and is only valid for single entry. This visa category is free of charge under the condition that applicants fulfil the following requirements:
Two 3x4cm colour photographs
6-month validity or above of original Official Passports since their issuance
Reference note from the Foreign Government, Diplomatic Mission, or the United Nations
3.1.3 Transit Visa
A transit visa is available for only single entry to foreign national holding a valid passport or other legal travel document with six months of validity and above for the following purposes:
Applicants who are going to another country as the final destination and would need to stopover in Indonesia for a maximum of 14 days due to emergencies or other legitimate causes
Sea vessel/aircraft members who are assigned to any flight operations in Indonesia
To obtain a Transit Visa, applicants must fulfil the following requirements:
Two 3x4cm colour photographs
6-month validity or above of original Official Passports since their issuance
Two copies of airline tickets to the country of destination
Reference letter from the airline company or shipping agency detailing the purpose of transit in Indonesia
ID card
3.1.4 Tourist Visa
A Tourist Visa is provided only for single entry to foreign nationals with a purpose of visiting Indonesia for holiday or leisure with a maximum stay of 60 days and is not eligible for extensions. The following documents need to be submitted to obtain this visa:
Two 3x4cm colour photographs
6-month validity or above of the original Official Passport since its issuance
Two copies of a round trip or continued ticket to final destination
Travel itinerary
Letter of Guarantee
ID card
3.1.5 Socio-cultural Visa
Foreign nationals with a purpose of socio-cultural activities, family visits, education and sports in Indonesia may apply for this visa category which is eligible for single entry and a maximum stay of 60 days and extendable in the country. The following documents are required for the submission:
Two 3x4cm colour photographs
6-month validity or above of original Official Passports since their issuance
Two copies of a round trip or continued ticket to final destination
An invitation letter from family or social organisations detailing the visit purpose and providing guarantee of all transportation and living expenses during the applicants’ stay in Indonesia.
Special authorisation is required for applicants who intend to enter restricted regions, such as: Aceh, Maluku, and Irian Jaya.
3.1.6 Single and Multiple Journey Business Visa
This visa category is provided for applicants with the purpose of conducting business activities (attending a conference/seminar is included) under the conditions that applicants may not be employed or receive any payments during their stay in Indonesia.
The Single Journey Business Visa provides foreign nationals with single entry and a maximum stay of 60 days in Indonesia and can be extended during the stay in the country.
The Multiple Journey Business Visa provides multiple entries
within one year and a maximum stay of 60 days for each entry
in Indonesia; however, it is not available for extension. For this
visa, applicants must fulfil the following requirements before
obtaining this visa category:
Two 3x4cm colour photographs
For single entry, 6-month validity or above of original Official Passports since their issuance
For multiple entry, 1-year validity of Official Passports or travel document
Two copies of a round trip or continued ticket to final destination
A business letter or travel order from a company detailing the purpose of visit and providing guarantee of the applicants’ transportation and living expenses during the stay in Indonesia
For multiple entries, applicants shall report to the Indonesian Immigration office in Jakarta for multiple entries approval.
Special authorisation is required for applicants who intend to enter the restricted regions, such as Aceh, Maluku, and Irian Jaya.
3.1.7 Limited Stay Visa/Temporary Stay Visa
A Limited Stay Visa can only be issued to the foreigners with purposes of:
Foreign investment
Expat employment
Education, training, or scientific research
Religious studies
Joining a family member (husband and/or parents) who is either a foreign national holding Limited/Permanent Stay Permit, or an Indonesian citizen
This Visa is the initial process to obtain a Limited Stay Permit with a six-month or one-year period and can be extended every year up to five consecutive years. In order to obtain this Visa, applicants need to follow the requirements below:
Two 3x4cm colour photographs
18-month validity or above of original Official Passports
ID card
3.1.8 Visa on Arrival
This visa category is provided only for visit purposes such as tourism, socio-cultural visits, business, official visits or government assignments and only available for up to 30 days to foreign nationals from 63 countries. The requirements for obtaining this visa:
6-month validity or above of original Official Passports after arrival in Indonesia
Return ticket to the home country or continued ticket to final destination
Table 3 lists the different types of visas issued by the Indonesian government.
Table 3: Visas Issued by the Indonesian Government
| Type of Visa | Period for which granted | Entry Type | Registration Fee (in EUR) | Extendable in Indonesia |
|---|---|---|---|---|
| Diplomatic | 90 days | Single | Free | Yes, convertible to Limited Stay Visa |
| Service/Official | 90 days | Single | Free | Yes, convertible to Limited Stay Visa |
| Tourist | 60 days | Single | 32.85 | No |
| Socio-cultural | 60 days | Single | 32.85 | Yes, convertible to Limited Stay Visa |
| Transit | 14 days | Single | 14.60 | No |
| Single Journey Business | 90 days | Single | 32.85 | Yes, convertible to Limited Stay Visa |
| Multiple Journey Business | 60 days | Multiple | 73.00 | No |
| Limited Stay Visa – 6 months | 6 months | Single/Multiple | 36.50 | Yes, up to 5 years |
| Limited Stay Visa – 6 months | 1 year | Single/Multiple | 73.00 | Yes, up to 5 years |
| Visa on Arrival – 7 days | 7 days | Single | 7.30 | No |
| Visa on Arrival – 30 days | 30 days | Single | 18.25 | No |
Source: Indonesia Government Website
3.2 Procedures for Work Permits13
To enable a foreign national to work in Indonesia, the procedures listed below must be completed:
3.2.1 Passports
To reside and be employed in Indonesia, all foreigners must have passports with the following requirements for obtaining the work permit (KITAS):
Holders of passports with 12 months of validity may apply for a 6-month KITAS
Holders of passports with 18 months of validity may apply for a 12-month KITAS
Holders of passports with 30 months of validity may apply for a 24-month KITAS
3.2.2 Company Sponsorship
Companies employing foreigners must follow the procedures as per Article 42 of Manpower Act No.13/2003 as detailed below:
3.2.2.1 Expatriate Placement Plan (RPTKA)
The Indonesian government follows strict guidelines on the employment of foreigners that can be granted work permits. To employ foreigners, a company must submit an Expatriate Placement Plan (RPTKA) from the Manpower Department, detailing its annual requirements on foreign labourers to obtain the licence to employ foreigners – IMTA.
3.2.2.2 Employment Fee (DPKK Tax)
As per Article 47 of Manpower Act No.13/2003), companies employing foreigners are obliged to pay EUR 73 per month for each foreign labourer (amounting to EUR 876 per year) to the Department of Manpower to compensate for the costs of training Indonesian nationals. This tax is non-refundable and is required when approving a work permit for foreign labour.
3.2.2.3 TA01 Recommendation
TA01 recommendation by the Department of Manpower is required by foreign workers to obtain the temporary residence visa. Both RPTKA and TA01 recommendation are given only to individual applicants.
3.2.3 Limited Stay Visa/Temporary Stay Visa for Family Member
A foreign national who is employed in Indonesia is required to apply for a Limited Stay Visa for working purposes. He/she is also required to apply for a Limited Stay Visa for his/her family members who are coming to Indonesia with him/her (if any) at the Indonesian Immigration office. Once the application is approved, VITAS/VBS licences will be provided.
3.2.4 Limited Stay Permit Card/KITAS
Once all the procedures above are completed, the applicant will be issued a Limited Stay Permit Card, which is valid for a one-year stay in Indonesia and is available for renewal every year for two consecutive years. In addition, the applicant will receive a Blue Foreigner’s Registration and Change document, for immigration status tracking which obliges applicants to fill in the book in case of any change in address, marital status, new-born children, and other status that may occur during the applicant’s stay in the country.
3.2.5 Police Documents
This is the step to legalise a foreigner’s stay in Indonesia. The applicant is required to register with the National Police within 30 days from Stay Permit issuance date. Upon registration, the applicant will receive a Certificate of Police Registration (SKLD) which will certify his/her stay in Indonesia.
3.2.6 Other Documentations
Expatriates residing in Indonesia are required to register with the Immigration Department for an Expatriate registration number. In addition, they are required to register with the local municipality’s population office to obtain a Certificate of Registration for Temporary Resident (SKKPS).
3.3 Other Permits
3.3.1 Travel Permit
Foreigners holding KITAS with intention to travel to other parts of Indonesia are required to apply for a Travel Permit (SKJ).
3.3.2 Exit/Entry Permit
Foreigners holding KITAS intending to leave Indonesia temporarily are required to apply for an exit/entry permit from the Immigration Office. This permit is available for single exit/entry and multiple exit/entry depending on the requirement.
3.3.3 Exit Permit Only
Foreigners holding KITAS intending to leave Indonesia permanently are required to return the KITAS, Blue book and Police book as well as apply for an Exit Permit only.
3.4 Average Living Costs for Expatriates
The cost of living in Indonesia differs greatly from one region of the country to another. While the cost is nominal in smaller towns and cities, it is higher in bigger cities such as Jakarta, which is the capital city and employs more expatriates. As per the Expatriate Calculator, an entity focusing on the comparison of living costs worldwide, Jakarta is ranked low at 128 out of the 276 most expensive cities.14
With a Consumer Price Index valued at 32.05, for living in Jakarta, expat workers have a higher purchasing power compared to living in other cities in Indonesia. Some details on the average costs in Jakarta are given below:15
A meal at an inexpensive or middle-class restaurant is between EUR 2.99 (for a single person) and EUR 10.34 (for two persons).
Dairy products are available at affordable prices at all markets – one litre of milk (EUR 0.72), 12 eggs (EUR 1.07), 1.5 litre of bottled water (EUR 0.54), etc.
Transportation is estimated at an average monthly cost of EUR 5.51. Private cars are available at an affordable price with one litre gas offered at EUR 0.39. Using a taxi within the city centre will cost approximately EUR 1.97 for every 5-km trip.
Apartments within the city centre are available ranging from EUR 299.48 per month (for one bedroom) to EUR 365.79 per month (for two bedrooms) while apartments outside the city centre range from EUR 183.26 per month (for one bedroom) to EUR 232.81 per month (for two bedrooms).
Basic utilities such as electricity, gas, water, and garbage disposal generally cost EUR 19.68 per month on average.
3.5 Average Cost of Office Rent16
The cost of office rent in Indonesia varies from one city to another, with Jakarta being the most expensive city, especially in the downtown area, and also varies according to the office grades. Details on the office rental cost in the CBD area in Jakarta during the second quarter of 2009 are given below.
Grade A offices have an average annual rental cost of EUR 161 per square metre
Grade B offices cost an average annual rental fee of EUR 114 per square metre
Grade C offices are available with an average annual rental cost of EUR 98 per square metre
4 Social Security System in Indonesia
Indonesia’s social security system includes insurance services for the elderly, disabled persons and survivors, and in cases of illness, maternity, work injury, and death.17 As per Ministerial Decree No. 67/2004 released by Indonesia’s Ministry of Manpower and Transmigration, all foreign workers in Indonesia are required to join the state-owned social security programme – Jamsostek.18
4.1 Social Security Programmes in Indonesia
The following are the social security programmes regulated in Indonesia.
Old age, disability, and survivors benefits
Sickness and Maternity benefits
Work injury benefits
Life/death benefits
Table 4 lists the different programmes regulated by the Indonesian government which are organised by PT. Jamsostek
Table 4: Jamsostek Programmes at a Glance
| PROGRAMME NAME | FINANCING (OF GROSS MONTHLY EARNINGS) | BENEFITS |
|---|---|---|
| Old age, disability, and survivors benefits |
|
|
| Sickness and Maternity benefits |
|
|
| Work injury benefits |
|
|
| Life/Death benefits |
|
|
Source: SSA; Indonesia Social Security Bureau
4.2 Social Security Laws in Indonesia19
The principal social security laws in Indonesia are regulated by the Package of Basic Health Maintenance Security (as per Government Regulation No. 14/1993, as amended by Government Regulation No. 28 /2002)
It covers factories and establishments with 10 or more workers.
It seeks to provide comprehensive medical care to employees and their families.
It also provides cash benefits to employees during sickness and maternity and monthly payments in case of death or disablement.
It also provides insurance protection on the cause of accident, death, and old age.
5 Special Economic Zones in Indonesia
5.1 Introduction
As of now, Indonesia does not yet have any special economic zones. Only free trade zones and special manufacturing zones are available in the country, offering certain tax incentives, manufacturing facilities and infrastructure. As of September 2009, the new law on special economic zones was presented to the Indonesian House of Representatives. However, it has not been finalised yet.20
5.2 Incentives and Facilities Offered to SEZs21
The new law on special economic zones is currently being discussed by the House of Representatives with the following summary, which has not been finalised yet:
Fiscal incentives shall be provided, such as reduced taxes on corporate income and land costs.
Exemptions will also be provided from value-added and luxury goods taxes.
Companies located in an SEZ may also enjoy non-fiscal incentives, such as convenient immigration procedures, land access, and business permits.
Unlike FTZs, companies located in SEZ are not fully exempted from taxes on raw material imports and exports of finished products.
In addition, companies located in SEZs are allowed to sell and distribute goods produced within the SEZ to the domestic market.
5.3 Recent Status of SEZ Law in Indonesia
As of now, the new law on special economic zones is in the final stages, with the following details expected:
Until now, 22 regions have applied to become SEZ regions in the country; however, the Indonesia government is planning to start the SEZ policy in just two or three locations only, given the risk, funds, and infrastructure required to establish an SEZ.22
To date, the three FTZs (Batam, Bintan, Karimun) have been finalised in the new law of SEZ which will be implemented soon with seven other regions to be finalised in the next phase.23
6 Opening a Bank Account in Indonesia
6.1 Overview of the Banking Sector in Indonesia
Following the 1997-98 Asian financial crisis, Indonesia has stabilised its economy and reached its highest recorded economic growth in 2007 and 2008 when GDP grew by 6.3 percent and 6.1 percent respectively. Under the current annual interest rate of 6.5 percent implemented by Bank Indonesia, the banking regulator in Indonesia, GDP is forecasted to grow by 4.5 percent this year and inflation is expected to reach approximately five percent next year.24
The banking sector in Indonesia plays an important role in the development of Indonesia’s economy. It contributed 2.7 percent of GDP in 2007 and 2.5 percent in 2008.25 Despite the recent declining trend in the contribution towards GDP, the banking sector in Indonesia has been showing a promising comeback in 2009 as reflected by the growth of both commercial and rural banks in terms of their funding and assets across the year.26
Table 5 lists the top 10 commercial banks in Indonesia in terms of total assets.
Table 5: Name of Banks, Total Assets, and Market Share
| Name | Total assets (in EUR Billion ) |
Market Share (in terms of Assets ) |
|---|---|---|
| PT Bank Mandiri Tbk | 24.22 | 14.51% |
| PT Bank Rakyat Indonesia Tbk | 18.81 | 11.27% |
| PT Bank Central Asia Tbk | 18.63 | 11.16% |
| PT Bank Negara Indonesia Tbk | 14.31 | 8.57% |
| PT CIMB Niaga Tbk | 7.03 | 4.21% |
| PT Bank Danamon Indonesia Tbk | 6.80 | 4.07% |
| PT Pan Indonesia Bank Tbk | 4.88 | 2.92% |
| PT Bank Permata Tbk | 3.81 | 2.28% |
| PT Bank Internasional Indonesia Tbk | 3.80 | 2.28% |
| Citibank N.A | 3.71 | 2.22% |
Source: Central Bank of Indonesia
6.2 Procedure for a Liaison/Branch Office to Open a Bank Account
There are a variety of bank accounts in Indonesia; however, the following requirements are considered to be the most common that need to be submitted when opening a bank account:27
A letter of reference from the foreign company with the company’s Tax Registration Number
Copy of passport and KITAS card
A letter of reference from the previous bank
A letter of reference verifying that the Indonesian income tax has already been paid by the foreign company
In case of opening a foreign currency account, a minimum deposit is required
7 Recruitment of Local Staff
Employment in Indonesia is regulated by Law Number 13 of 2003 regarding Manpower and is organised by the Ministry of Manpower and Transmigration of the Republic of Indonesia.
7.1 Brief Overview of Labour Laws28
Indonesia went through several changes in regulating its employment procedures before finalising Law Number 13 of 2003. The following are the principle parts of the legislation enacted for regulating manpower in Indonesia in addition to Law Number 13 of 2003:
Law Number 22 of 1957 – regulates the settlement of labour disputes; renewed by Law Number 2 of 2004
Law Number 12 of 1964 – regulates the employment termination in private companies; renewed by Law Number 2 of 2004
Law Number 1 of 1970 – regulates work safety
Law Number 7 of 1981 – regulates mandatory reporting of manpower
Law Number 3 of 1992 – regulates worker social security
Law Number 11 of 1992 – regulates pension funds
Law Number 21 of 2000 – regulates labour unions
7.2 Law Number 13 of 200329
Law Number 13 of 2003 regulates the overall manpower needs which are summarised below:
Basic principles, such as minimum wage, minimum working hours, annual leave, etc.
Manpower planning and development
Equal treatment and opportunity provisions for workers
Job training for workers’ development
Job placement in accordance with human values and dignity
Proper employment of foreign workers in accordance with their competencies
Development of industrial relations
Development of institutions and structure of industrial relations including labour agreements, cooperative institutions, information provisions to society, and industrial relations dispute settlements
Workers’ protection, including basic rights on negotiation with employers, provisions of job safety and health insurance, protection for female workers, children, youth, and disabled workers as well as protection on salary, welfare, and social security
Labour inspection
7.3 Major Recruitment Agencies and Websites30
KEP/101/MEN/VI/2004 regulates the establishment of recruitment agencies in Indonesia.
Table 6 lists the major recruitment agencies in Indonesia and their websites.
Table 6: Major Recruitment Agencies and Websites
|
Sources: Matabumi and Anjar Priandoyo
7.4 Average Salary Range
The median salary ranges (per year) by job, employer type, years of experience and degree in Indonesia in 2009, as per PayScale, are presented in Tables 7 to 10 below:
Table 7: Median Salary by Job in Indonesia in 2009
| JOB | mEDIAN SALARY (IN EUR) |
|---|---|
| Graphic Artist/Designer | 3,150.0 |
| Software Engineer/ Developer/ Programmer | 3,170.9 |
| IT Manager | 8,805.6 |
| HR Manager | 8,808.1 |
| Finance Manager | 13,024.3 |
| General/Operations Manager | 21,364.7 |
| Country Manager | 25,963.7 |
Source: Payscale, 2009
Table 8: Median Salary by Employer Type in Indonesia in 2009
| EMPLOYER TYPE | mEDIAN SALARY (IN EUR) |
|---|---|
| Hospital | 2,625.0 |
| Self-employed | 2,991.1 |
| College/University | 3,360.0 |
| Franchise | 3,654.0 |
| Non-profit Organization | 3,737.5 |
| Contract | 4,272.9 |
| Government – State and Local | 4,452.0 |
| School/School District | 4,536.0 |
| Foundation/Trust | 4,830.0 |
| Team | 5,040.0 |
| Government - Federal | 5,777.9 |
| Company | 7,341.2 |
| Private Practice/Firm | 7,560 |
| Other Organization | 9,940 |
Source: Payscale, 2009
Table 9: Median Salary by Years of Experience in Indonesia in 2009
| YEARS OF EXPERIENCE | mEDIAN SALARY (IN EUR) |
|---|---|
| Less than 1 year | 2,642.4 |
| 1-4 years | 4,107.4 |
| 5-9 years | 7,716.1 |
| 10-19 years | 15,316.4 |
| 20 years or more | 29,732.3 |
Source: Payscale, 2009
Table 10: Median Salary by Certification in Indonesia in 2009
| CERTIFICATION | mEDIAN SALARY (IN EUR) |
|---|---|
| Microsoft Certified Professional (MCP) | 4,578.0 |
| Human Resource Concepts | 6,300.0 |
| Cisco Certified Network Associate (CCNA) | 6,898.7 |
| Business Certificate | 7,980.0 |
| Professional in Human Resources (PHR) | 8,495.0 |
| Certified Professional Engineer (PE) | 14,700.0 |
| Project Management Professional (PMP) | 16,786.6 |
| Project Management Certificate | 22,680.0 |
| Certified Public Accountant | 24,553.8 |
| Chartered Accountant (CA) | 25,803.3 |
Source: Payscale, 2009
8 Taxation
8.1 Taxation in Indonesia
Based on the 1945 Indonesian Constitution, taxation in Indonesia is regulated by the Directorate-General of Taxation and covers all Indonesian citizens, as well as foreign nationals.
8.2 Business Tax31
8.2.1 Direct tax
8.2.1.1 Corporate Income Tax
Indonesian domestic companies with a presence outside Indonesia are obliged to pay tax on their worldwide income while foreign-invested companies doing business in Indonesia are subject to tax on the income generated within the country. Companies doing business in Indonesia are subject to the following taxes:
A flat 28 percent corporate income tax rate – will be reduced to 25 percent starting 2010
A branch profit tax of 20 percent on remittances to the overseas head office on a company’s branch permanent establishment
A public company with a minimum of 40 percent of total paidup shares traded on the Indonesian stock exchange may enjoy a five-percent reduction in the income tax rate
Companies investing in certain industries (as per the Government’s plan) may obtain the following benefits:
- A further income tax reduction up to 30 percent of the total amount invested
- Speed-up in depreciation or amortisation
- Tax loss extension for up to 10 years
- 10 percent reduction on withholding tax
Certain deductions may also apply to wages, fees, interest, rent, royalties, travel expenses, bad debts, insurance premiums, etc.
Special depreciation rates also apply to certain industries
Losses may be carried forward for up to 5-10 years for certain industries
8.2.1.2 Capital Gains Tax
Capital gains tax is subject to standard income and deductibles on capital losses. In addition, the following rules apply:
0.1 percent is taxable on the sale of shares listed on the Indonesian stock exchange
On an initial public offering, 0.5 percent is taxable on the founders’ shares whether held or sold
10 percent is taxable on income generated from property rentals
Sales of Indonesian shares owned by foreigners are subject to five-percent tax of the gross value; however, tax treaties may override this rule
8.2.1.3 Withholding Tax
Companies in Indonesia are obliged to pay the withholding tax regulated as below:
15 percent withholding tax is taxable on dividend payments by a domestic corporate taxpayer to a resident
20 percent withholding tax is taxable on dividend payments by a domestic corporate taxpayer to a non-resident; the rate is reduced if the payee possesses a certificate of tax domicile
Tax exemption on interest paid to a resident bank or fina
ncial institution
20 percent withholding tax is taxable on interest paid to a non-resident; the rate may be reduced by a tax treaty
15 percent withholding tax is subject to both companies and individuals on interest paid from Indonesian banks or foreign company branches located in Indonesia
15 percent and 20 percent withholding taxes are taxable on domestic payment and remittances abroad, respectively; timber companies are subject to a 10 percent rate only
8.2.1.4 Tax Treaties
Under Indonesia’s tax treaties, companies doing business in Indonesia are eligible to apply for treaty rates to avoid double taxation. Revenues generated from foreign countries are subject to a unilateral tax credit in regards to foreign tax on the income.
8.2.2 Indirect Taxes
8.2.2.1 VAT
VAT system in Indonesia applies to all goods or services at a rate of 10 percent with some exemption on certain products and services. Exports of goods and services are charged at zero percent which employs a refund system on the VAT payment.
8.2.2.2 Luxury Goods Tax
A range of 10-75 percent tax rate is applicable on imports of goods with certain duties subject to special taxes such as liquor and tobacco.
8.2.3 Other Taxes
8.2.3.1 Stamp Duty
Stamp duty is subject to any financial transactions, deeds, and receipts, and ranges from EUR 0.21-0.42 according to the transaction amount or document type.
8.2.3.2 Land & Building Tax
Upon the purchase of land rights or a building worth EUR 4,200, a five-percent tax rate is taxable with several exemptions, such as purchase on mergers and land/building transfer to relatives.
8.3 Personal Tax32
Personal income tax in Indonesia is only applicable to taxpayers who have resided in Indonesia for 183 consecutive days within a year and is levied at the national level with no exemption for expatriates or on capital taxes. For self-employed residents, the annual income of up to EUR 126,000 will be exempted from personal income tax, while the remaining income is taxable as per standard computation. Exemptions are also provided for contractors and suppliers providing services to government projects. However, taxes still apply for the personnel, sub-contractors, sub-consultants, and sub-suppliers.
Additional taxes are subject to individuals on dividend payments and capital gains as regulated for corporate clients.
Table 11 lists the tax rates of personal income.
Table 11: Rates of Personal Taxable Income
| PERSONAL INCOME | TAXABLE RATES |
|---|---|
| Up to EUR 3,500 | 5% |
| EUR 3,501-17,500 | 15% |
| EUR 17,501-35,000 | 25% |
| Above EUR 35,000 | 30% |
Source: Deloitte
9 Appendix
Appendix I: Useful Links and Addresses
| TYPE OF ORGANISATION | ADDRESS | CONTACTS | WEBSITE |
|---|---|---|---|
| MINISTRIES, AGENCIES aND SERVICES IN INDONESIA | |||
| Government of Indonesia | Not Applicable | Not Applicable | http://www.indonesia.go.id/ |
| Foreign Affairs Department of Indonesia |
Jl. Taman Pejambon No. 6, Jakarta Pusat 10110 | Tel: +62-21-3441508 Fax: +62-21-380551 |
http://www.deplu.go.id/ |
| Statistical Bureau of Indonesia |
Jl. Dr. Sutomo No. 6-8, Jakarta 10710 | Tel: +62-21-3841195 Fax: +62-21-3857046 |
http://www.bps.go.id/ |
| Central Bank of Indonesia |
Jl. M.H. Thamrin No. 2, Jakarta 10350 | Tel: +62-21-2310108 | http://www.bi.go.id/ |
| Indonesia Stock Exchange |
The Indonesia Stock Exchange Building Jl. Jend. Sudirman Kav 52-53 Jakarta Selatan 12190 |
Tel: +62-21-5150515 Fax: +62-21-5150330 |
http://www.idx.co.id/ |
| Finance Department of Indonesia |
General Directorate of Tax Jl. Jenderal Gatot Subroto No. 40-42, Jakarta Selatan 12190 |
Tel: +62-21-5250208 | http://www.pajak.go.id/ |
| General Directorate of Customs and Excises New Finance Department Building DJBC Head Office Jl. Jend Ahmad Yani, Jakarta 13230 |
Tel: +62-21-4890308 | http://www.beacukai.go.id/ | |
| National Development Planning Department of Indonesia | Jl. Taman Suropati No.2, Jakarta 10310 | Tel: +62-21-3905650 | http://www.bappenas.go.id/ |
| Indonesia Investment Coordinating Board | Jl. Gatot Subroto No. 44, Jakarta 12190 | Tel: +62-21-525-2008 Fax: +62-21-525 4945 |
http://www.bkpm.go.id/ |
| Capital Market Supervisory Agent | New Finance Department Building Jl. Dr. Wahidin Raya, Jakarta 10710 | Tel: +62-21-3858001 Fax: +62-21-3857917 |
http://www.bapepam.go.id/ |
| Expat Association | P.O. Box 1116, Jakarta Barat 11011 | Not Applicable | http://www.expat.or.id/ |
| Embassy of Indonesia, Brussels |
Avenue de Tervuren 294, B-1150, Brussels | Tel: +32-2-7712014 Fax: +32-2-7713347 |
http://embassyofindonesia.eu/ |
Appendix II: Item/Sectors Prohibited under FDI Policy as per the Negative List 2007
| ITEMS/SECTORS CLOSED TO ALL INVESTORS |
|---|
| Marijuana |
| Sponges |
| Harmful chemical products |
| Weapons |
| Alcoholic drinks |
| Casinos |
| Air traffic systems |
| ITEMS/SECTORS CLOSED TO FOREIGN INVESTORS |
| Germ plasma cultivation |
| Forest concessions |
| Lumber |
| Taxi/bus transportation services |
| Small-scale water transport services |
| Print media |
| Distribution and exhibition of TV channels, radio, film, and cinema |
| Small-scale retails |
| ITEMS/SECTORS WITH LIMITED FOREIGN OWNERSHIP |
| Construction and/or operation of Airport/seaport |
| Production, transmission, and distribution of electricity |
| Atomic power plants |
| Shipping |
| Drinking water |
| Railway service |
| Retail Sectors Restricted for Foreign Investors (including JV) |
| Supermarkets with a selling space area of not more than 1,200 square metres |
| Department stores with a selling space area of not more than 2,000 square metres |
| Mini markets with a selling space area of not more than 400 square metres |
| Non-store retail sales of agricultural products |
| Non-store retail sales of processed food and beverages |
| Non-store retail sales of chemicals, pharmaceuticals, cosmetics, and laboratory apparatus |
| Non-store retail sales of textiles, clothing, footwear, and articles of personal use |
| Non-store retail sales of household goods and kitchenware |
| Non-store retail sales of paper, paper articles, stationery, printed matters, sports goods, musical instruments, photographic instruments, and computers |
| Non-store retail sales of handicrafts, toys, and paintings |
| Retail sale of fuels and lubricants |
| Retail sale of construction materials |
| Retail sale of machines (except cars and motorcycles) and spareparts including non-passenger vehicles |
| Retail sale of cars |
| Non-Retail Sectors Restricted for Foreign Investors (including JV) |
| Rental of farm, construction, and civil engineering equipments |
| Other services such as: laundry, haircutting, tailoring services, and beauty salon |
Source: Foreign Affair Department of Indonesia
10 Disclaimer
The Government of the Grand Duchy of Luxembourg declines all responsibility regarding the use of information featured in this document. The contents are provided for information purposes only. They contain information which is not necessarily complete, exhaustive, precise or up to date. In the event of discrepancies between the texts of this publication and the original documents, the original documents as officially published shall apply. This publication may refer to external sites over which the Government of the Grand Duchy of Luxembourg has no control and for which it declines all responsibility.
February 2010
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