How to Start a Business in Indonesia?

 

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By:

Team of Hukumindo

Previously, the www.hukumindo.com platform has talk about "Sutan Sjahrir, Sosok Perdana Menteri Pertama Indonesia", "Sharia Investment: Definition, Characteristics, Types, and Benefits", "What Are The Competences of The Religious Courts To Adjudicates In Sharia Economic Cases?", "The Role of Law in Sharia Economic Development" you may read also "Does Indonesia Implementing Citizenship By Investment?" and on this occasion we will discuss about 'How to Start a Business in Indonesia?'. At first glance, this article appears to be discussing business matters, but if you pay close attention, it turns out that it also contains the legal rules that apply when you start doing business in Indonesia.

The Indonesian government is facilitating investment with the latest regulations and policies. With reading this article, you can learn how to start a business in Indonesia for foreigners. With the current political and economic climate that is highly supportive of foreign investment, Indonesia has become a lucrative target for many foreign investors. So, the question that often crosses our minds is how to start a business in Indonesia? Through this article, we would like to discuss more about the things that every foreign investor should consider before entering the Indonesian business sector.[1]

Starting a Business in Indonesia: Things to Consider

For you investors, the Indonesian market is very promising. But, before you decide to start your investment in Indonesia, you need to consider the following:[2]

1. Type of business. Please note that there are some sectors or industries that are prohibited or restricted to foreign ownership. This is written in the Negative Investment List. In the list, there are several restrictions on foreign ownership from zero (0) to ninety five (95) percent. This will lead you to a further question: Should you look for a local partner or not. However, there are some businesses that are allowed to be wholly owned (100%) by foreigners.
2. The type of company. Because the Indonesian government wants to protect micro, small and medium entrepreneurs, there is a policy stating that to open a business in Indonesia, a company must be registered as a limited foreign liability or PMA. In order to establish a foreign company, it is mandatory to meet certain requirements regarding minimum investment and the amount of paid-up capital.
3. Human Resources. Even though Indonesia is listed as the fourth most populous country in the world with more than 60% of the total population in their productive age (aged 15-60 years), not all of them have sufficient skills to participate in the industrial and commercial world. This is because the education sector is not spread evenly over large areas. This condition causes companies to face difficulties in finding talent pools, especially in areas outside Java Island. On the other hand, hiring foreigners also requires complicated requirements. This will be a challenge that must be completed for every PMA (limited foreign liability). Several successful FDIs in Indonesia have overcome this problem by providing sufficient training to meet the skills requirements required. Therefore you have to be really selective in selecting human resources based on your needs to avoid extra costs by hiring unskilled or unsuitable people.
4. Diverse Market. Indonesia is not only a country with the largest archipelago in the world, but also has a very complicated market segmentation. Given that there are many races, languages, religions, customs and values, you cannot assume Indonesia is a single market. Each target group has different needs according to the approach taken.
5. Bureaucracy and Law in Indonesia. You have to underline that the bureaucracy in Indonesia is not easy, it can be overwhelming for any foreigner who is new to these regulations. Even though the government has started implementing several online systems and "One-Stop-Service" services to ease the bureaucracy, there are still some fairly complex processes to go through. On the other hand, policies or laws have changed over time. So you need to realize that updating legal knowledge regarding the latest regulations is very important.
6. Uneven Infrastructure Development. Development in Indonesia has long been focused on the Java Island region (6 Provinces: Capital City Jakarta, Banten, West Java, Central Java, Special Region of Jogjakarta, and East Java). All infrastructure and facilities are very focused on this Island. Therefore, doing business in these 6 provinces in the center of the Java archipelago has been a trend for a long time. However, there are also several other large cities on other islands that are being targeted by foreign investors. Of all the things you need to consider, the main thing is to find a place that fits your business so that it has the greatest potential to support your company.
7. Abundant of Natural Resources and Raw Materials. Indonesia has many types of natural resources which are abundant and of various types. If you need natural resources and raw materials to run your business, make sure you know where to get the right natural resources and raw materials. Consider carefully, and know that Indonesia consists of many islands spread over a large area, the distribution of goods can be very expensive if you choose the wrong place. Regardless of the business sector, many foreign companies hope to run a profitable business in a rapidly developing economy.

And if you have any legal issue with this topic, or you may have interst in investing your fund in Indonesia, contact us then, feel free in 24 hour, we will be happy to assist you. 

*) For further information please contact:

Mahmud Kusuma Advocate

Law Office

Jakarta - Indonesia.

E-mail: mahmudkusuma22@gmail.com

________________

References:

1. "Bagaimana Memulai Sebuah Bisnis di Indonesia", www.cekindo.com., Diakses pada tanggal 10 Januari 2023, Link: https://www.cekindo.com/id/blog/bagaimana-untuk-memulai-sebuah-bisnis-di-indonesia

2. Ibid.