Six reasons for setting up a business in Indonesia.

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Six reasons for setting up a business in Indonesia

This is a list of the top six reasons for setting up a business in Indonesia.

Even though Indonesia may be a country less popular in terms of setting up a company compared to Hong Kong and Singapore, but there are several reasons for starting a business in Indonesia that you should consider.

Let’s see what the six reasons are.

Reason 1: Free trade agreement

Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), which also consists of Brunei, Cambodia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Indonesia is able to trade with these countries with low or zero tax. Businesses that are looking forward to export to other Southeast Asian countries can achieve the benefits of low tax by setting up a company in Indonesia. By trading to countries in ASEAN alone, you can already access a population of more than 667.3 million people. Through ASEAN, Indonesia also has trading access to Australia and New Zealand, China, India, Japan, South Korea.

The free trade agreements include:

  • ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)
  • ASEAN-China Free Trade Agreements (ACFTA)
  • ASEAN-India Free Trade Area (AIFTA)
  • ASEAN-Japan Free Trade Area (AJFTA)
  • ASEAN-Republic of Korea Free Trade Area (AKFTA)
  • ASEAN-Hong Kong, China Free Trade Area (AHKFTA)
  • ASEAN Trade in Goods Agreement (ATIGA)

Indonesia also signed a Comprehensive Economic Partnership Agreement (CEPA) with the European Free Trade Association (EFTA). This agreement covers trade in goods, trade in services, intellectual property rights, investment, government procurement, trade and sustainable development, technical barriers to trade and sanitary and phytosanitary measures.

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Reason 2: Foreigners can own land

Foreign investors can legally own land and property in Indonesia. There are three rights in owning land and property in Indonesia, which are:

  1. The right to build (Hak Guna Bangunan)
  2. The right to cultivate (Hak Guna Usaha)
  3. The right to use (Hak Pakai)
Rights Characteristics
The right to build
  • Can build on the land
  • The foreigner must own a PT PMA
  • Must have a valid temporary stay permit (KITAS) Valid for 30 years and can be extended to 20 years
  • Can sell and exchange the land
The right to cultivate
  • Can cultivate on land
  • Can be used to expand an agriculture company
  • Must own a PT PMA or a foreign-owned entity
  • Valid for 25 years and can be extended to 35 years
The right to use
  • Can be used to build a house or develop the land
  • Valid for 25 years and can be extended to 80 years

Reason 3: English speaking business environment

Indonesia is a country that has a wide variety of ethnic groups, and more than 300 languages are spoken in Indonesia. Even though Indonesia’s main language is Bahasa Indonesia, businesses in major cities such as Jakarta use English for communication. However, you may seek a translator’s aid just in case.

Reason 4: More business classifications

The Negative Investment List is a guide to the maximum foreign ownership of companies allowed in Indonesia. As of 2016, more fields can be 100% owned by foreigners. The Indonesian government has increased the foreign ownership percentage as Indonesia faces a lot of domestic competition and needs further support in funding and technology.

In the trade, energy and industry sectors, foreigners can fully own:

  • Biomass pellets for renewable energy
  • Brokers
  • Crumb rubber processing
  • Cold storage businesses
  • Direct selling through marketing networks
  • Distribution affiliated with production

In the healthcare sector, foreigners can now entirely own:

  • Check-up clinics
  • Clinic laboratories
  • Hospital services
  • Hospital management and consultancy
  • Manufacture of raw materials for pharmaceuticals
  • Medical equipment rentals

In the tourism and creative economy sectors, foreigners can own:

  • Bars
  • Cafes
  • Film studios
  • Film production and distribution
  • Restaurants
  • Sport facilities

Additionally, entrepreneurs who are from the ASEAN countries such as Singapore, can own up to 70% in some of the business classifications, while foreigners from countries outside ASEAN are only allowed up to 67% ownership for fields that allow partial foreign ownership.

Business sectors that can be partially owned by foreigners include:

  • Construction consultancy services
  • Golf courses
  • Maritime cargo handling services
  • Meeting, Incentives, Conferences and Exhibitions (MICE) operations
  • Motels
  • Travel bureaus

Reason 5: Growing middle class

Indonesia has one of the fastest-growing middle classes in the world, and according to McKinsey, in 2030, it is expected that 90 million Indonesians will join the consumer class. This group will be capable of earning more than USD 3,600 a year in terms of purchasing-power parity. With the increasing middle class, this creates new opportunities for businesses concerning commodities. Because of the rapidly growing middle class, the Indonesian economy will also grow. Indonesia currently ranked 16th as the world’s top economies with a nominal GDP of USD 1.11 trillion and a GDP (PPP) of USD 3.50 trillion.

Reason 6: Decreasing corruption and bureaucracy

Indonesia is dealing with corruption that has been an ongoing problem. Indonesia has a Corruption Eradication Commission (Komisi Pemberantasan Korupsi – KPK) that was established to combat corruption. Further steps have been taken to have a more transparent economy which is signing the United Nations Convention Against Corruption (UNCAC) and the National Strategy of Corruption Prevention and Eradication 2012-2025.

According to the Corruption Perceptions Index, the score for Indonesia in 2019 is 40 out of 100 points, which is consistently improving compared to the previous years.

Conclusion

Listed above are just some of the major reasons for starting a company in Indonesia that attract foreign investors to establish a new company or expand their already existing company to Indonesia. Contact Acclime and let us help you set up a company in Indonesia.

 

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