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Contents
- Challenge 1: Halal certificates
Challenge 2: Business visa
Challenge 3: Business culture
Challenge 4: Failure to comply with tax deadlines
Challenge 5: Business licenses
Conclusion
Contents
- Challenge 1: Halal certificates
Challenge 2: Business visa
Challenge 3: Business culture
Challenge 4: Failure to comply with tax deadlines
Challenge 5: Business licenses
Conclusion
This is a guide to the common challenges and pitfalls to avoid when starting a business in Indonesia.
The Indonesian government has increasingly encouraged foreign investment over the past years. However, there are still some obstacles and mistakes foreign entrepreneurs may experience.
Let’s take at the common challenges and mistakes.
Challenge 1: Halal certificates
Indonesia has the largest Muslim population in the world, with around 87.2% of its population being Muslim.
It is required that certain consumer products and services in Indonesia need to be halal certified. The Halal Law regulates the processing, materials and certification of halal products.
It is important that you get your products and services halal-certified in Indonesia as it enables you to easily penetrate the halal market, and the Muslim population only consume halal products.
If your business needs to be halal-certified, you must do the following:
- Register the company and products at the Ministry of Religion in Jakarta.
- Once registered, the Halal Products Certification Agency (Badan Penylenggara Jaminan Produk Halal – BPJPH) will issue a registration number that must be placed on all the packaging or on the products.
- The applicant will then need to choose a halal inspection agency (LPH) from the list provided by the BPJPH.
- Pay a fee depending on the business size.
- The LPH agency will conduct relevant tests on the applicant’s products or services.
- The results from the tests will be submitted to the BPJPH, and they will submit them to the Indonesian Ulema Council (MUI).
- Determination of Product’s Halalness (Fatwa) is performed in Halal Fatwa Assembly and conducted by the Indonesian Ulema Agency (MUI). They will make a decision on whether the product or service can be classified as halal and issue a Decree of the Determination of Product’s Halalness, and then submit it to BPJPH as the basis of issuing the Halal Certificicate.
- BPJPH issues the Halal Certificate, and the company has to put the Halal Label on the product packaging, certain parts of the product, and/or certain places on the product.
Fees for the halal certification
| Company size | Fees |
| Micro-sized businesses | 0 |
| Medium-sized businesses | Registration fees – IDR 100,000 – IDR 500,000 Testing and examination fees – IDR 3.5 million – IDR 4 million Certificate issuance – IDR 150,000 – IDR 1.5 million |
| Large-sized businesses | Registration fees – IDR 100,000 – IDR 500,000 Testing and examination fees – IDR 3.5 million – IDR 4 million Certificate issuance – IDR 1.5 million – IDR 5 million |
Get our in-depth guide covering everything you need to know about starting and managing your business in Indonesia.
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- Understand all compliance requirements
Challenge 2: Business visa
Business visas in Indonesia only give you permission to do certain activities. You are prohibited from engaging in business activities that involve employment or receiving a salary.
If you are going to start a business, the business visa would not be applicable. Business visas are sometimes confused with a work permit (ITMA) which allows you to work and legally receive salary in Indonesia.
You should be careful about which visa you are holding since you will be violating the Indonesian immigration regulations and face penalties if you have the wrong visa.
Business visa’s scope of activities
- Social activities
- Tourism-related activities
- Government tasks
- Training or studying for a short duration
- Collaboration in foreign marketing for Indonesia providing guidance, counselling and training
- Journalistic reporting
- Non-commercial film production
- Business negotiation
- Seminar, conference or lecture participation
- International fairs and exhibition participation
- Subsidiaries’ auditing, inspection or production quality control for up to one month
- Purchase of goods
There are three types of business visas, which are the visa on arrival, single-entry business visa and the multiple-entry business visa.
You can apply for a visa on arrival if you are going to stay in Indonesia for less than 30 days and can be extended for an additional 30 days.
The maximum day of stay for a single-entry visa is 60 days and can be extended five times. However, if you leave Indonesia after the visa has expired, you cannot extend it and have to apply for a new visa.
Multiple-entry business visas are valid for 12 months, and you can enter or leave Indonesia multiple times during the 12 months period, but you will need to leave Indonesia every 60 days as it is the maximum days allowed for each stay.
Challenge 3: Business culture
The business culture in Indonesia can be different from other Asian regions or Europe. It would be best if you understood their business culture before starting a company in Indonesia to avoid any misunderstandings or disrespectful acts towards Indonesian business partners.
Devout Muslims may prefer not to touch people of the opposite gender, but greetings between same-gender people involve a handshake. It is fine to shake a woman’s hand if she initiates it.
Younger people should address elders by Bapak (Mr.), Ibu (Mrs.) or Kakak (elder), followed by their surname.
Business cards are exchanged during the meeting, and you should give your business card with both hands with the writing facing the other person. Never write or fold the business card that is given to you.
In Indonesia, yes may not always mean yes, but instead it is used to make the other party happy and to show respect. Since saying no is considered as being impolite in Indonesia, you should not assume that when they say yes, you have an agreement.
Challenge 4: Failure to comply with tax deadlines
There are different deadlines for the tax payment and tax filings in Indonesia, and you must file and pay your taxes on time to avoid the penalties. You can avoid these mistakes by relying on Acclime’s tax services.
Indonesia tax deadlines
| Type of tax | Monthly payment deadline | Monthly filing deadline | Annual filing deadline |
| Corporate income tax | 15th of the following month | 20th of the following month | End of the 4th month after the tax year ends |
| Personal income tax | 15th of the following month | 20th of the following month | End of the 3rd month after the tax year ends |
| Withholding tax | 10th of the following month | 20th of the following month | – |
| VAT and LST | Before the VAT return filing deadline | End of the following month | – |
Tax penalties
| Circumstances | Penalties |
| Late reporting | IDR 500,000 for monthly VAT return; IDR 100,000 for annual personal income tax return; IDR 1,000,000 for annual corporate tax return; and IDR 100,000 for other monthly tax return. |
| Late payment | Calculated based on benchmark interest rate which will be determined by Minister of Finance on a monthly basis plus 5% and divided by 12. This penalty is capped for a maximum of 24 months. |
| Voluntary amendments of returns | Late payment penalty from this voluntary amendment will be the same with penalty for late payment as above, therefore you may want to combine these two points. |
| Issuing incomplete VAT invoice, or not issuing or late in issuing VAT invoice, or reporting VAT invoice not in accordance with the period of issuance of VAT invoice | 1% of the taxable base |
Criminal penalties
| Circumstances | Fines and imprisonment |
| Fail to submit a tax return though negligence; or submits an incorrect or incomplete tax return or attaches incorrect information | 1 – 2 times the tax underpaid or imprisonment from three months to one year |
| Does not register for tax identification number (NPWP) or as taxable entrepreneur; improper use of NPWP or taxable entrepreneur number; does not file a tax return; submits an incorrect or incomplete tax return; refuses a tax audit; does not remit taxes withheld or collected | 2 – 4 times the tax underpaid and imprisonment from six months to six years. The sentence will be doubled if you commit another criminal act in the taxation field before one year has passed |
| Misuses or uses without the right NPWP or taxable entrepreneur number, or submits an incorrect or incomplete tax return and/or information for restitution or compensating or crediting tax | 2 – 4 times the tax refund requested/compensated/credited and imprisonment from six months to six years |
| Intentionally issues and/or uses tax documents which are not based on the actual transaction; issues tax invoice but is not yet confirmed as a taxable entrepreneur | 2 – 6 times the tax amount and imprisonment from two years to six years |
Challenge 5: Business licenses
Some certain business industries require a business license to legally conduct business activities in Indonesia. If you do not secure a business license when a license is necessary for your business, the government may possibly close your business.
If your company engages in trading, goods or other services, you must obtain a business license.
Companies involving the manufacturing industry, excluding oil, gas and geothermal energy, should secure an industrial business license.
Construction companies need to acquire a construction business license and importing goods to Indonesia needs a general import license or produce import license.
Other licenses may include medical & BPOM distribution license, cosmetic distribution license, food & beverages distribution license and health supplement distribution license.
You can apply for a business license through the Online Single Submission (OSS).
Conclusion
To ensure you avoid the common challenges and pitfalls when starting a business in Indonesia, we recommend engaging with Acclime to establish your company smoothly.
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