Set Up Company In Indonesia

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Set Up Company in IndonesiaGreenLineXXS

Table of Contents

  • Investment profile of Indonesia company
  • Regulations for establishing an Indonesian company
  • Foreign investment approval level
  • Regulations for establishing a company in Indonesia
  • The main investment fields of Indonesian companies

 

Investment profile of Indonesia company

  • With a population of 240 million, Indonesia is the most populous country in Southeast Asia and the fourth most populous country in the world. It can provide rich labor resources for foreign investment. Indonesian is the common language and the official language, and English is the second language of Indonesia. Indonesian laws are promulgated in Indonesian and English. Many Indonesian officials and intellectuals speak English. English is widely taught in schools as a second language, but English is not widely spoken in society.

 

  • The Indonesian telecommunications industry has accelerated its development in recent years and is one of the fastest-growing markets in the world's telecommunications industry. As of the end of 2005, of Indonesia's 230 million people, there were 8.69 million fixed-line users, 46.98 million mobile phone users, and 15 million Internet users, with fixed and mobile phone penetration rates reaching 3.5% and 19%, respectively. The Indonesian government has gradually opened its telecommunications field since 2000. Telkomsel is the largest telecommunications company in Indonesia and Indosat is the largest foreign-funded telecommunications company. Indonesia has Internet access in most areas currently, but Indonesia has a smaller bandwidth and slow internet speed. It takes a long time to apply for broadband installation in areas such as Jakarta.

 

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Regulations for establishing an Indonesian company

  • Foreign investors set up companies in Indonesia. The local Indonesian government always welcomes foreign investment and implements an open policy. Indonesia ’s laws involving foreign investment include the “Foreign Investment Law”, “Foreign Investment Law” (revised version), and (The Government Regulation No. 20 of 1994) stipulates the equity of foreign investment: Indonesia ’s competent authority for investment approval is Indonesia Investment Coordinating Committee (BKPM) and local governments, a foreign-funded company can be established as a separate investment, that is, a foreign party can own 100% equity.

 

Foreign investment approval level

  • There are many registration procedures for investing and setting up companies in Indonesia, and the examination and approval process takes a long time. Although the Indonesian government revised the Investment Law and the Company Law in 2007 and improved related supporting measures, it has implemented a “one-stop” approval service to promote and attract foreign investment, but the implementation effect is still not satisfactory; Companies established in Indonesia can hire professional lawyers, notary law, investment consultants and other specialized personnel to handle the registration, but pay attention to selection and review to prevent defects in legal documents and procedures.

 

Regulations for establishing a company in Indonesia

  • Equity requirement

    (1) The shareholding regulations in Indonesia are relatively loose. The government allows foreign-invested enterprises to be established as sole proprietorships, that is, foreign parties can own 100% of the shares. For foreign investment projects invested in infrastructure, it is required to be established as a joint venture with the Indonesian side, and the Indonesian side should have at least 5% of the company's shares. Since September 1998, the Indonesian government has also removed the restriction that foreign capital should not exceed 49% of the shares of listed companies, allowing foreign capital to purchase such companies in full.

    (2) The Indonesian government has no regulations on minimum investment limits. According to the Indonesian Foreign Investment Law, the establishment of a foreign joint venture or wholly-owned enterprise in Indonesia is approved for a validity period of 30 years. If investment is increased during this period, the expanded project will be given an additional 30 years of operating period. The Indonesian share of the joint venture is not less than 5%. If the amount of investment is increased during this period (expansion of investment project), a 30-year operating period will be granted for the expanded project. Therefore, as long as the foreign-invested company keeps expanding its investment projects and reinvesting, it can continue to operate.

  • Tax regulations

Indonesia's taxation system is relatively complex, and the taxation costs of enterprises are relatively high. In July 2008, the Indonesian Parliament passed a new "Income Tax Law", which lowered corporate income tax and personal income tax rates. The new law will be implemented from January 1, 2009; the Indonesian tax law has tax incentives for small and medium-sized enterprises and other industries. Tax incentives, etc.

(1) The corporate income tax rate is 25% (according to the new "Income Tax Law", it can be paid within 6 years, that is, 15% per year.

(2) Accelerated repayment and depreciation.

(3) When dividends are paid, the income tax rate paid by foreign-funded enterprises is 10%, or according to the current double taxation agreement, a lower tax rate is used.

(4) Give a loss compensation period of more than 5 years, but not more than 10 years in the end.

(5) Tax incentives:
The investment tax incentives for foreign-funded enterprises are mainly reflected in three aspects:

  1. Import tax incentives: For newly built or expanded production scale (more than 30% of the installed capacity), foreign-funded or domestic-funded enterprises that produce similar products are exempted from import tax on imported machines, equipment, components, and auxiliary equipment for imported use. Imported raw materials are subject to a 2-year import tax reduction. Import tax rates higher than 5% are levied at 5%, and those below 5% are levied at the actual tax rate.
  2. Daily tax incentives: Including investment in certain industrial fields and regions, you can enjoy a 6-year 30% income tax relief and 10% dividend income tax relief.
  3. Preferential export enterprises: It includes the return of import tax on goods used for processing and re-export. The domestic materials used for processing and export are exempted from all additional taxes and sales taxes. The same priority of domestic raw materials can be taken into account when importing raw materials.
  4. Investment in the eastern part of Indonesia, land and buildings can enjoy 8 years of tax halving; investment in pioneering industries, corporate income tax can be borne by the government for 10-12 years. In addition, the government has granted some special preferential treatments to foreign investors in bonded areas and comprehensive development zones in 15 regions of the country.
  • Management system

(1) Solely owned enterprises have no restrictions on capital input, Indonesia has no control over foreign exchange, Indonesian currency can be freely converted into foreign currency, and profits from foreign investment can be remitted freely after tax. Foreign investors invest in Indonesia's processing industry, and products can be sold on the Indonesian domestic market.

(2) The Foreign Investment Law stipulates that foreign-funded enterprises are obliged to educate and train locals and require foreign enterprises to employ a certain number of locals and train local employees. Indonesia implements a regional minimum wage system for workers.

  • Landholding restrictions

Only Indonesians can own land ownership, and foreign companies can only own land-use rights. The residence for foreigners can have up to 25 years of homeownership, which can be extended once, but once leaving Indonesia, the ownership must be transferred within one year.

  • Scope of foreign investment: According to the Investment Law No. 25 of 2007

(1) Industries or areas where foreign or domestic investment is prohibited by Indonesian law include:

Various types of drug cultivation and processing, alcohol and alcoholic beverage production, explosives (firecrackers and fireworks) production, weapons and parts production, uranium mines and radioactive mine Mining, sponge mining, forest development, mahogany processing, and industries that are considered to endanger human health and damage the environment (toxic pesticides, toxic production processes, Freon refrigerants), etc.

(2) The areas where foreign investment is prohibited include rare species breeding, natural forest management, forest logging, public transportation, radio and television, news media, and movies.

(3) The industries or fields in which foreign ownership shall not exceed 95% include:

Infrastructures such as ports, power stations, communications, shipping, water supply, railways, nuclear power, and medical and health services (general hospitals, maternity hospitals, dental clinics, etc.), It is required that foreign capital must be joint ventures with domestic capital, with domestic capital accounting for at least 5%. Regular or irregular air transportation and foreign investment holdings in the telecommunications industry shall not exceed 49%.

(4) The industries or fields that are open with conditions (with permits) include:

Freshwater fishing and fish farming, marine deepwater fishing, the printing of securities (stamps, tax stamps, bank commercial promissory notes or passports, passports, etc.), etc.

 

The main investment fields of Indonesian companies

  • Agriculture, Forestry, and Fisheries:

Indonesia is a largely agricultural country with unique natural conditions, a humid and rainy climate, sufficient sunshine, and short crop growth cycles. The main cash crops are palm oil, rubber, coffee, cocoa, etc. In 2007, Indonesia's palm oil production reached 17.5 million tons, making it the world's largest palm oil producer.

  • Industrial manufacturing:

Indonesia's industrial manufacturing industry has more than 30 different types of departments, mainly textile, electronics, wood processing, steel, machinery, automobiles, pulp, paper, chemicals, rubber processing, leather, shoemaking, food, beverages, etc. Among them, textiles, electronics, wood processing, steel, machinery, and automobiles are important categories of foreign exchange earnings.

  • Mining industry:

Indonesia is rich in mineral resources and widely distributed. The mining industry has created considerable economic benefits for the development of Indonesia's national economy. It is an important channel for earning foreign exchange through exports, increasing central and local fiscal revenue in Indonesia, and has also made positive contributions to maintaining economic vitality, creating jobs, and developing regional economies. The main mineral products are coal, iron, nickel, aluminum, lead, zinc, tin, copper, and gold.