Indonesia, the largest country in South East Asia by landmass, economy and demography, is a really promising country to start business. Not to mention Indonesia is part of G20, a group of countries that lead the world economy based on their share of Gross Domestic Product (GDP) showing this middle nation potency of their economy. Furthermore, Indonesia in 2022 successfully held G20 Presidency amidst the recovery over the Covid-19 Pandemic and under threat of global instability. Thus, it is proven that Indonesia is resilient and will recover soon enough through both external and internal obstacles to maintain its business. In 2020, according to World Bank Group shows that Ease of Doing Business in Indonesia is rank 73 with score 69,6 sampling from Jakarta and Surabaya covering 9 topics.[1]
Economy
To be more precise, Indonesia’s economy shown by GDP during the pandemic is astonishing. Although starting slightly negative or decreased by 2,07% at first in 2020 as a result of the shockwave of pandemic strike, the bounce back of 3,7% increase in 2021 and even more breath-taking in 2022 with 5,31% growth of GDP back to its average annual growth rate. Shows it as it never decreased in the first place. Meanwhile most of other G20 countries’ GDP growth spread under 5% due to recovery from pandemic.[2] Although not being recognized as a developed nation yet, Indonesia has been revoked the status of developing nation by the United States in World Trade Organization due to its increase of GDP Per Capita. Still growing behind its ASEAN peers, Brunei, Singapore, Malaysia and Thailand, Indonesia GDP Per Capita in 2022 is 4.783,9 USD head-to-head with Vietnam but still above Philippines, Laos, Cambodia and Myanmar.
Demography
The GDP Per Capita might infer that Indonesia society may be counted as a middle-income nation as it also showed the rapid growth of Indonesia middle income class. From around 275 million populations, it is estimated that more than 75% are middle income class either upper, true middle, emerging or aspirant. This middle-income class having average of monthly spending between 1.000.000 IDR or 65 USD to 5.000.000 IDR or 325 USD.[3] This class is mainly chosen as target of business not only because of they are dominant in Indonesia’s market share, they are also characterized for being consumptive with their capability to afford things.[4] Another insight, amongst Indonesian population is young population that been called as Millennials, Gen Z and Post Gen Z that amounts up to 64% of total population. [5] This Generation will lead the Indonesian Economy for next years to decades forward, therefore it will be better to start a business that is related to this generation for making the business sustainable in the future. This generation is parallel with the enhancement of technology and they are really used with gadgets as well as social media, sometimes called digital native. This means that business that have been digitized will be related to Indonesia’s future economy.[6]
Start Business in Indonesia by Legal Type
For starting business in Indonesia, there are three main legal types as follows:
- PT PMA (Perseroan Terbatas Penanaman Modal Asing): A foreign-owned limited liability company or Foreign Direct Investment that is wholly or partly owned by foreign entity. The following documents must be submitted to BKPM to start PT PMA in Indonesia:
- Principle license and business license
- Domicile letter
- Article of Association
- Deed of establishment
- Approval of Business Registration Number (NIB)
- Tax identification number (NPWP)
- Taxable entrepreneur confirmation (PKP)
- Company welfare report and manpower report
- Proof of deposit of capital requirement (IDR 10 billion) and paid-in capital at least 25%
Other Requirement:
- Minimum Two Shareholder: one of them is foreign citizen
- Not allowed to perform in SME but allowed to be a partner of SME
- Must operate in one of 2021 positive investment list
- Must prioritize local workforce although still allowed to hire foreign special
- Must carry out transfer of knowledge or technology
- Providing Health Insurance
- PT PMDN (Perseroan Terbatas Penanaman Modal Dalam Negeri): A locally-owned limited liability company, the requirement documents mostly the same but the differences are minimum paid-in capital from 50 million IDR to 10 billion IDR and have to be owned by 100% local shareholders. Therefore, Foreign entities must have a reliable special purpose agreement with local shareholders or the listed local owner and no one else can purchase shares in the company’s stock without foreign entity’s approval. [7] PT PMDN also has wider option of investment type in the 2021 positive list unlike PT PMA and has no limitation to operate in SME scale.
- Branch or Representative Office (RO): Its main purpose is limited to coordinate, supervise, organize and represent the parent company while also preparing the development and establishment for the main company. Following requirements to establish RO:
- Provide the Articles of Association of foreign company representatives
- Photocopy of passport for foreign nationals and KTP for Indonesian citizens as executive representatives
- Statement of willingness to settle down and work to the executive representative, and not run other businesses
- Letter of appointment of foreign company submitted
- Power of Attorney if the application is not submitted by a foreign company
The Requirement of Supporting Documents
Requirement for Deed of Establishment:
- The Company’s name and domicile;
- The purpose and objectives and Company business field;
- The company’s period of incorporation;
- The amount of authorized capital, subscribed capital, and paid-up capital;
- The number of shares, classifications of shares if any including the number of shares for each classification, the rights attaching to each share and the nominal value of each share;
- The name, position and number of members of the Board of Directors and Board of Commissioners;
- The determination of the place and procedure for holding a General Meeting of Shareholders (“GMS”);
- The procedures for the appointment, replacement, and dismissal of members of the Board of Directors and Board of Commissioners;
- The procedure for the use of profits and allocation of dividends.
Requirement of NIB:
- Deed of establishment
- Approval from the Ministry of Law and Human Rights
- Tax identification number (NPWP)
As integrated business service in indonesia, TBrights will assist you in starting business in Indonesia
By Tommy HO – Managing Partner TBrights
[1] https://www.doingbusiness.org/content/dam/doingBusiness/country/i/indonesia/IDN.pdf
[2] https://jakartaglobe.id/business/indonesias-economic-growth-beats-most-g20-countries-minister
[3] https://www.finansialku.com/siapa-saja-kelas-menengah-indonesia/#
[4] https://www.simulasikredit.com/perbedaan-kelas-bawah-vs-kelas-menengah-vs-kelas-atas-di-indonesia/
[5] https://www.bps.go.id/indicator/6/715/1/jumlah-penduduk-usia-15-tahun-ke-atas-menurut-golongan-umur.html
[6] Marc Prensky (2001, 5 Oktober) Digital Natives, Digital Immigrants, On the Horizon, MCB University Press.
[7] https://iglolaw.com/starting-a-business-in-indonesia/
