Why doing business in Indonesia?
With bold and rapid economic growth in the near future is forecast to feature more inclusive expansion, with nominal per capita GDP predicted to increase fourfold over the next couple of years, according to a report from Standard Chartered PLC. Politically stable, economically strong and reform orientated, Indonesia is a developing global player and an Asian country that merits attention for an investor to doing business — irrespective of the sector. You may also see this as an opportunity to invest in Indonesia.
Nonetheless, in spite of its’ impressive economic figures, Indonesia faces obstacles that stunt private sector prosperity. For companies wanting to cash in on its’ high levels of growth and rosy economic future, obtaining local assistance can be well worthwhile.
The IFC (International Finance Corporation) and World Bank have given Indonesia a ranking of 166 for ease of doing business. This underlines the stringent procedures involved in getting started. In comparison to the average of five procedures reported by the OECD, nine procedures are required to set up a corporation in Indonesia, with an average of forty-seven days to complete. Companies have to consult the Human Rights and Law Ministry, the Manpower Ministry and the State Treasury, and complete a number of registrations.
1. Obtaining Permits for Construction
The first obstacle to doing business in Indonesia is construction permits take 158 days on average to obtain and involve thirteen procedures. The Department for Zoning has to be contacted and numerous certificates have to be obtained, prior to registering with the regional trade and industry office and the building and land tax office.
2. Acquiring Electricity
There’s a huge expense linked to acquiring electricity, much bigger than the average reported by the OECD. The primary expense is in acquiring a JIL (Guaranteed Electrical Installation) certificate and an SLO (Operation Worthiness) certificate from the AKLI (Electrical Contractors Association in Indonesia), however final connection and external works can be an expensive endeavour too.
3. Property Registration
Twenty-two days and six procedures are required to register property. This involves getting a land examination certificate and paying acquisition tax. As before, the property registration cost is much bigger than the average reported by the OECD.
4. Obtaining Credit
The IFC and World Bank have given Indonesia a ranking of 129 for ease of obtaining credit, however, there’s plenty of measures being taken to restore its credibility. Government studies discovered that giving creditors more legal rights, by enhancing the asset focused system of lending and advocating a system of property registration, improves the credit situation.
5. Safeguarding Investors
Safeguards for investors are fairly good in Indonesia, and they are ranked in the top fifty worldwide. The authorities continue to acknowledge and protect the property rights of domestic and overseas investors, who have not been subject to expropriation action recently. The investment legislation of 2007 promoted this policy by opening large economic sectors to international investors for doing business in Indonesia.
6. Paying Tax
Every year, a huge fifty-one tax payments are required, which takes companies an average of 259 hours to sort out. The twenty-five per cent corporate income tax has a seventy-five hour processing time, and VAT and social security contributions account for an additional 184 hours.
7. Cross Border Trading
By and large, Indonesia is dependent on worldwide trade, so the cost of exporting and importing goods is fairly low. It is much less expensive to do cross border trade, compared to elsewhere in East Asia and the Pacific, however, clearing containers for transportation can be a lengthy and bureaucratic process in doing business in Indonesia.
8. Insolvency Resolution and Contract Enforcement
Contract enforcement requires 498 days and costs a lot of money. Insolvency cases follow the same trend, where five and a half years is the average processing time, and the rate of recovery is a mere 14.2 cents per dollar. This compares to the norm of 70.6 cents reported by the OECD.
Conclusion
Investing and doing business in Indonesia is considered a good opportunity for foreigners. However, you may face challenging obstacles that we already sum up in the paragraph above while doing so. If you have more questions about doing business in Indonesia that we don’t address in this article, feel free to ask questions by filling this form or contact us directly via anita@permitindo.com. Our team will reach to you after.
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