INDONESIA

by HuiMin

Country Background

• Indonesia with a population of more than 230 million and a rapidly growing economy.
• It is the world’s fourth most populous country, a continent-sized archipelago of 17,000 islands across three time zones.
• It is the third largest democracy in the world, with more Muslim citizens than any other state.
• It is the biggest economy in South East Asia and predicted to be the seventh largest in the world by 2050.  An increasingly affluent middle class numbers 45 million and growing.  
• It is also estimated to be the third largest carbon emitter in the world, mainly from deforestation.
• Thirteen years after the fall of Suharto, Indonesia is one of the most stable, open democracies in Asia, with a vibrant free press and active civil society, and an economy rapidly approaching investment grade as it grows at around 6% p.a.  
• By 2015 Indonesia could be a middle-income country with an average per capita income of $4,000pa, a beacon of democratic stability in Asia.
• Poverty remains widespread:  over 100 million people live on less than $2 per day.  
• Economic crisis could still lead to breakdown of civil governance or a return to autocratic structures.There is an underlying risk of radicalization which would be exacerbated by economic pressures.
• Health and education provision is poor, as is infrastructure (energy, roads, ports etc).  
• Indonesia continues to suffer from corruption, weak institutions and erratic rule of law.  
• Maintaining competitiveness and achieving the double-digit growth many see as necessary for real take-off will be a real challenge.  
• Growth depends on exploitation of Indonesia’s huge natural resources, and does not easily balance with the nation’s ambitious goal to reduce carbon emissions by 26% from business as usual by 2020.

Major Challenges

• Inequality
• Poverty rate is higher in outer island
• Poor state of its infrastructure
• Lack of a robust financial sector
• Decentralization law causes uneven growth and satisfactions partially
• Inflation
• Reasons:
• political turmoil (between 1964-1967)
• the decrease of oil price that reduced its export revenue dramatically (during mid-1980s);
•  widening gap among several Indonesians (during 1989-1997);
• Asian finance crisis (in 1998);
• or affected by the global fluctuation and domestic market competition (in recent years)
• As of 2010, the inflation rate was approximately 7%, when its economic growth was 6%
• Others
• The democratization process in the first half of the decade
• Disaster reconstruction and prevention
• Its difficult geography, with 238 million people spread across more than 17,000 islands.

Major Opportunities

• Important opportunities exist in mining and agribusiness equipment and services.
• The aircraft market favors U.S. products. Aircraft, replacement parts and service are valuable and significant markets.
• Telecommunications technology and satellites remain excellent areas for American products and services.
• The expansion of banking to previously under-served customers offers software and systems opportunities.
• Education and professional training, research, medical equipment and high-quality American agricultural commodities all retain their market edge even with premium prices.
• Emerging opportunities include palm oil biofuel processing and refining.
• U.S. franchises continue to attract Indonesian demand.
• Growing markets include: renovation and construction of regional and municipal infrastructure and water systems, military upgrading, safety and security systems and protection of sea-borne traffic.

Doing Business in Indonesia

No.	Procedure	Time to Complete	Associated Cost
1.	Obtain the standard form of the company deed; arrange for a notary electronically; obtain clearance for the Indonesian company's name at the Ministry of Law and Human Rights.	4 days	included in procedure 3
2.	Notarize company documents before a notary public	4 days	IDR 2526816
3.	Pay the State Treasury for the non-tax state revenue (PNBP) fees for legal services at a bank	1 day	IDR 200,000 (name check) + IDR 1,580,000 non-tax state revenue (PNBP) fees for legal services
4.	Apply to the Ministry of Law and Human Rights for approval of the deed of establishment	7 days	included in procedure 3
5.	Apply at the One Stop Service for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) and the company registration certificate (Tanda Daftar Perusahaan/TDP)	15 days	IDR 500,000 (TDP)
6.	Register with the Ministry of Manpower	14 days	no charge
7.	Apply for the Workers Social Security Program (Jamsostek Program)	7 days (simultaneous with previous procedure)	no charge
8.	Obtain a taxpayer registration number (NPWP) and a VAT collector number (NPPKP)	1-2 days (simultaneous with previous procedure)	no charge

 

Using an agent/distributor

• To appoint an Indonesian agent or distributor pursuant to Ministry of Trade (MOT) Regulation No. 36/1977.
• The registration of an Indonesian agent or distributor with the Directorate of Business Development and Company Registration at the MOT is mandatory under MOT Regulation II/M-DAG/PER/3/2006.
• Indonesian law allows the severance of an agency agreement only by mutual consent or if a clause permitting the severance is contained in the original agency agreement.
• A trial agency period of at least six months is generally written into agency contracts. 
• A separate agreement is signed between the expatriate personnel and their foreign employer to regulate this relationship.
• The tax liability of the foreign firm is limited to the income of the expatriates assigned to the representative office, while any other taxes are assessed to, and borne by, the agent.
• Types of management agreements include:
• Technical assistance agreements: limits the foreign firm's function to providing technical assistance to the Indonesian company
• Management agreements: allows the foreign firm to manage the company or a division within the company
• Management agreements coupled with financial agreements: either under the name of the Indonesian company or a division thereof
• Remuneration to the foreign company can be in one of the following forms:
• fixed fee
• commission
• profit-sharing
• Whatever basis is used for remuneration, it must be formulated clearly in the agreement, and it must comply with current Indonesian laws.

Establishing an office

• Appointing agents and/or distributors (without the need for your own presence in Indonesia)
• Setting up a representative office
• It can be established depending upon the line of business and the necessary licenses issued by the related government department.
• It allows you a legal presence in Indonesia, but it is not allowed to undertake business transactions or receive sales payments in Indonesia.
• Set up primarily for marketing, market research, or as buying or selling agents.
• Most businesses quickly find the Representative Offices very limiting. It's often more time and cost effective to form an Indonesian company right from the start.
• After the business starts to grow, apply for a Foreign Direct Investment Company (FDI) status or most prefer to establish a full-fledged company such as limited liability or PT(Perseroan Terbatas):
• Referred to PMA (Penanaman Modal Asing)
• Other business forms, such as CV and UD, are reserved for Indonesians only.
• Entering into technical assistance or licensing agreements
• Forming joint venture operations
• Establishing a 100 % foreign-owned subsidiary

Joint ventures/licensing

• Advantages of an Indonesia Joint Venture
• A foreign investor can draw on the local market knowledge, business network and expertise of its Indonesian joint venture partner.
• The Indonesian Joint Venture partner benefits from the expertise and technology of its foreign partner.
• Not required to rent premises in Indonesia
• Can obtain a 30-year business license
• Healy Consultants can open global corporate bank accounts to support your Indonesia Joint Venture.
• Disadvantages of an Indonesia Joint Venture
• A foreign investor does not have full control of an Indonesia Joint Venture, which requires an Indonesian citizen to hold at least 5% of the company.
• Requires a minimum of two directors and shareholders, whose details appear on a public register.
• The minimum issued share capital = 50 million rupiah (US$5,400)
• Required to submit an annual tax return and audited financial statements to Indonesian authorities.
• Requires a registered office and company secretary. Healy Consultants Indonesia office will act as your registered office and company secretary.

Electronic commerce

• Still low growth/unsaturated of Internet penetration
• Unsophisticated payment systems and low broadband penetration
• But domestic and international companies are positioning themselves for a hoped-for boom in the largely untapped market
• People’s level of knowledge about internet itself is still developing
• Jakarta counts for a bigger proportion (compare to other places) as
• It has a better infrastructure and the consumer in.
• It already known about e-commerce sites and the process of buying goods online.
• The most visited e-commerce sites:
• Facebook
• Twitter
• Kaskus
• a  local site
• an online forum with the biggest member in Indonesia has facility for its members to buy goods online and also provides service for sellers to sell their merchandises

Openness to Foreign Investment

•  Its investment climate continues to be characterized by
• legal uncertainty
• economic nationalism
• incompatible influence of business interests seeking control and ownership of existing enterprises and new market opportunities
• Foreign companies are sometimes compelled to do business with local partners and to purchase goods and services locally.
• In 2007, Indonesia introduced a new investment law intended to provide improvements in transparency, as well as arrange of investor protections, including
• non-discriminatory treatment
• protection against expropriation
• recourse to international arbitration in disputes against the government
• New law significantly
• increased the number of sectors in which foreign investment is restricted
• increased foreign equity limitations in sectors of interest to U.S. investors
• in telecommunications, pharmaceuticals, film and creative industries, and construction
• In 2010 Indonesia issued long-awaited changes to its negative list delivering legal clarifications alongside limited liberalization.
• Clarifications includes:
• protections from retroactive implementation
• promise a continuous review of closed sectors for increased market access
• Revisions includes:
• some modest changes to investment limits for individual sectors
• Several ministries have issued have issued decrees that introduce additional new investment restrictions in their respective sectors, listed:
• The Ministry of Communications and Informatics
• The Ministry of Health
• The Ministry of Culture and Tourism
• Law 13/2010 contains restrictions on foreign investment in the horticulture sector
• Foreign firms will be limited at 30 percent ownership.
• Firms that currently have more than 30 percent will be required to divest to that level.
• The GOI and in particular the Corruption Eradication Commission,
• which coordinates anti-corruption efforts
• has the authority to investigate and prosecute high-level corruption cases, continues to address the widespread corruption problem in the country
• Still, foreign companies continue to report corruption-related difficulties in Indonesia, including
• demands for unwarranted fees to obtain required permits or licenses
• expedite processes
• or to compete for government awards of contracts and concessions

Right to private ownership & establishment

Indonesia recognizes the right to private ownership and establishment and relies on the private sector (albeit often heavily protected), as the principal engine of economic growth. At the same time, State-owned Enterprises (SOEs) play a dominant role in many sectors, including oil and gas retail and distribution, electric power generation and transmission, civil aviation, banking, and fertilizer production and wholesale distribution. In the past three years Indonesia promoted competition in some sectors and has decreased the privileges awarded to SOEs. The Parliament formed the State Ministry for SOEs in 1998; privatization is an important part of its mandate, but political opposition has effectively hindered attempts to privatize. Some provincial governments have improved management and transparency of provincially owned firms (BUMD's) to stem losses and prepare them for privatization

Business customs

• Avoid coming during July and August since school summer and national holidays fall during these months
• Avoid arranging business meetings in Indonesia 2 weeks prior to and 2 weeks following the Idul Fitri holiday.
• For your business contacts, Indonesians like to avoid confrontation and disharmony. One should not lose one's temper or show emotion.
• Certain gestures that Indonesians consider offensive and discourteous as listed below:
• Not use the left hand in receiving or eating.
• Under no circumstances should one touch or extend any part of the body over an Indonesian's head; the head is considered the most sacred body part
• Never allow the bottoms of your feet/shoes to be visible by others.
• Indonesians do not conduct business contractions or make decisions in the same direct fashion as Americans. Therefore, U.S. business people should be prepared to spend a good deal of time with clients before settling the business transaction. Patience is the key.
• The word "no" is rarely used. Exchanging small gifts is common practice for business or social visits.
• During such occasions, tea or coffee is almost always served and should be accepted. It should not be drunk, however, until the host invites you to do so.
• Indonesians do business with "friends", people whom they know, so developing a rapport is crucial. While quality and price are important, they are secondary to the personal interaction of the business partners.

Local time, business hours, & holidays

• Commerce
• 08:00-17:00 Mondays to Fridays*
• 08:00-13:00 Saturdays (some may take Saturday off)
• Government
• 08:00-16:30 Mondays to Fridays*
• *Moslems are released for prayers every Friday from 1200-1300
• Banks
• 09:00-15:00 Mondays to Fridays*
• Shops
• 09:00-22:00 Mondays to Sundays

When making a business trip, do not expect to schedule meetings for Friday afternoons or Saturdays.

Fact facts

	Indonesia
Population	Estimated at 237,424,363 in 2011
Capital	Jakarta
Area	-  Land : 1,919,440 km2 ; 735,355 sq mi    -  Water (%) : 4.85
Ethnic groups	Javanese 45%, Sundanese 14%, Madurese 7.5%, coastal Malays 7.5%, other 26%
Religious	Islam (86.1%), Protestantism (5.7%), Catholicism (3%), Hinduism (1.8%), Buddhism (about 1%), and Confucianism (less than 1%).
Major language	Bahasa Indonesia, English, Dutch, Javanese, and other local dialects
Monetary unit (currency)	-Rupiah (Rp) and 1Rp = 100 sen. -Bills come in denominations of Rp 100, 500, 1000, 5000, 10,000, 20,000, 50,000 and 1,00,000. -Coins come in denominations of Rp 5, 10, 25, 50 and 100.
Major industries	Agriculture, Fishing, Food Processing, Forestry, Mining, Oil and Gas Production and Refining, Textiles, Transport Equipment, Tourism.
Major export	Crude Oil, Coffee, Fish Products, Natural Gas, Refined Petroleum Products, Rubber, Tea, Timber, Tin , electrical appliances, textiles and other Metal Ores, Tobacco.
Major imports	- machinery and equipment - chemicals -fuels -foodstuffs
GDP (Gross domestic product)	$1.105 trillion
GDP per capita	$4,657