• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
DOING BUSINESS IN INDONESIA
A SHORT-FORM BUSINESS PROFILE
 
INTRODUCTION
Indonesia is the largest country in South EastAsia and the world’s largest archipelago.The entire archipelago has a total land area of about 2 million square kilometers and has13,667 islands, of which around 6,000islands are inhabited. The main islands areJava, Sumatra, Kalimantan, Sulawesi andIrian Jaya.The country has 30 provinces with Jakarta asthe capital city and the main business centre.Indonesia has a population of about 200million people, of which around 55% live inJava. The official language is called “BahasaIndonesia” but English is widely used in the business community.Indonesia is rich in natural resources with oilas its main source of revenues. The countryis Asia’s largest oil producer and the onlyOPEC member in the region.
FOREIGN INVESTMENT
The foreign investment in Indonesia issupervised by the Investment CoordinatingBoard (BKPM) and is governed by theForeign Investment Law No. 1 of 1967 asamended by Law No. 11 of 1970.In line with its desire to stay competitive inthe global market and to more seriouslyattract foreign investment, the Indonesiangovernment issued recently importantderegulation packages on foreign directinvestment (FDI). This action of thegovernment is considered a very significantstep towards a more conducive and attractiveinvestment environment in Indonesia. Amongthe new investment deregulation measures areas follows:(i)Foreign parties are allowed to own100% of the issued capital of anIndonesian company, apart from thosecompanies whose business activities arecategorized as important to the Stateand public in general, where foreigninvestment is limited to 95%.(ii)There is no more prescribed minimumamount of capital required to beinvested in an FDI company.(iii)The foreign shareholders are no longer required to sell down their capital in a100% foreign-owned FDI company to aminority position at some future time.The 100% foreign-owned FDI companyis only required to sell at least a part of its shares to Indonesian citizens or entities within a maximum of 15 yearsafter the start of commercialoperations.(iv)The business activities of an FDIcompany can now be located anywherein Indonesia, with the proviso thatfactories must be established in areaszoned for manufacturing.(v)The legal life of an FDI company has been extended by allowing the renewalof the operating license for anadditional 30 years, after a 30-year initial operating period.The FDI company may be established in theform of joint venture between foreign capitaland domestic capital
 
owned by Indonesiancitizens or entities; or straight investment, inthe sense that 100% of the capital is owned by foreign citizens or entities.BKPM has the list of sectors that are closedfor foreign investment. Such list is known inIndonesia as the “Negative List”. The Negative List is not applicable to portfolio
Drs Johan, Malonda & RekanPublic Accountants & Management Consultants
 
2
investment, where the purchase of shares of the existing company is carried out throughthe domestic stock exchange.
(The Negative List can be acquired from the BKPM office or through our Jakarta office, Johan, Malonda & Rekan).
INVESTMENT TAX FACILITIES
a.
Investments conducted under the
foreignor domestic capital investment scheme
(PMA and PMDN) may enjoy certain taxfacilities if conducted in certain line of  businesses or in certain areas.The
tax facilities
are as follows :
•
Reduction in net income of up to amaximum of 30% divided over 6years, from investments made.
•
Accelerated depreciation andamortization.
•
Carried forward losses of more than5 years up to a maximum of 10years.
•
Income tax on dividends of 10%,except when the tax treaty states alower rate. b.
Bonded Zones
Companies operating in bonded zonesmay enjoy the following facilities :
•
Postponement of 
import duties
•
Exemption from
Value Added Tax
and
Luxury Sales Tax
•
Exemption from import withholdingtax (Income tax article 22)
•
Exemption from excise dutiesc.
Integrated Economic DevelopmentZones (KAPET)
Companies operating and domiciled inKAPET zones may enjoy the followingfacilities :
•
Reduction in net income of up to amaximum of 30% divided over 6years from investments made,commencing commercial production.
•
Accelerated depreciation andamortization.
•
Compensation of carried forwardlosses for up to a maximum of 10years.
•
Income tax on dividends of 10%,except when the tax treaty states alower rate.d.
Companies operating in bonded zoneslocated in KAPET zones
enjoy thefacilities of both zones.e.
Venture Capital
Income received by a venture capitalcompany from its venture business partner is exempted from tax provided :
•
The venture business partner is asmall or medium sized company, or it is engaged in the business sectorsdetermined by a Finance Minister decree.
•
Its shares are not traded in the Stock Exchange in Indonesia.
Drs Johan, Malonda & RekanPublic Accountants & Management Consultants
 
3
f.
Pension Fund
Income received by a Finance Minister approved Pension Fund frominvestments in certain businesses asdetermined through a Finance Minister decree is exempted from tax.g.
Mutual Fund
Interest income from bonds received by aMutual Fund Company during the firstfive years of its operations sinceestablishment or the obtaining of anoperating license is exempted from tax.
EXCHANGE CONTROL
Indonesia has no foreign exchange control.FDI companies are required to report on therealization of investment. Indonesiacompanies and individuals receiving loansfrom overseas must report to Bank Indonesiafor statistical purposes.Money transfers of USD 10,000 and abovemust be reported to Bank Indonesia.
BANKING AND FINANCE
Bank Indonesia (BI), the central bank of Indonesia, controls the entire banking systemof the country. BI’s main functions are toissue monetary policy, supervise and regulatethe banking sector, and act as the lender of last resort to the banking system. Thecompanies in Indonesia are allowed by thegovernment to obtain loans in foreigncurrencies from domestic or offshore banks or  both.Presently, there are 146 banks operating inIndonesia, comprising 28 state commercial banks, 84 private commercial banks, and 34 joint venture foreign banks. All these banksoffer a wide range of banking services.There are also several private-owned rural banks (Bank Perkreditan Rakyat or BPR)operating all over the country. BPRs alsooffer various banking services but in a limitedscale. Non-bank financial institutions such as multifinance and leasing companies are also theother sources of financing in Indonesia.Credit and charge cards, both local andinternational, are widely used in almost allmajor cities in the country. Visa,MasterCard, American Express and Dinersare among the commonly used internationalcards.
TYPES OF BUSINESSENTERPRISE
-
Limited Liability Company
A limited liability company is called“Perseroan Terbatas” or PT. This typeis the most common used for commercial purposes and is classified as privatecompany or public company (withshares of stock listed in the stock exchange). Presently, all PTs aregoverned by the “1996 CorporationLaw”. Public companies are beingsupervised by the Capital MarketSupervisory Board (BAPEPAM). TheCorporation Law requires that a PTmust have at least two shareholders.To establish a PT, the Articles of Association should be prepared andnotarized and submitted for approval bythe Ministry of Justice and HumanRights.-
Representative Office
A Foreign Representative Office isnormally formed to act as facilitator of  business transactions between localsuppliers/buyers and foreign buyers/suppliers.
 
As such, it can perform as a liaisonoffice, act as quality inspectors andfacilitate the preparation of import andexport documents. However, aRepresentative Office is not allowed to perform operational activities such as
Drs Johan, Malonda & RekanPublic Accountants & Management Consultants
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...