Indonesia

Ease of Doing Business Rank: 73

Overview

 

Geographic location

The Republic of Indonesia is an archipelagic country of 17,508 islands in Southeast Asia.

The Celebes Sea, Philippines, Malaysia and Brunei lie to the north, the Indian Ocean lies to the west, Australia to the south and Papua New Guinea and the Pacific Ocean to the east.

Spoken language

The official language of Indonesia is standard Indonesian, primarily used in commerce, administration, education and the media. While almost all Indonesians understand standard Indonesian, it is rarely spoken in casual conversations.

Javanese is the most widely-spoken language (32.28%), followed by Sundanese (16.08%) and Madurese (5.21%).

Population

The 2020 population estimate is 273.52 million.

According to 2015 data, Jakarta is the largest city (10.15 million), followed by Surabaya (2.8 million) and Bekasi (2.7 million).

Popular industries

The top industries in Indonesia are petroleum and natural gas, textiles, apparel, footwear, mining, cement, chemical fertilizers, plywood, rubber, food and tourism.

Education

The Times World University Rankings includes one university in Indonesia in the top 1,000 in the world.

The Legatum Prosperity Index ranks Indonesia’s educational system 88th out of 167 countries.

Popular entity types

The most common type of business entities in Indonesia are Indonesian Limited Liability Company, Foreign-Owned Limited Liability Company and Nominee Limited Liability Company.

Most businesses are in the form of Foreign-Owned Limited Liability Company and Nominee Limited Liability Company.

Indonesia incentives for business

Indonesia offers a foreign tax credit to offset tax paid or payable in foreign countries. Tax treaties may affect limits and the amount a company can credit against income earned.

Qualifying companies may also enjoy a 10% income tax rate on the excess between fair market value and tax book value on fixed assets. In some cases, businesses are also exempt from corporate tax for between five and 20 years, depending on the investment amount. Thereafter, companies receive a 50% CIT reduction for two years.

Qualifying pioneer companies investing between IDR 100 billion and IDR 500 billion also receive a 50% corporate tax reduction on their capital investment plan for 5 years and 25% for the following two years.

The country also offers tax concessions to qualifying limited liability companies in designated business areas and regions. These include a maximum reduction of 30% of net income prorated over 6 years, accelerated depreciation and/or amortization deductions, carry-forward of tax losses for up to ten years and a reduction of withholding tax.

Indonesia also offers tax reductions in Special Economic Zones that vary from five to 25 years and 20% to 100% depending on the investment amount and government discretion. Additionally, companies within SEZs are exempt from VAT, LST, excise and income tax on the importation of some goods.

Qualifying companies or individuals operating in an Integrated Economic Development Zone, Free Trade Zone or Entrepreneur in Bonded Zone enjoy similar incentives. Bonded Zones also provide access to warehousing, logistics, auction areas and more.

Indonesia also has several Industrial Zones that offer tax and customs incentives that depend on the classification of the Industrial Development Area (IDA).

History & Features

 

Main cities for business

Jakarta is the capital and financial center of the country. Bandung in West Java is known for its hi-tech and manufacturing industries. The port city of Surabaya in East Java is a strong industrial and trading region.

Popular historical & tourist attractions

Since Indonesia islands span the equator, it’s not surprising the country includes countless sandy beaches, warm waters and miles of tropical rainforest.

The country has nine UNESCO World Heritage Sites such as the Tropical Rainforest Heritage of Sumatra. It is home to many endangered species including the Sumatran orangutan, tiger, rhino, elephant and Malayan sun-bear to name just a few.

Another UNESCO site is Komodo National Park. It is home to approximately 5,700 ‘Komodo dragons’ that exist nowhere else in the world.

Tanjung Puting National Park in Borneo is home to the largest wild and semi-wild orangutan population in the world, as well as other primates, birds, and reptiles.

Bali is known for its spectacular beaches, lush landscape, sun, snorkeling, diving and countless waterfalls. Further inland you’ll find Ubud, the spiritual and cultural center of the island. It’s surrounded by rainforest and terraced rice paddies and dotted with holy sites, shrines, retreats and spas. The Sacred Monkey Forest found in the region is also home to over 700 long-tailed macaques.

Indonesia also sits on the Ring of Fire, an area with no less than 127 active volcanoes including Mount Sinabung that erupted in 2019. Mount Bromo is one of the most famous tourist attractions in Indonesia due to the incredible views from the caldera at sunrise. Mount Semeru is the highest peak in Java and Mount Krakatau still holds the record for the second largest eruption in modern history.

Pura Tanah Lot is an ancient Hindu pilgrimage temple that sits on a rocky outcrop over the sea near Bali. It is only accessible on foot at low tide and is one of the most popular sites for photos at sunset.

The impressive Buddhist Borobudur Temple in Central Java dates back to the 8th and 9th centuries. Spanning 2500 square meters over three tiers it symbolizes the spheres of Buddhist cosmology.

The capital of Jakarta includes important historical buildings, skyscrapers, and modern amenities. It is home to government, museums, monuments, nightlife, shopping, street food and international cuisine.

History

The earliest peoples in Indonesia arrived over 40,000 years ago. Later, the region traded with China and India and by the 8th century several great kingdoms emerged. South Sumatra was home to a great Buddhist maritime empire and the center of Buddhist learning. North Sumatra became an Islamic center.

By the 13th century, a Hindu kingdom rose to power and dominated most of Indonesia. However, by the beginning of the 15th century the empire declined.

The first Europeans arrived in the early 16th century. Portuguese seized the principle spice region in Indonesia to profit from the huge European demand for nutmeg, ginger, cinnamon, cloves and mace. They also enslaved the native Moluccas.

In 1595, the Dutch sailed to the ‘Spice Islands’. Throughout the 17th century they seized control of Java and the Moluccas, but not the rest of Indonesia.

By 1806, the British and Dutch were at war and by 1811 the British had captured all Dutch territories in Indonesia and abolished slavery. However, Indonesian territories reverted to the Dutch in 1814 due to a treaty after the end of Napoleonic Wars.

The Java War began in 1825, pitting colonial Dutch against native Javanese rebels. The war ended in Dutch victory in 1830. They extended their control over other parts of Indonesia and had a monopoly on sugar and other commodities.

By 1870, the Dutch allowed private plantations with Indonesians working the fields and a free market system. Later, they introduced an ethical policy which improved working conditions, healthcare and education for some Indonesians. By the early 20th century, nationalism and the call for independence were strong.

The Japanese invaded Indonesia during World War II and the Dutch surrendered in 1942. When Japan surrendered in 1945, Indonesian nationalists seized power and declared the country’s independence. However, the Dutch wanted to reclaim the territory. By 1946, many troops occupied the region.

Later, the Dutch and Indonesians signed an agreement recognizing a new republic in Java and Sumatra, but the Dutch retained the remainder of Indonesia. However, the Dutch unsuccessfully attempted to retake the independent regions in 1947. They met strong Indonesian resistance and international criticism, especially from the U.S.

They unsuccessfully tried to take Indonesia again in 1948. In 1949, they withdrew and recognized Indonesian independence.

During the 1950s and 1960s Indonesia was first governed by a parliamentary democracy, then a guided democracy and finally a dictatorship. The country stabilized under the dictatorship and eventually oil became a driving economic factor. Agricultural production also improved. Recession in 1997 led to unrest and the overturn of the dictatorship. Indonesia returned to democratic elections in 1999.

Today, Indonesia operates as a democratic constitutional republic. It is one of the largest emerging market economies in the world and the largest economy in Southeast Asia.

Other relevant facts

According to 2010 data most Indonesians identify as Javanese (40.1%), followed by Sundanese (15.5%), Malay (3.7%), Batak (3.6%), Madurese (3%), Betawi (2.9%), Minangkabau (2.7%), Buginese (2.7%), Bantenese (2%), Banjarese (1.7%), Balinese (1.7%), Acehnese (1.4%), Dayak (1.4%), Sasak (1.3%), Chinese (1.2%) and other (15%).

The 2010 Indonesian census reports most Indonesians identify as Muslim (87.18%), followed by Protestant (7%), Catholic (2.91%), Hindu (1.69%), Buddhist (.72%), Confucianist (.05%) and other or unstated religion.

Additional Information for Business

According to Forbes’ 2019 Best Countries for Business, Indonesia is the 60th best country in the world for conducting business.

The 2019 Index of Economic Freedom rates Indonesia 56th globally and states, “Remaining constraints include an inflexible labor market, long-standing protectionist rules governing trade and foreign investment in extractive sectors, and subsidies to numerous state-owned enterprises. Improvements in the legal and regulatory framework would strengthen the rule of law.”

World Bank’s “Doing Business” rankings rate Indonesia 73rd for ease of doing business in the world.

Indonesia Entity Support Services by Blueback Global

Blueback Global provides a one-stop integrated solution to managing all aspects of your global operations. We can take the burden off you or your company’s internal resources by managing Entity Setup, Local Payroll, Accounting, Tax Reporting, HR Admin and Regulatory Compliance matters associated with operating in a foreign country. Our services are designed to be flexible and customized, so whether you are starting from entity registration, or have already registered but need support in setting payroll or hire employees, we can help at every point of the process.

The common scenarios that may give rise to the need for Blueback Global’s services include the following:

With our integrated approach, you can expect the following experience:

We have an initial complimentary meeting to discuss the scope, objectives and plans for your expansion plan into Indonesia. After this meeting, you can expect a follow-up proposal from Blueback Global within 1 to 3 business days, that outlines that the approach, scope of work and expected deliverables and outcome. Thereafter, our implementation team will then work closely with your team to register the local entity, set up payroll, accounting process, employee social security and benefits. We will then develop a mutually agreed timeline and approach for ongoing payroll, accounting, tax reporting and HR support. Blueback Global will set up a compliance calendar so that you know exactly what and when compliance items such as tax reporting and payroll returns are due. We will of course facilitate all of these, so you do not have to keep track of the compliance dates.

Our goal is to make the process as smooth, simple and successful as possible, and remove the anxiety of operating in a foreign location, to deliver a great customer experience.

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