What makes Indonesia a promising destination for investment?

Indonesia is the fourth most populous country in the world with the young workforce and a large and growing domestic market due to the demographic bonus, making Indonesia one of the world’s leading economies.

As the only G-20 member in Southeast Asia and an active voice to develop world concerns, Indonesia plays a more significant role in the global stage. Standard Chartered foresees Indonesia’s entry into the G-7 by 2030 and projects that the Indonesian economy could become the 10th largest by 2020 and the 5th largest by 2030.

Being the world’s 3rd largest flourishing democracy with the largest Muslim populations, Indonesia has a stable policy situation with high commitment to implement structural reforms. Worldwide Governance Indicators Survey conducted by the World Bank indicated that Indonesia has improvements in several indicators such as Government Effectiveness, Regulatory Quality, and Control of Corruption.

Indonesia’s economic growth which continues to rise along with the improvement in investment climate has upgraded Indonesia’s ease of doing business rank from 91 to 72 by 2018. In addition to that, Indonesia has leaped to the fourth place, from previously on the eighth place, as a prospective investment destination 2017-2019 based on the survey by the United Nations Conference on Trade and Development (UNCTAD).

Indonesia has abundant of natural resources. It also has the second highest biodiversity level in the world after Brazil. Aside from the flora and fauna, Indonesia is home to many ecosystems. From beaches, small islands, coral reefs, seaweed beds, sand dunes, tidal flats, coastal mud, mangroves, and others make Indonesia the most attractive place for investment, especially in the tourism sector.

How is the global perspective on investing in Indonesia?

I want to invest in Indonesia. What are the basic things I should know first?

To establish a foreign direct investment company in Indonesia you must first decide what business sector you are going to invest based on Indonesian Classification for Business Sector (Klasifikasi Baku Lapangan Usaha Indonesia or KBLI).

Then, you must check whether the business sector is open with requirements or closed for foreign direct investment based on the Presidential Regulation about Negative Investment List (Daftar Negatif Investasi or DNI). If the business sector which you are interested in is not regulated, and no other restrictions from related technical ministries, then it means the business sector is open for foreign direct investment with a maximum foreign ownership of 100%.

The legal entity of the Foreign Direct Investment or FDI company should be a Limited Liability Company or Ltd (Perseroan Terbatas or PT). The ‘PT’ company should be owned by a minimum of 2 shareholders. Those can be individual or corporate shareholders or a combination of both.

How much is the minimum investment for an FDI company?

The minimum investment for an FDI company is above IDR 10 billion (excluding land and building cost), while the minimum paid up and issued capital is IDR 2.5 billion. For each shareholder, at least IDR 10 million or its equivalent in USD is required.

Can I set up a company in any location in Indonesia?

Yes, you can set up a company in any part of Indonesia. However, there are restrictions for some business sectors in certain regions, Industrial Law No. 3 Year 2014 and Government Regulation No. 142 Year 2015 has mandated that any industrial activities shall be located in industrial estates.

Today, the Indonesian Industrial Estates Association (Himpunan Kawasan Industri Indonesia or HKI) has 87 company members, in 18 provinces, covering a total gross area of about 86,059 hectares. There are more than 9,950 manufacturing companies operating and these figures do not include industrial estates non-HKI members.

Main attractions of industrial estates are that the development is comprehensively planned to assure a strategic location, accessibility, building ratio, infrastructure and supporting services, secured land titles, and continuous maintenance and operation management, as well as integrated environmental management.

Several industrial estates will be developed until 2019, 14 of those located outside Java Island will be allocated for the natural resources-based processing industry. While the other 2 in Java Island will be allocated for labor-intensive, high-technology, and consumer goods industry.

How do I establish a company in Indonesia?

The process of company establishment in Indonesia requires Investor to issue Article of Association and legalization of the company, including taxpayer number (Nomor Pokok Wajib Pajak or NPWP), through Public Notary.

Other than setting up a company (PT. PMA), is there any other method to evaluate the Indonesian market?

Yes, a foreign investor could set up a Representative Office to study the market. Foreign Representative Office (Kantor Perwakilan Perusahaan Asing or KPPA) is an office incorporated by an overseas company to represent itself in Indonesia.

Foreign Representative Office usually has limited functionality and generally are prohibited from directly engaging in operational activities, signing contracts, issuing official invoices, receiving payments from its clients, and directly engaging are other profit-generating activities.

The requirements and procedure to form a representative office in Indonesia is governed by the Regulation of BKPM No. 6 of 2018 regarding Guidelines and Procedures for Licensing and Facility of Investment. To obtain the license, all requirements should be submitted online at https://nswi.bkpm.go.id

The functionality of KPPA is limited to:

What about a tax holiday for foreign investors?

According to the Regulation of the Ministry of Finance No. 35/PMK. 010/2018 and the Regulation of the Chairman of BKPM No. 5 of 2018 the applicant or company should meet the following criteria:

1) The Pioneer Industry:

• Upstream metal base industry (iron steel and not steel) with or without derivatives, which are integrated.
• Refining industry and/or refining oil and gas with or without derivatives, which are integrated.
• The petroleum-based petrochemical industry, natural gas or coal with or without derivatives, which are integrated.
• Inorganic basic chemical industry with or without derivatives, which are integrated.
• Basic organic chemical industry originating from agricultural, plantation or forestry products with or without derivatives, which are integrated.
• Pharmaceutical raw material industry with or without derivatives, which are integrated.
• Manufacture of semiconductors and other major computer components such as semiconductor wafers, backlights for Liquid Crystal Display (LCD), electrical drivers, or Liquid Crystal Display (LCD) that are integrated with the computer manufacturing industry.
• The industry for the manufacture of major communication equipment components such as semiconductor wafers, backlights for Liquid Crystal Display (LCD), electrical drivers, or Liquid Crystal Display (LCD) that are integrated with the manufacturing industry of mobile phones (smartphones).
• The industry of making major components of medical devices that are integrated with the industry of manufacturing irradiation, electromedical or electrotherapy equipment.
• Industrial manufacture of major industrial machinery components such as electric motors or internal combustion motors that are integrated with the machinery manufacturing industry.
• Industry for making major engine components such as pistons, cylinder heads, or cylinder blocks that are integrated with the manufacture of four-wheeled or more motorized vehicles.
• The manufacture of robotic components integrated with manufacturing machinery manufacturing industries.
• Industrial manufacture of main components of ships integrated with the shipbuilding industry.
• The industry for manufacturing major aircrafts components such as engines, propellers, rotors, or structural components integrated with the aircraft manufacturing industry.
• Industry for the manufacture of major train components such as engines or transmissions integrated with the railroad manufacturing industry.
• The power plant machinery industry, including the waste power plant machinery industry.
• Economic infrastructure.

2) New investment.
3) Having a value of the new investment plan of at least IDR 500.000.000.000,00 (five hundred billion rupiahs).
4) Fulfill the provisions of the amount of the ratio between debt and capital as referred to in the Regulation of the Minister of Finance concerning determining the amount of the ratio between debt and company capital for the purposes of calculating Income Tax.
5) Having not yet been issued a decision regarding the granting of notification or concerning the refusal to reduce the Corporate Income Tax by the Minister of Finance. 6) Status as an Indonesian legal entity.

As regulated in the Ministry of Finance No.35/PMK.010/2018 of 2018 and the Regulation of BKPM No.5 of 2018, reduction in Corporate Income Tax (Tax Holiday) is given at 100% (one hundred percent) of the amount of the Corporate Income Tax owed. The period of the reduction is provided with the following conditions:

• 5 (five) tax years for new investments with a value of investment plan of at least IDR 500,000,000,000.00 (five hundred billion rupiahs) and a maximum of less than IDR 1,000,000,000,000.00 (one trillion rupiahs).
• 7 (seven) tax years for new investments with an investment plan value of at least IDR 1,000,000,000,000.00 (one trillion rupiahs) and a maximum of less than IDR 5,000,000,000,000.00 (five trillion rupiahs).
• 10 (ten) tax years for new investments with an investment plan value of at least IDR 5,000,000,000,000.00 (five trillion rupiahs) and maximum of less than IDR 15,000,000,000,000.00 (fifteen trillion rupiahs).
• 15 (fifteen) tax years for new investments with an investment plan value of at least IDR 15,000,000,000,000.00 (fifteen trillion rupiahs) and no more than IDR 30,000,000,000,000.00 (thirty trillion rupiahs).
• 20 (twenty) tax years for new investments with the value of the investment plan at least IDR 30,000,000,000,000.00 (thirty trillion rupiahs).

Note:

1. BKPM will publish In Advance Confirmation which is a notification letter to investors regarding the fulfillment of the requirements of the pioneer industry to obtain a corporate income tax deduction facility for the investors who applied for it
2. List of business fields (Indonesia Standard Industrial Classification-KBLI) of the pioneer

Besides fiscal facilities, is there any other facility provided?

GREEN LANE

Starting in 2016, the government accelerates the customs clearance process for imported capital goods, aiming at speeding up a project under construction. Capital goods no longer need screening at the ports. So, it will cut the processing time from five days to only 30 minutes.

WAGE FORMULA

Since September 2015, the Indonesian government has been issuing several economic policy packages, among others, to improve the investment climate. We set a minimum wage formula so investors can predict the annual increase of wage, considering inflation and economic growth.

OTHERS

We support business to reduce their production costs, by cutting the price of fuel, gas, and electricity for industry. We revised the Negative Investment List (DNI) to be more open for foreign investment, specifically intended for sectors: industrial, creative economy, and tourism.

I want to export my product to Indonesia. What should I do?

There are 2 ways to export product to Indonesia:

1. Appointing local company in Indonesia as your agent or distributor. A local distributor company will fulfill all the requirements to import your products. If the products are related to food and drugs, it should be registered to the National Agency of Drug and Food Control (BPOM) (www.pom.go.id). However, the ownership right of product registration can only be obtained by the local distribution company. Therefore, there might be a risk such as the ownership right of product registration may cause conflicting issues on the possession of the rightful owner of the market trademark.
2. Establishing your own company as the Trading (import/export/distributor) Company. Through this scheme, your company can apply the ownership right of your own products. If your trading company is just importing, your company is not allowed to distribute the products hence you still have to appoint a local distributor or agent company.

In both ways, the company should obtain Single Business Number (NIB) via the OSS website, www.oss.go.id.

Is it allowed to export or import any kind of products and commodities to and from Indonesia?

There are restrictions and limitations to export and import some specified products and commodities. Please refer to the website of Indonesia National Single Window or INSW as follows, http://eservice.insw.go.id.

What about the export and import tariff of products and commodities in Indonesia?

Visit the INSW website as follows, http://eservice.insw.go.id.

What are the procedures of import customs duties in Indonesia?

In a general and simplified explanation, the steps of customs clearances for imported products are as follows:

1) The importer is required to submit Notification of Imported Goods (Pemberitahuan Impor Barang or PIB) to the customs office.
2) The importer proceeds to pay for customs duties and import tax at the bank. 3) Process custom clearance by submitting:

• Proof of customs duties and import tax payment.
• NIB which is the ratification of Importer Identification Number (API) and customs access rights (Customs Registration Number-Nomor Induk Kepabeanan or NIK)
• Tax ID (NPWP)
• Notification of Imported Goods (PIB)
• Tax and Custom Deposit Letter
• Invoice
• Packing list
• Bill of Lading (Dokumen Pengangkatan Barang or B/L)
• Insurance document

Once the custom is cleared, the importer will be issued Customs Clearance Approval Certificate (Surat Perintah Pengeluaran Barang or SPPB).

The importer will be able to release the goods from custom by enclosing:

1. Delivery order from shipping agency
2. SPPB

Where can I find more information on import tax duties rate?

Please refer to this following link, www.beacukai.go.id.

To access this information, importers need to identify the exact Harmonized System (HS) Codes for their imported products. HS Codes can be found on the INSW website, www.insw.go.id.

How do we find out the list of goods prohibited for import to Indonesia?

Indonesian Import-Export Prohibition and Restriction Regulations (Larangan dan/atau Pembatasan Ekspor-Impor or LARTAS) maintain the full details of products restricted from import and export activities. LARTAS information can be found on the INSW website, www.insw.go.id.

How is the procedure to register the food and drug products to National Agency and Food Control (BPOM)?

All food and drug products such as a drug, traditional medicine, cosmetics, food supplement, and processed food, must fulfill all safety requirements to enter the Indonesian market. This imported food and drug registration is regulated under Indonesian National Agency of Drug and Food Control (BPOM), one of the provisions in the Regulation of the Head of the Agency of Drug and Food Control Republic of Indonesia No. 12 of 2015 concerning the Oversight of Food and Drug Imports into Indonesian Territory.

The registration must be done by the local company, local agent, or distributor before the products cleared to Indonesian customs. To import drug and food, the importer must apply Letter of Import (Surat Keterangan Impor or SKI) to the Head of BPOM.

The procedure to obtain SKI are as follows:
1) Register online on BPOM website, http://www.ebpom.pom.go.id or INSW website, http://eservice.insw.go.id with the mechanism of Single SignOn.
2) Upload following supporting original documents to one of both websites above:

• Letter of the application signed by the directors or the power attorney of directors.
• Letter of responsibility.
• NIB which functions as Importer Identification Number (API).
• Trading Business License (Surat Izin Usaha Perdagangan or SIUP).
• Tax ID (NPWP).
• Letter of power attorney regarding importing in the form of General Certificate by a notary, in terms of the applicant is a company who have been authorized to import.
• List of HS code of the product to import.
• For the SKI of a drug, the applicant should attach a Pharmaceutical industry license.

3) Do the e-payment as one of Non-Tax Revenue (Penerimaan Negara Bukan Pajak or PNBP)
4) Submit electronic documents such as:

• Distribution approval license
• Certificate of analysis
• Invoice
• Proof of Payment of Non-Tax Revenue (PNBP)

5) For the application of vaccine and serum, the applicant should attach:

• Batch/lot release certificate from the Body of Authority in the country where the vaccine released.
• Summary of batch/lot protocol which is published by the factory.
• Certificate of analysis which includes the source of an active substance.

6) Letter from the producer in the origin country (if the exporter is different from the producer).
7) For processed food importation: letter of recommendation from the Ministry of Agriculture of the Republic of Indonesia in the animal origin country.
8) Additional documents or tests might be required depending on the product category.