Starting a New Business in Indonesia - An Insightful Overview

Navigating the business landscape in Indonesia presents a unique set of challenges, underscored by its ranking at 166th place by the World Bank and International Finance Corporation (IFC) for ease of doing business. This ranking highlights the rigorous procedures entrepreneurs must undergo to start a new business or establish a company in Indonesia. Compared to the Organization for Economic Cooperation and Development (OECD) average of five procedures, setting up a corporate entity in Indonesia involves nine procedures and takes an average of 47 days.

The significance of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia cannot be overstated, as they generate 50% of the GDP and constitute the largest number of MSMEs in the ASEAN region, approximately 58 million. These enterprises are deemed the backbone of the Indonesian economy, emphasizing the importance of understanding the local business environment.

Practical Experience in Business Setup

Based on practical experiences, the timeline for starting a business in Indonesia ranges from one to three months, influenced by the type and nature of the business, required documents, and involved procedures. Key factors affecting this timeline include obtaining a business visa and sponsor company, securing a business license and domicile letter, ensuring compliance with tax regulations, and adapting to local customs and business culture.

Economic Landscape and Growth Potential

Indonesia's economy, with a GDP of approximately 15,433.9 trillion Indonesian rupiah (about 1.08 trillion U.S. dollars) in 2022, continues to show a positive growth trend. The sectoral breakdown of the GDP includes manufacturing (18.34%), wholesale and retail trade (12.85%), agriculture, forestry and fishing (12.4%), mining and quarrying (12.22%), construction (9.77%), transportation and storage (5.02%), information and communication (4.15%), financial and insurance activities (4.13%), and other sectors (20.92%). Despite strong economic performance, Indonesia faces challenges that hinder private-sector development.

For foreigners, starting a company in Indonesia involves several steps and requirements:

• Reviewing the positive investment list for foreign ownership regulations in specific business sectors

• Choosing the appropriate legal entity, such as a PT PMA (foreign-owned limited liability company), branch office, or representative office

• Obtaining a domicile letter for office registration, which can include using a virtual office or renting a physical space

• Applying for a Taxpayer Registration Number (NPWP), a Business Identification Number (NIB), and a Business License (Izin Usaha) from relevant authorities

• Preparing and submitting necessary documents, including the Deed of Incorporation, approval of legal entity, and company registration certificate

In summary: Varied Time and Cost Considerations

The time and cost of starting a business in Indonesia vary significantly based on business type, size, location, and the efficiency of government services. Consulting with a professional market entry consultant or local partner is recommended to navigate the legal and regulatory framework efficiently. At Arielle Mitra Consulting, we provide a full value chain of services to facilitate a smooth market entry into Indonesia, including company setup, work permits, product registration with BPOM (local FDA), and office renovation, ensuring a streamlined process for entrepreneurs.