Invest Asia Group in Indonesia
Last Update: 14th September 2020
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Klingking Beach in Bali, Indonesia
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As of 2020, Indonesia is the world's fourth most populous country and largest 'island country' across the world, featuring 17,508 islands. With a mixed economy consisting of a vibrant private sector operating in conjunction with the government, Indonesia has transitioned from an agricultural economy to industrialized with a focus on exports.
Indonesia has a diverse range of commodities and abundant natural resources, which make up a large proportion of the country's exports. That being said, Indonesia's exports as a proportion of GDP are relatively low at 20%. Predominantly, Asian countries, India as well as the USA are Indonesia's top export destination markets.
Indonesia has a diverse range of commodities and abundant natural resources, which make up a large proportion of the country's exports. That being said, Indonesia's exports as a proportion of GDP are relatively low at 20%. Predominantly, Asian countries, India as well as the USA are Indonesia's top export destination markets.
Indonesia: Overview
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Indonesia is an 'island country' and as the largest archipelago country in the world, shares Land borders with Malaysia, Timor Leste and Papua New Guinea as well as Maritime borders with Malaysia, Singapore, Vietnam, Philippines, Palau and Australia. Located in South East Asia, Indonesia is strategically located to the North of Australia and within the vital shipping lanes of the South China Sea.
As a Republic State with a multi-party system and Presidential system. Whilst Indonesia currently offers a low-wage economy, it's a high growth, developing country with a positive future outlook. |
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Indonesia Regions
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In terms of regions, Indonesia can be divided into eight different regions, of which provinces are usually grouped around larger islands. These regions include the following:
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Indonesia Cities
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Indonesia has a large number of different sized cities throughout the country, ranging from the capital city Metropolis of Jakarta to 'mid-sized' cities as large as typical 'Western Cities' and smaller cities as well. The major cities within Indonesia are as follows:
Aside from these top 5 cities (by population), Indonesia also features a large number of other cities with populations of over 1 million people including Palembang, Tangerang, Makassar, South Tangerang, Semarang, Depok and Batam. A large number of mid-sized (by population) cities are also throughout Indonesia. |
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Overall, Jakarta is not only the capital city and largest city but also the metropolis of Indonesia - all foreign companies investing in Indonesia should have a presence there. Depending upon the specific industry and business type would determine the specific requirements but some presence is generally important.
Business Operations in Indonesia
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Operating a business in Indonesia presents an array of opportunities as well as challenges. Aside from obvious business related risks, understanding and working within a foreign system presents numerous challenges to investors.
However, with a relevant strategy, professional advice and local team, these risks can be mitigated. Whilst details are quite complex, we’ve summarized accordingly so readers can gain an understanding of the different options and processes involved in operating a business in Indonesia. |
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Forming a Company in Indonesia
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Establishing a company in Indonesia is not a simple process and depending upon your specific business objectives, there can be alternative options to establishing an Indonesian domiciled company (depending upon objectives).
There are multiple different business types in Indonesia and provided the industry isn't on a 'negative' investment list, Indonesia welcomes foreign investment. Through the PMA (Penanaman Modal Asing), which is also known as the PT PMA (Perseroan Terbatas Penanaman Modal Asing), Foreign Owned Companies can be operated within Indonesia under Indonesian Law. |
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Foreign Investors are legally permitted to establish limited liability companies in Indonesia as a 100% foreign owned company. Aside from the aforementioned PMA options, popular choices for establishment include the following:
Many foreign investors choose to establish a 'parent' company structure established in either Singapore, Labuan (Malaysia) or Hong Kong so as to maximize these regions' status as tax territorial jurisdictions. In terms of restricted investment industries - similar to most countries, there are restrictions on certain industries whereby foreign investors are restricted from operation within the corresponding sector. Invest Asia Group can provide the latest restricted investment industries on request. |
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Company Formation Procedure
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For the purposes of this article, Invest Asia Group has outlined the company formation process for a Limited Liability business operating in Indonesia, whereby foreign investors incorporate within the country.
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Aside from the above standard procedures to form a company, there can also be also additional steps required depending upon local and industry specific requirements.
Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes. International Investors
Whilst there are certain restrictions, namely in relation to restricted sectors/industries, Indonesia welcomes international investors/companies. Moreover with ongoing reforms, the number of restricted industries that foreign investors are able to operate is continually being reduced on an annual basis and for the latest details.
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Corporate Taxes
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There are a number of different corporate taxes within Indonesia as outlined below:
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Where to establish
This depends upon your business type and goals for doing business in Indonesia. The capital city of Jakarta is by far the most popular location for establishing a presence within Indonesia.
However, ultimately, it depends upon the specific industry and business type to determine the best location to establish - ranging from manufacturing to natural resources etc. Please advise your business type and specific goals for establishing a business in Indonesia when contacting our team. Tax-Friendly Policies
Yes – a number of tax-friendly investment policies exist to encourage investment within specific sectors and industries. Further details can be provided, depending upon your specific inquiry.
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Financial Markets in Indonesia
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Indonesia's Stock Market is quite young, compared to their international peers and despite historically being originally opened in 1912 under the Dutch colonial government, it wasn't until post World War 2 that it reopened. The current form of the Indonesian Stock Market (IDX) formed in 2007 following the merger of the Jakarta Stock Exchange (JSX) and The Surabaya Stock Exchange (SSX).
The Indonesian stock market grew with increased development of Indonesia's financial markets as well as private sector culminating in what is today the only exchange in Indonesia. A brief overview of the Indonesia Stock Exchange is outlined below. |
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Indonesia Stock Exchange (IDX)
The Indonesia Stock Exchange (IDX) is Indonesia's only stock exchange and with a market cap of approximately USD $400 billion (depending upon exchange rate fluctuation).
In comparison to its more internationally recognized market peers in Asia (e.g. Hong Kong, Singapore etc.), Indonesia is less well-known but also offer opportunities for domestic and international investors alike. Traditionally, approximately 50% of all investors were foreign investors and international funds are welcomed to invest into the Indonesia Stock Exchange. |
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Indonesia Stock Exchange Products
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On the Indonesia Stock Exchange, there are a number of different listed securities products available to trade including the following:
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In addition to the aforementioned products, the Indonesian Stock Exchange also offers Islamic Products and Services including:
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Other ways to get exposure to Indonesian Stocks
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Aside from the aforementioned ways to gain exposure to Indonesian companies, investors also have options to invest in Index Funds and Indonesian stocks listing in overseas markets such as the USA and Singapore.
Most brokers will offer access to Indonesia exposure ETFs and individual stocks listed on the Singapore and US exchanges. Despite an array of different challenges, Indonesia's growth should continue to outpace the developed economies and offer a number of attractive investment options for savvy investors. |
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Foreign Exchange
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The official currency of Indonesia is the Indonesian Rupiah (INR) and throughout its existence, it's regularly experienced high inflation. However, post Asian Financial Crisis in the late 1990s, the Rupiah has been a largely stable currency within South East Asia.
Whilst the Indonesian Rupiah is a freely converted currency, there are currency restrictions applicable to 'cash' being physically taken out of Indonesia. Moreover, the Indonesian Rupiah cannot be freely traded outside of Indonesia and local banks are required to exchange into overseas currencies before remitting funds. For the latest details regarding Foreign Exchange, Policies and Currency within Indonesia, please contact Invest Asia Group directly and our team can be of assistance. |
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Commodities
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Indonesia is a country with an abundance of natural resources, resulting in a strong dependence on exports of commodities to a number of different countries.
Whilst Indonesia is still a developing country, the economic growth experienced throughout the early years of the 21st century has been strong and it's future economic outlook remains positive Some of the top commodities Indonesia imports include:
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In regards to oil, originally Indonesia was a net exporter of Oil but in the early 21st century, this changed with an increase in domestic demand. Nowadays (2020), Indonesia is a net importer of Refined and Crude Petroleum as follows:
Refined Petroleum Imports (by Country)
Saudi Arabia still dominates oil imports into Indonesia with Singapore being the largest supplier of refined petroleum at a strategically beneficial location. |
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In terms of exports, as outlined above, Indonesia has a large and diverse range of natural resources throughout the country. Indonesia's top exports are outlined as follows:
Indonesia's top export markets include China, Japan, the USA, India and Singapore. Aside from the above products, Indonesia is also a primary producer of other commodities including Tea, Coffee, Cocoa, Tobacco, Sugar, Copra and various spices. The Indonesia Commodity and Derivatives Exchange (ICDX) is a commodity and derivatives exchange based in Indonesia. Some of the main commodities priced and traded on the ICDX are as follows:
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Cryptocurrency in Indonesia
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Cryptocurrency ownership is widespread in Indonesia with a study revealing approximately 11% of the Indonesian population use cryptocurrency as a hedging strategy against currency depreciation. Some figures within the cryptocurrency industry believe it's exceeded the number of local investors involved in the stock market.
Whilst using cryptocurrency as a form of payment in Indonesia is illegal, cryptocurrency trading and ownership is legal. Moreover, trading cryptocurrency on the futures market requires substantial capital, essentially negatively impacting the cryptocurrency industry. |
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Property in Indonesia
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Indonesia's property market is diverse and varied from the literally, sinking city of Jakarta to Bali and the plethora of other islands.
Despite no private land ownership permitted within Indonesia for foreign investors, lease rights and 'right to use' (hak pakai) allow options. Due to the size of the country and differences in development across regions, the property market within Indonesia is fragmented across provinces and islands. Therefore, the best way to analyse the property market is on a local level as opposed to via a country-wide analysis. |
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International Investors & Indonesian Property
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Yes and no. Indonesia has strict property ownership laws for foreign investors, although since the 1990s when legislation was first relaxed, it has become easier. As outlined above, it’s not possible to own freehold land but instead receive a ‘right to use’ title, which is normally granted for 30 years with 20 year extensions available. In comparison, Indonesian citizens can own freehold property (hak milik).
Moreover, per legislation - Procedure for Granting, Releasing, or Transferring Land Rights over Residential Houses to Foreign Nationals in Indonesia (Regulation 29), regulations are as below: |
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Property Taxes
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The overall cost of buying a property in Indonesia are quite high with a number of different fees associated in purchasing a property. Current details are outlined below (payable by buyer) as follows:
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Best Locations to Purchase Property
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Whilst Indonesia is a large and diverse country, most investment into property from foreign investors is concentrated in only a few locations. Depending upon your goals and preferences for property investment in Indonesia will ultimately determine the best area to invest but overall, Invest Asia Group recommends the following locations:
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For specific details regarding Indonesia property investment options, please contact Invest Asia Group directly. |
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Venture Capital/Private Equity in Indonesia
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Indonesia has a burgeoning startup scene across a number of different industries. Venture Capital consists of local firms in addition to international and some of the top funded Indonesian startups include the following:
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