Doing business in Indonesia
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This publication is a joint project with Doing business in Indonesia
Contents
Executive summary 4 Disclaimer
Foreword 6 This document is issued by
Hongkong and Shanghai Banking
Corporation Limited (the ‘Bank’)
Introduction – Doing business in Indonesia 8
in Indonesia in partnership with
PricewaterhouseCoopers (PwC).
Conducting business in Indonesia 12
It is not intended as an offer or
solicitation for business to anyone
Taxation in Indonesia 18 in any jurisdiction. It is not intended
for distribution to anyone located in
Audit and accountancy 26 or resident in jurisdictions which
restrict the distribution of this
Human Resources and Employment Law 28 document. It shall not be copied,
reproduced, transmitted or further
Trade 30 distributed by any recipient.
Banking in Indonesia 32 The information contained in this
document is of a general nature only.
HSBC in Indonesia 34 It is not meant to be comprehensive
and does not constitute financial,
Country overview 36 legal, tax or other professional
advice. You should not act upon
Contacts 38 the information contained in this
publication without obtaining specific
professional advice. This document
is produced by the Bank together
with PricewaterhouseCoopers
(‘PwC’). Whilst every care has been
taken in preparing this document,
neither the Bank nor PwC makes
any guarantee, representation or
warranty (express or implied) as
to its accuracy or completeness,
and under no circumstances will
the Bank or PwC be liable for any
loss caused by reliance on any
opinion or statement made in this
document. Except as specifically
indicated, the expressions of opinion
are those of the Bank and/or PwC
only and are subject to change
without notice. This document
is not a ‘Financial Promotion’.
The materials contained in this
publication were assembled in
August 2012 and were based on
the law enforceable and information
available at that time.
Executive summary
As the fourth most populous 2. Issuingthe Negative List of railways, power and utilities.
country in the world, supported Investment in June 2010 to Investments in mining and
by good political and economic open more business sectors agriculture sections are also
stability, Indonesia’s large to foreign investors. actively encouraged.
domestic market offers a
wide range of investment 3. Amending Tax Laws in 2008 With a population of almost
opportunities for foreign and and 2009 to improve tax 240 million of which more
domestic investors. administration and to reduce than 80% are Moslem, Islamic
the corporate income tax rate economics and banking is also
With a target economic to a flat 25% rate starting a potential growing sector in
growth of more than 6% for from 2010. Indonesia.
the coming years, there is
a growing emphasis for the 4. Amending laws and Currently, establishing an
government of Indonesia regulations in certain sectors Indonesian limited liability
on attracting more foreign such as shipping and mining in company is the most common
investment in order for the order to improve the licensing form of operating as a foreign
overall investment to reach the process and attract more investor in Indonesia.
projected levels of Indonesian investment in these sectors.
Rupiah (IDR) 2,000 trillion, or Other types of presence,
approximately US$222 billion, 5. Developing an integrated such as representative
by 2014. service for both, the central offices or branches, could
and regional governments to be established, but are
For the last 10 years the simplify the licensing process subject to certain limitations
government of Indonesia for businesses operating and on commercial activities and
has been actively introducing investing in Indonesia. restrictions for certain sectors.
measures directed at
encouraging investing in Another area of focus for the Continued focus on developing
Indonesia and improving government is to improve the the regulatory and tax aspects
the country’s regulatory and archipelago’s infrastructure. of operating a business in
economic environment. Key Through the Public Private Indonesia together with
measures recently introduced Partnership (PPP) scheme, the adoption of international
can be summarised as follows: the government offers accounting and reporting
investment opportunities for standards should further
1. Amending the Investment the infrastructure projects to benefit Indonesia’s drive to
Law in 2007 to provide more develop the country’s roads, attract more investment and
assurance on matters such improve its competitiveness.
as equal treatment among
investors, ability to repatriate
profit from Indonesia,
investment incentives and
protection from nationalisation.
4Foreword
Connecting Indonesia Having operated in Indonesia Alan Richards
to the World since 1884, HSBC’s knowledge CEO
of the dynamics, and resultant HSBC Indonesia
In the fast changing and dynamic opportunities, of the Indonesian
world that we live in, we have markets sets it apart from its
witnessed a re-balancing of the competitors. HSBC has the
world economies as emerging ability to combine both its local
markets increasingly drive presence (with an extensive
global economic growth. branch network throughout the
Indonesia is one of the world’s country) and global strength to
leading emerging economies, offer the full range of financial
and the third-fastest growing services to businesses wishing
economy in Asia. It is also the to tap into this exciting and
largest economy in Southeast vibrant market.
Asia, supported by:
We hope that you will find
• GDP of more than US$800 this guide book both useful and
billion in 2011, and forecast to informative, and look forward
grow by 6.1% in 2012. to helping your business unlock
the tremendous potential
• Strong domestic consumption. of Indonesia.
• Strong trade and
investment flows, including
intra-regional flows.
• An Investor-friendly
government.
• An abundance of
natural resources.
• An ample and increasingly
talented work force,
underpinned by the world’s
fourth-largest population
by country.
6Introduction
Doing business in Indonesia
Indonesia is the world’s largest The Indonesian labour force
archipelago and is composed numbers around 113 million.
of approximately seventeen
thousand islands lying along A rapidly rising population is
the equator. These include putting strain on the Indonesian
several large islands which employment market, with
include Java, Sumatera, some 2 million new entrants
Kalimantan, Sulawesi and estimated to be seeking jobs
Papua, as well as various each year. Agriculture and
islands that are popular tourist services are the two biggest
destinations, such as Bali, sectors, employing respectively
Lombok and Komodo. 43% and 44% of the workforce.
.
Java is the main and most
developed island where
almost 60% of the Indonesian
population live and most of the
business and governmental
activities are carried out.
With a population of almost
240 million, Indonesia is the
fourth most populous country
in the world which means it
has a large domestic market
open for investment.
The Indonesian Constitution
guarantees the right to freedom
of religion. However, the
government only recognises
six official religions, namely
Islam (86.1%), Protestantism
(5.7%), Catholicism (3%),
Hinduism (1.8%), Buddhism
and Confucianism (3.4%).
8Economic Structure Physical Infrastructure Legal Framework Most disputes are heard before coming to an agreement. Initial
and Growth the courts of general jurisdiction, meetings generally serve to
Infrastructure has been Indonesian legislation comes with the State Court being the make acquaintances. Indonesia
The major economic sector in one of the challenges for in different forms. court of first instance. Appeals is a relationship-driven market.
Indonesia is the manufacturing the Indonesian government from the State Court are heard
and processing sector which in attracting foreign investment The following official hierarchy before the High Court, while the Companies may not respond
contributes around 24.3% of in Indonesia. Currently, of Indonesian legislation (from Supreme Court can hear a final very quickly to emails especially
the Gross Domestic Product Indonesia has around 391 top to bottom) is enumerated appeal from lower courts. if the sender is not well known
(GDP). Some major industries thousand kilometers of roads, under Law No. 10 Year 2004 to them. Patience is a key
in this sector are food and 6.5 thousand kilometers of on the Formulation of Laws In 1998, the Commercial Court element in doing business
beverages, machinery and railways, and 21.5 kilometers and Regulations: was also established to handle successfully in Indonesia.
transportation, chemical and of waterways. In addition, insolvency cases as well as
textiles. Indonesia developed an 1. 1945
Constitution (Undang- other commercial matters. Business relationships in
extensive air transport network Undang Dasar 1945 or UUD’45). Indonesia are based on trust
The manufacturing sector is that encompasses 652 airports Building and and familiarity, therefore
followed by the agricultural to ensure that all Indonesia’s 2. Law (Undang-Undang or UU) maintaining relationships personal contacts and
sector, which includes forestry, islands are accessible, by and Government Regulation networks are important
plantation, farming and fishery, either sea or air, although in Lieu of Law (Peraturan In general, English is spoken in making business deals.
and the trading and hospitality safety remains a key issue. Pemerintah Pengganti at a business level in Indonesia.
sector. These together Undang-Undang or Perpu). However, if dealing with As Indonesians place great
contribute around 14.3% The current infrastructure government or undertaking emphasis on age and respect
of the GDP. still needs to be significantly 3. Government Regulation business outside the main towards elders in Indonesian
developed to support the targeted (Peraturan Pemerintah or PP). cities, e.g. Jakarta, some society is expected.
The mining sector, which has economic growth. The priority translation may be required.
been one of the priority sectors, areas for the government to 4. PresidentialRegulation
contributes around 11.9% of encourage further investment (Peraturan Presiden or Perpres). Some basic business
the GDP. More than half of this include the power and energy etiquette includes:
comes from oil and gas mining. sectors, water and sanitation 5. Regional Regulation
facilities, roads, transportation (Peraturan Daerah or Perda). • Avoiding using the left hand
Indonesia proved less exposed and telecommunications. to pass or receive anything,
to the recent global recession In practice, there are also including business cards
than many of its neighbours, The Indonesian government Presidential Instructions and gifts.
largely because exports account is actively promoting a Public (Instruksi Presiden or Inpres),
for a relatively small proportion Private Partnership (PPP) Ministerial Decrees (Keputusan • If you are being introduced to
of the country’s GDP. In 2011 scheme as an instrument Menteri or Kepmen) and several people, it is customary
the real GDP grew by 6.5%, to invite investment in the Circulation Letters (Surat to introduce yourself to the
making Indonesia one of the infrastructure sector. Edaran), which sometimes eldest member of the group.
world’s best-performing large Under the PPP scheme, the conflict with each other. It is acceptable to shake hands
economies. Growth is expected government provides a list with women.
to be accelerated in 2012 with an of potential infrastructure The judicial system comprises
estimated growth rate of 6.1%. projects around Indonesia several stages of courts Negotiations can be quite
to be developed under overseen by the Supreme lengthy so to give enough
Exports are also expected cooperation with the Court, which often creates time to carefully consider the
to grow, driven largely by private sector. a time consuming court business proposal. Often it
healthy demand from China for process for a dispute settlement. takes several meetings before
Indonesia’s commodity exports.
10Value of Realised Investment Projects in Indonesia (in USD Million)
12,000 Primary Sector
• Food crops • Plantation • Livestock,
10,000 • Forestry • Fishery • Mining
Secondary Sector
8,000
Manufacturing i.e.
• Garment • Food • Leather goods
6,000
• Chemical • Automotive • Other
4,000 Tertiary Sector
Electricity, Gas and Water Supply
Conducting business in Indonesia
•
2,000 • Construction •Trade • Hotel &
Restaurant •Transport, Storage and
0 Communication • Housing • Other
General Investment Policy 2010 2011
Source: Investment Coordinating Board (www.bkpm.go.id)
With an investment target b. Toshorten the length of time e. Certain investment facilities Investment Restrictions
of IDR2,000 trillion (equivalent required to do business in such as tax facilities can
to US$222 billion) to 2014, Indonesia, a one-stop integrated be granted based on certain Not all types of business are
the Indonesian government, service is being developed both investment criteria. Examples open for foreign investors.
through the Capital Investment by the central government and include absorbing a large Presidential Regulation No.
Coordinating Board (BKPM), regional government to simplify number of manpower, included 36/2010 has been issued to
is actively promoting foreign the licensing process. An online in high priority scale business, stipulate the lines of business
investment in Indonesia and application system has also been infrastructure development, open and closed to foreign
strengthening the investment developed to submit applications. undertaking transfer of investors (Negative List of
climate by, among others, Further development in this technology, a pioneer industry Investment/NLI). Under the
improving the regulatory licensing area is still required or located in remote, less NLI, foreign investors can
framework, simplifying the to implement a full one-stop developed or border areas. identify business areas closed
licensing process and improving integrated service. for foreign investment, business
the business infrastructures. f. The Indonesian government areas which can be fully owned
c. A foreign investor is given the will not perform nationalisation by a foreign investor or those
The main legislation governing right to employ expatriates in of foreign investments unless which require joint venture with
foreign direct investment in certain positions by obtaining based on the Law. In the case a domestic investor.
Indonesia is Capital Investment the proper permit and fulfilling of nationalisation, the
Law No. 25/2007 which was the obligation to improve skills government shall provide A certain privilege is given
issued in 2007. and expertise of local manpower compensation based on market to investors from ASEAN
through training. value. To be more focused in countries where the NLI, based
The general investment policy attracting more investors, the on ASEAN agreement, can
covered under this current Law d. The Indonesian government Indonesian government has provide a higher shareholding
includes the following: ensures the right of foreign also set several key and priority percentage compared to
investors to repatriate profit investment sectors which investors from other countries.
a. Equal
treatment of domestic from Indonesia which can be in include infrastructure, energy
investors and foreign the form of payment of dividend, and oil and gas. In addition, The NLI will be reviewed every
investors. However, certain reduction of capital, payment seven provinces were identified three years to accommodate
national interests must still be liquidation proceeds or payment as priority investment areas; the recent business updates.
considered, such as limitation of royalties or technical fees. these are Riau, West Nusa As of the beginning of 2012,
on investment in certain The Indonesian government, Tenggara, Papua, West Java, BKPM has set out a policy
strategic sectors or in sectors however, has the right to defer East Java, East Kalimantan for a minimum investment
which are reserved to develop the repatriation of profit if the and North Sulawesi. of IDR10,000,000,000 or
local micro, small or medium investor has any unsettled legal an amount equivalent to
business players. liabilities in Indonesia. The graph top right illustrates US$1,075,000 (using 1US$
the value of foreign investment = IDR9,300). This is based
projects approved in Indonesia on the assumption that the
by business sector for 2010 foreign investment company is
and 2011. acknowledged as large scale
company. This policy also
generalises the investment
amount which previously varied
between each business sector.
12Setting up a business
There are various ways for an government’s effort to develop 4. Others The duration is a maximum connected with the operations activities in the area, SEZ offers
investor to set up a presence a one-stop integrated service Other types of presence of 35 years, extendable for of the companies. various administrative incentives,
in Indonesia, depending on the and simplification of licensing for conducting business in another 25 years. such as easier licensing
investor’s type of business. requirements. Indonesia include a Production All land rights should be process, taxation incentives
Sharing Contract with the b. Rightof building (hak guna registered at the Land Register and availability of complete
1. Indonesian Limited 2. Representative Office Indonesian government. This bangunan). This is a right to at the National Land Agency infrastructure to support the
Liability Company (PMA) Foreign companies are permitted is common in the oil and gas construct and own buildings. (Badan Pertanahan National – businesses and industries in
The common type of presence to establish a representative mining upstream sectors. This right can be granted BPN). the field of trading, services,
for a foreign investor who wants office in Indonesia. However, for a maximum of 30 years, industry, energy and mining,
to invest and engage in business unlike a PMA company, a A foreign company can also extendable for 20 years Special Economic transportation, fishery,
in Indonesia is by establishing an representative office has more choose an indirect presence and may be renewed at Zones (SEZ) tourism etc.
Indonesian incorporated limited restrictions on its activities. by appointing a local company the discretion of the local
liability company, commonly as an agent or as a distributor government. The Indonesian Special The incentives are designed
known as a PMA company. A representative office can to market and sell its products Economic Zone (SEZ) is a to improve the competitiveness
only perform marketing in Indonesia. c. Right of Use (Hak Pakai) Foreign designated area within the of SEZ and attract further
There must be two parties or promotion activities, investors who have obtained territory of Indonesia designed investment in the designated
holding shares in a PMA market research and review Land rights mining rights from the to become a business and area or business sector.
company. These can be a legal of business opportunities in Minister of Energy and Mineral industrial centre for domestic Incentives that can be granted
entity or an individual. The Indonesia. It cannot engage Indonesian land legislation does Resources or the Minister of and foreign investors. in a SEZ vary and can consist
foreign investor’s shareholding in any commercial activities or not recognise the concept of Forestry have automatically of the following:
percentage must meet the generating revenue in Indonesia. freehold land rights. Instead, obtained the right to use the As its main purpose is to boost
requirement under the NLI. Representative offices are various rights attached to land within their concession the investment and business
available for foreign companies land are divided into separate boundaries for purposes directly
The shareholders must also engaged in certain sectors elements and areas subject
appoint at least one director which include trading, services, to separate titles. The Basic No. Type Facilities
and at least one commissioner oil and gas mining and banking. Agrarian Law recognises several
of the PMA company. The types of land rights: 1 Tax Corporate income tax facilities in accordance with the prevailing regulations.
director serves as management An exception applies to Reduction of land and building tax for a certain period.
of the PMA company and has representative offices of 1. The right of ownership
2 Customs and Importation Import duty deferment.
the authority to represent the foreign companies engaged (hak milik) is an inheritable Excise exemption for raw and supporting materials for production.
PMA company, while the in construction services. This right that can be held only by Non-collection of value added tax and luxury goods tax.
commissioner supervises and type of representative office is Indonesian citizens. Non-collection of corporate income tax on importation.
provides advice to the director. allowed to deliver construction
services in Indonesia under 2. For a company, including PMA 3 Delivery of taxable goods to Non-collection of value added tax and luxury goods tax in accordance with
The World Bank in its latest a joint operation with a local company, there are three main SEZ from other Indonesian the prevailing regulations.
Doing Business 2011 study construction company. rights where the differences lie customs area
mentions that it takes 45 in the rights duration of validity,
4 Regional tax Exemption or reduction of regional tax and/or retribution.
days and a minimum of eight 3. Branch the nature of utilisation, the
and/or retribution
procedures to start business A branch office is generally opportunities to mortgage and
in Indonesia in the form of a not allowed, except for the proof of title: 5 Land Easiness to obtain land right.
PMA company, which is an banking sector.
improvement compared to the a. Rightof exploitation (hak guna 6 Licences/permits Easiness to obtain licences/permits and expatriate employment.
2010 study which indicated usaha). This is a right to cultivate
7 Requirement of Does not apply except for certain businesses which are reserved
60 days. This improvement state-owned land for agriculture for cooperative or micro/small/medium-scale companies.
foreign shareholding
is part of the Indonesian and plantation purposes.
14The government has appointed 2. Ministry of Laws and • Legislative function, to issue 7. Ministryof Manpower
Batam, Bintan and Karimun Human Rights regulations, implement tax The Ministry of Manpower has
(BBK) islands in Riau Islands The Ministry of Laws and laws and provide an authority as a regulatory body
province as a Free Trade Zone, Human Rights is a government interpretation of tax laws made and has the aim to enhance
a variation of the SEZ. body which has the authority by a separate agency under the good corporate governance
to approve the establishment Ministry of Finance. and to support the growth
Government Agencies of a limited liability company of employment opportunities
in Indonesia. • Judiciary function, to handle in Indonesia.
The main government agencies any tax objection to a tax
and their areas of licensing In addition to that, it has also assessment. This ministry also grants work
authority for foreign investors the authority to implement permits to enable a company to
looking to do business in government affairs in the 5. Directorate General of employ expatriates in Indonesia.
Indonesia are as follows: field of law and human rights, Customs and Excise
guide and coordinate the Similar to the Directorate 8. DirectorateGeneral
1. Capital
Investment implementation of ministerial General of Taxation, the duties of Immigration
Coordinating Board (BKPM) duties and administrative and functions of the Directorate The Directorate General
As the primary interface services and implement applied General of Customs and Excise of Immigration monitors the
between business and research and development, are closely related to collection immigration flows and grants
government, BKPM is a education and specific training of State Revenue from import entry visas for expatriates
ministerial level agency and preparation of legislation. activities such as collection of entering Indonesia. This
mandated to boost domestic import duties. Directorate also grants stay
and foreign direct investment 3. Ministry of Trade permits for expatriates working
through creating a conducive The Ministry of Trade’s role is 6. Environmental Control and residing in Indonesia.
investment climate. to facilitate, encourage, enhance Agency
and promote the commercial The government is now paying For specific sectors, investors
BKPM has multiple functions sector and activity in Indonesia more attention to environmental would also need to deal with
ranging from being an by acting as a service and protection. In this regard, the or obtain licences from other
investment promotion agency, support structure for the Environmental Control Agency technical departments such
a regulatory body as well as the domestic and international was formed to coordinate as the Ministry of Agriculture
agency in charge of approving commercial and trading sector. and control the environment for the plantation sector, the
investment planned in Indonesia. including corporate governance, Ministry of Transportation
4. DirectorateGeneral conservation and disaster for the shipping sector and
BKPM is the first entrance of Taxes (DGT) mitigation and environmental the Upstream Oil and Gas
for foreign investors planning As one of the government capacity development. Supervisory Agency (BPMIGAS)
to do business in Indonesia. agencies responsible for and Ministry of Energy and
collection of State Revenue A company wishing to carry Mineral Resources for the oil
Several regional governments under the Ministry of Finance, out certain activities would and gas, mining and general
have established a regional the Directorate General have to obtain an Analysis of mining sector.
investment office in a response of Taxation has three Environmental Impact certificate
to provide a better service to main functions: from this agency, which is
domestic and foreign investment. also formed on a regional or
• Executive function, namely provincial level.
to collect taxes and ensure
the compliance of taxpayers.
16Taxation in Indonesia
Corporate Income Tax
Under the prevailing Indonesian 20%, regardless of whether invested are not transferred
tax law, a company is treated as the profits are remitted to out within six years;
a resident of Indonesia for the home country. However,
tax purposes by virtue of having a reduced WHT rate may be • Acceleration of fiscal
its establishment or its place applicable where a tax treaty depreciation deductions;
of management in Indonesia. is in force.
A foreign company carrying out • Extension of tax losses carry
business activities through a 2. Tax incentives forwards for up to ten years;
permanent establishment (PE) Public companies that satisfy
in Indonesia will generally have to a minimum listing requirement • A reduction of the withholding
assume the same tax obligations of 40% and certain other tax rate on dividends paid to
as a resident taxpayer. conditions are entitled to a tax non-residents to 10%.
discount of 5% off the standard
Resident taxpayers and rate, providing an effective tax The same tax incentives
Indonesian PEs of foreign rate of 20%. Small enterprises can be granted by the DGT
companies have to settle (i.e. corporate taxpayers with to companies conducting
their tax liabilities by direct an annual turnover of not business in an Integrated
payments, third-party more than IDR50 billion or Economic Development Zone
withholdings, or a combination equivalent to US$5.4 million) (KAPET). Specific approval
of both. Foreign companies are entitled to a 50% discount must be obtained from the
without a PE in Indonesia of the standard tax rate, which DGT to qualify for these
have to settle their tax liabilities is imposed proportionally tax incentives.
for their Indonesian-sourced on taxable income of the
income through withholding part of gross turnover up to If the company has bonded
of the tax by the Indonesian IDR4.8 billion or equivalent to zone (Kawasan Berikat/KB)
party paying the income. US$518,000. status, the tax facilities will also
include those typically enjoyed
1. Taxrate and period Investment Incentive: The by a KB company, for example:
From 2010, a flat rate of 25% DGT, on behalf of the Minister
applies for corporate taxpayers. of Finance and based on • Non-collection of Value Added
The normal tax period is January the recommendation of the Tax (VAT) and Luxury-goods
to December. If corporate Investment Coordinating Board Sales Tax on certain luxury
taxpayers would like to use (BKPM) Chairman, may provide goods transactions;
a different tax period, e.g. July the following tax concessions
to June, they would have to to Indonesian Limited Liability • Exemption from prepaid income
obtain an approval from the (PT) companies following tax (Article 22) on the
Director General of Tax (DGT) their investment in certain importation of capital goods
and then maintain the approved designated business areas or and other equipment directly
tax period consistently. in certain designated regions: related to production activities;
Branch (or PE) profits are • A reduction in net income of up • Postponement of import
subject to the same corporate to 30% of the amount invested, duty on capital goods and
tax rate of 25%, but the pro-rated at 5% for six years equipment and goods and
after-tax profits are subject of the commercial production, materials for processing;
to withholding tax (WHT) at provided that the assets
18In the case of dividends received
by a resident shareholder,
‘portfolio shareholding’ refers to
share ownership of less than 25%
of the paid-up capital. In this respect,
the dividend tax withheld by the
payer constitutes a prepayment
of the income tax liability of
the shareholder. ‘Substantial
shareholding’ refers to the share
ownership of 25% of the paid-up
capital or more.
• Exemption from import duty provided certain conditions must be filed on a monthly Dividends
for four years on machinery are met and exemption from basis. Payments are generally
and certain spare parts. branch profit tax for PEs that required by the 10th or 15th Portfolio Substantial Interest Royalties Branch
reinvest their after-tax profits day of the following month. Notes % holdings % % % profits %
Tax holiday: New corporate in Indonesia within the same Specifically for VAT, the payment
taxpayers in certain pioneer year or in the following year. must be settled before the VAT Resident corporations 1 15 Nil 15 15 N/A
industries may enjoy a CIT return is filed. VAT return filing is
Resident individuals 10 10 15 15 N/A
exemption for a period of five 3. Taxadministration done on a monthly basis by the
to ten years from the start of Tax liabilities for a particular end of the following month. Non-resident
commercial production. After the period or year must be paid corporations and
end of the CIT exemption, the to the State Treasury through Late tax payments incur individuals – non-treaty 20 20 20 20 20/0
company will receive a 50% CIT a designated tax-payment bank penalties at 2% per month,
reduction for two years. and then accounted for at the while for late reporting the
tax office through the filing of administrative penalties are • Deposit security provisions d. Amount that exceeds the Please note that reduced
To be eligible for the above the relevant tax returns. The between IDR100,000 and for the Deposit fair amount paid to Double Tax Treaty withholding
facilities, taxpayers should be tax payments and filing of IDR1,000,000. Insurance Institution; shareholders or other related rates apply to many territories
newly incorporated in Indonesia tax returns for a particular tax • Reclamation provisions parties as compensation for and these may be considered
(not earlier than 14 August must be undertaken monthly 4. Tax calculation for mining companies; work performed; when making payments.
2010), should have a legalised or annually, depending upon Taxable business profits • Forestation provisions
new capital investment plan of the tax obligation in question. are calculated on the basis for forestry companies; e. Income tax and tax penalties The issue of beneficial
a minimum IDR 1 trillion, should of normal accounting principles • Provisions for the cost of closing or sanctions; ownership has come under
deposit a minimum of 10% of The Corporate Income Tax as modified by certain tax and maintaining an industrial scrutiny by the tax office. For
their planned investment value in Return must be filed annually adjustments. Generally, a waste disposal area, for industrial f. Employer contributions treaty WHT rates to apply
banks located in Indonesia, and by the end of the fourth month deduction is allowed for all waste disposal businesses; for life, health and accident to passive income such as
should not withdraw the deposit after the book year end. expenditure incurred to obtain, insurance and contributions interests, dividends, and
prior to the realisation of the Taxpayers may extend the collect, and maintain taxable c. Benefits-in-kind (BIKs), to unapproved pension funds, royalties, the recipient of such
investment plan. filing deadline for a maximum business profits. A timing except for: unless the contributions are income must be the beneficial
of two months by submitting a difference may arise if an treated as part of the taxable owner. The recipient must
An application for the tax written notification to the DGT expenditure recorded as • food and drink provided to all income of employees. also provide a certificate of
holiday must be submitted to before the deadline, attaching an expense for accounting employees; domicile (CoD) prescribed by
the Minister of Industry (MoI) a tentative tax calculation. cannot be immediately • employee benefits required for 5. Tax losses the Indonesian Tax Office and
or to the BKPM Chairman. A Tax payments must be made claimed as a deduction for tax. job performance such as Losses may be carried forward certified by their home country
proposal for approval of the MoF before filing the Return or protective clothing and uniforms; for a maximum of five years. tax authority, certifying that the
will be made by the MoI or the before filing the notification Disallowed deductions include: • transportation costs to and from Carrying back of losses is not recipient is a tax resident of
BKPM Chairman after carrying for extension based on the places of work; permitted. Offsetting losses that country. Without a certified
out research on the applicant. tentative tax calculation. A pre- a. Private expenses; • accommodations for ship crews within a corporate group is CoD, WHT of 20% will apply.
Tax holiday proposals may be payment system operates for and the like; not allowed. These aspects need to be
submitted to the MoF only until corporate tax whereby monthly b. Provisions, except for: • the cost of providing BIKs in considered when paying income
15 August 2014. instalments must be paid based remote areas; and 6. Withholding taxes (WHT) of this nature.
(generally) on the previous • Provisions for doubtful debts • 50% of the acquisition and WHT is levied on a variety of
There are other tax incentives year’s tax liability. for banking and financing maintenance costs of certain payments to corporations and Other than passive income such
such as tax-neutral merger companies; company provided cars and individuals, resident and non- as interests, dividends, and
for qualifying transactions, Returns for transaction taxes • Insurance claims provisions cellular phones; resident, at the rates shown in royalties, Indonesian income
exemption from income tax such as withholding taxes for insurance companies; the table above.
for venture capital companies
20Transfer Pricing
Final Income
Description
Tax Rate (%) Transactions between related
Rentals of land and buildings 10% parties must be dealt with
consistently using the arm’s
Proceeds from transfers of land 5% length principle. If the arm’s
and building rights length principle is not followed,
the DGT is authorised to
Fees for construction work performance 2/3/4%
recalculate the taxable income
Fees for construction work planning 4/6% or deductible costs arising
from such transactions applying
Fees for construction work supervision 4/6%
the arm’s length principle.
Interest on time or saving deposits and on Bank 20%
of Indonesia Certificates (SBIs) other than that Under the General Tax Provisions
payable to banks operating in Indonesia and to and Procedures Law, the
government requires specific
government approved pension funds
transfer pricing documentation to
Interest on bonds other than that payable to 15% prove the arm’s length nature of
banks operating in Indonesia and to government related-party transactions. The
approved pension funds DGT has issued guidance on the
implementation of transfer pricing
Sale of exchange-traded shares on the Indonesian 0.1% which, among others things,
stock exchange acknowledges five transfer pricing
methods, such as:
Income from lottery prizes 25%
Forward contract derivatives 2.5% • the comparable uncontrolled
price method (CUP);
• resale price method (RPM);
tax is also collected from certain of the gross amount of • cost plus method (CPM);
types of transactions, such as: income, without regard to • profit split method (PSM); and
any attributable expenses • transactional net margin
• Importation of goods; (as summarised in the table method (TNMM).
• Sale of goods to the government; on the next page):
• Sale or purchase Expenses relating to gross The transfer pricing guidelines
of certain products; income subject to the ‘final’ also provide a possibility of
• Sale or purchase of tax above are not deductible. Mutual Agreement Procedures
very luxurious goods; (MAPs) and Advance Pricing
• Payment of certain services. Other types of services, Arrangements (APAs). In regard
governed under MoF to MAP, taxpayers can apply
Certain types of income Regulation, are subject for a MAP and continue local
are subject to a final income to withholding tax at the dispute resolution at the same
tax at a specific percentage rate of 2%. time (with certain limitations).
The local dispute resolution
includes applying for a tax
objection, appealing to the Tax
Court and requesting a reduction
or cancellation of administrative
sanctions.
22Value Added Tax (VAT)
and Luxury-goods
Personal Income Tax Sales Tax (LST) Other Taxes
The Indonesian tax system Dividends received by ith a few exceptions, VAT
W 1. Land and building tax
distinguishes individual tax individual resident taxpayers is applicable on deliveries Land and building tax (PBB) is a
subjects into non-resident from Indonesian companies (sales) of goods and services type of property tax chargeable
and resident tax subjects. are subject to 10% final tax. within Indonesia at a rate of on all land and buildings, which
Non-resident individuals 10%. VAT on export of goods is due annually at 0.5% of the
An individual who resides are subject to withholding is zero-rated while the import government-determined
in Indonesia, an individual tax at 20% in respect of their of goods is subject to VAT at sales value.
who is present in Indonesia Indonesia-sourced income. a rate of 10%. Zero-rated VAT
for more than 183 days within Concessions are available is also applicable on exported In a land and buildings transfer,
any 12-month period, or however, where a tax services, but subject to a the acquirer is liable for duty
an individual who within a treaty is in force. MoF limitation. Currently, only on the acquisition of land and
particular year is present in certain exported services, i.e. building rights (BPHTB)
Indonesia and intends to reside 2. Tax administration toll manufacturing, repair and at 5% of the greater of
in Indonesia, is regarded as Tax liabilities for a particular maintenance, and construction the transaction value or the
a resident tax subject. year must be paid to the State services, are subject to the government-determined value.
Treasury through a designated 0% VAT rate.
The provisions of tax treaties tax-payment bank and then 2. Stamp duty
may override the above rules. accounted for at the DGT Inbound use or consumption Stamp duty is nominal and
office through the filing of of foreign services or intangible payable as a fixed amount of
A resident taxpayer’s income the relevant tax returns. goods, with few exceptions, either IDR6,000 or IDR3,000
is taxed on a worldwide is also subject to a self- on certain documents.
income basis. Personal Income Tax Returns assessed VAT at a rate of 10%.
must be filed on an annual
1. Tax rates basis within three months he VAT law allows the
T Statute of Limitation
Most income earned by after the end of fiscal year. government to change the
individual resident taxpayers Filing extension is allowed VAT rate within the range of Under the current Tax
is subject to income tax for a maximum of two months 5% to 15%. However, since Administration Law, the DGT
at the following rates: by submitting a written the enactment of the VAT law can issue an underpaid tax
notification. Late tax payments in 1984, the government has assessment letter for the years
are subject to a 2% tax penalty never changed the VAT rate. up to 2007 only within ten years
per month, while for late after the incurrence of a tax
reporting the administrative In addition to the VAT, some liability, the end of a tax period
penalty is IDR100,000. goods are subject to LST (month) or the end of (part of) a
upon import or delivery by the tax year, but no later than 2013.
manufacturer to another party For years from 2008 onwards
Taxable Income Rate Tax (IDR) at rates ranging from 10% the time span for the issue
to 200%. of underpaid tax assessment
On the first IDR50,000,000 5% 2,500,000 letters is reduced to five years.
On the next IDR200,000,000 15% 30,000,000
On the next IDR250,000,000 25% 62,500,000
On the next amount of over 30% 30% of the
IDR500,000,000 relevant amount
24Audit and accountancy
Businesses are required to For most business entities in Accounting books by the capital market regulator, Audits are conducted based from the Ministry of Finance
maintain accounting records Indonesia the functional currency the Capital Market and Financial on auditing standards and become a member of
and prepare annual financial is generally the Indonesian Companies are required to Institutions Supervision Agency promulgated by the Indonesian the IICPA. The Ministry of
statements in accordance Rupiah; however, there are a maintain accounting records (Bapepam-LK). Institute of Certified Public Finance oversees the auditing
with the Indonesian Financial number of companies whose and prepare annual financial Accountants (IICPA). The profession in Indonesia.
Accounting Standards functional currency is a currency statements in accordance with Preservation of books and existing standards are largely Bapepam-LK, which is a part
(SAK is the local acronym), other than Rupiah. SAK issued by Indonesia’s records based on the Statements on of the Ministry of Finance,
which are mostly adopted accounting standards-setting Auditing Standards issued by also performs the oversight
from International Financial For tax purposes, the prevailing body, the Indonesian Financial By law, all accounting books the American Institute of Public function of auditors that audit
Reporting Standards (IFRS) tax regulation in Indonesia only Accounting Standards Board. and records must be kept for at Accountants. The auditing public companies.
as issued by the International allows a company to use US They must keep journals and least ten years after the end of standards will be shifted
Accounting Standard Board Dollar currency, as an alternative ledgers as well as appropriate the company’s reporting period. to International Standards Auditor‘s
(IASB) on 1 January 2009. to Rupiah, in its accounting memorandum records. on Auditing within the next independence rules
books. The company should Entities that have no public Audit requirements few years.
Accounting period obtain approval from the tax accountability are allowed to The Indonesian Auditing
authority before it is eligible to adopt SAK For Entities That Statutory audit by a qualified Public companies are required Standards require auditors to
Business entities generally use use US Dollar currency in its Have No Public Accountability auditor is mandatory for the to submit to the capital market maintain their independence
the 1 January to 31 December accounting. (SAK ETAP), which is simpler following types of entities, regulator, Bapepam-LK, audited and to avoid potential
calendar year as their than the full SAK. which are required to annual financial statements conflicts of interests in
accounting year. For tax Bookkeeping language submit their annual financial within three months after the delivering their professional
purposes the fiscal year in Financial statements statements to the Ministry end of the annual financial services to audit clients. In
most cases is also the calendar By law, all accounting books, of Trade: statements period. addition, auditors should also
year; however, companies are records and financial statements A complete set of financial observe and comply with the
allowed to choose a fiscal year should be prepared using the statements consists of a • Publicly-listed companies. For interim financial statements, relevant independence rules
that does not start on 1 January. Indonesian language. A company statement of financial position • Companies involved in the submission to Bapepam- issued by the regulator (i.e.
is allowed to use other languages (balance sheet), a statement accumulating funds from LK should be conducted within Ministry of Finance) including
Bookkeeping currency only after obtaining permission of comprehensive income, the public (such as banks one month after the date of the independence rules issued by
from the Ministry of Finance. a statement of cash flows, and insurance companies). interim financial statements if Bapepam-LK for auditors of
Accounting books and financial a statement of changes • Companies issuing not audited; within two months publicly-listed clients.
statements are prepared using Accounting basis in equity and notes to the debt instruments. if statements are reviewed,
the company’s functional financial statements. Financial • Companies with assets and within three months if the The Ministry of Finance also
currency. An entity may present Business entities must apply statements are presented on of 25 billion Rupiah or more. statements are audited. requires rotation of firms
financial statements using a the accrual basis of accounting a comparative basis with the • Bank debtors whose financial which have provided audit
currency other than its functional in recognising and measuring same information from the statements are required Auditing profession services for six consecutive
currency. Functional currency financial statement items. previous year. by the bank to be audited. years provided there are
is the currency of the primary Under the accrual basis, the • Certain types of foreign To be able to issue an no significant changes in
economic environment in effects of transactions are Reporting format entities engaged in business audit report on a set of the composition of partners
which an entity operates; this recognised when they occur in Indonesia that are authorised financial statements, a in the firm.
is usually the currency in which (which is not necessarily the The format of the financial to enter into agreements. public accountant must have
sales prices or costs for the same as when cash is received statements is set out in the • Certain types of professional certification,
company’s goods and services or paid) and when certain SAK. Public companies are also state-owned enterprises. obtain a licence to practice
are denominated and settled. criteria for recognising and required to comply with the
measuring those transactions format and guidance prescribed
are met.
26Human Resources
and Employment Law
The Indonesian Manpower Law, is very common where work b. Welfare obligation example, the minimum wage for Upon termination, an employer
which was issued in 2003, relations are between an Employers having more than the year 2011 is IDR1,290,000 is obliged to pay severance
encourages worker protection employer and an employee. 10 employees or paying a (equivalent to US$139) per month. payment the amount of
by implementing measures Outsourced recruitment is monthly salary of more than which would depend on the
designed to formalise relations where a third-party outsourcing IDR1,000,00 must register with d. Leaveand break length of service and type
between employer and company provides its the Jamsostek programme. Employees are entitled of the employment contract.
employees. Encompassing employees to the employer, to annual leave for a minimum
labour welfare is the main spirit and is only allowed for workers The Jamsostek programme of 12 days per year. Other 6. Expatriateemployees
of the Manpower Law. engaged in non-core activities consists of working accident leave must be granted for Employment of expatriates
such as janitors, security, etc. protection, death insurance, certain occasions such as is temporary in nature and
The following are key points old-age savings and healthcare. leave for female workers due available only for certain
that need attention in relation 3. Employee rights All of the components are to the period of menstruation, positions such as Director
to employment in Indonesia: mandatory with the exception maternity and miscarriage, or Technical Advisor.
a. Working hours of healthcare, should the leave due to marriage or
1. Contracts Normal working hours are employer provide higher or death of family members. Expatriate employees must
Indonesian Manpower Law 7 hours per day or 40 hours at least the same benefits obtain a proper work and stay
states that employment can per week for 6 working days as the Jamsostek programme. 4. Unions permit in order to become
be made verbally and in writing. in a week or 8 hours per day Workers are given the legally employed and reside
To avoid legal dispute it is and 40 hours per week for The programme is maintained opportunity to form their in Indonesia.
best to have an employment 5 working days in a week. by a designated state-owned own Union. A Union can act in
contract in writing. company, PT Jamsostek. representing workers’ interests An Indonesian counterpart
Working in excess of the normal Jamsostek contributions are to the employer. Each Union must be employed for each
There are two types working hours will be normally made by both employer and must have their own by-laws expatriate being employed
of employment contract: considered as overtime employee at prevailing rates. and manage their own budget. to support transfer of
and workers are entitled to knowledge and technology
a. Fixed-term contracts; compensation for it, except for c. Wages and remuneration 5. Termination to Indonesian employees.
b. Permanent employment workers in a management role. An employer is obliged to Indonesian Manpower Law A ratio of 1:3 between
contract. comply with the rate of stipulates several articles on the expatriates and Indonesian
Normal break time will be a minimum wage for salary termination of employments. employees is expected.
A fixed-term contract can only minimum of 30 minutes per determined by the Regional A lower ratio may be accepted
be used for certain types of 4 hours of work and 2 days Government from each In principle, termination of in a case of difficulty in hiring
jobs, namely seasonal jobs or per week. province. In Jakarta, for employment must be mutually Indonesian counterparts with
jobs which will be completed agreed. Therefore, prior to the required qualifications.
in a certain period of time. As a percentage of regular termination, an employer is
salaries/wages obliged to discuss with the 7. Manpower report
Bilingual contracts are Taxable Income individual employee or existing Companies are obliged to
permitted. However, if under Borne by Borne by Labour Union in the company submit a Manpower Report
dispute and interpretation employers employee regarding the termination annually. This report consists
between both languages plan. If such discussion fails of working conditions such as
is different, the Indonesian Working accident protection 0.24-1.74% – to resolve a mutual agreement, the minimum/maximum and
version will prevail. Death insurance 0.3% – the employer can proceed with average wage, number and
the termination only upon education level of both local
2. Staffhiring Old-age saving 3.7% 2% obtaining a declaration from the or foreign employees, etc.
Staff hiring can be made by Healthcare* 3% – proper Industrial Relation Dispute
either direct recruitment or Resolution Institution.
outsourced. Direct recruitment * Maximum of IDR60,000/month for a married employee and IDR30,000 for a single employee
28Trade
Foreign trade least 65% ASEAN origin. A Import restriction 1. An import trading company
new tariff reduction package and compliance can only import limited type
The Indonesian government was implemented in January of goods
maintains its commitment to 2004, dividing tariffs into non- Companies importing goods
a free-trade policy, gradually ASEAN and ASEAN tariffs. into Indonesia must obtain an Under this New Regulation,
reducing the overall level of Importer Identification Number the Ministry of Trade divides
import tariffs. The focus on Indonesia’s key trade from the Ministry of Trade or types of imported goods into 21
trade liberalisation is primarily opportunities include textiles, the Investment Coordinating categories based on its Tariff/HS
designed to support agricultural products and Board. In addition, to import Code. Furthermore, it provides a
Indonesia’s medium-term electronics. certain types of products limitation that a trading company
growth potential. However, including textile, shoes and can only import goods which falls
the government has also Import duty electronic goods, an importer under one category.
made moves to promote must possess a special import
domestic production through Import duties in Indonesia licence from the Ministry 2. Limitation for a manufacturing
import restrictions. vary between 0% to 170%. of Trade. company to import finished
However, most imported items products
Indonesia is also a member will attract duties in the range To protect domestic industry
of the World Trade Organization of 0% to 15%. from certain imported goods, Currently, there are many
(WTO). Bilateral negotiations the government imposes manufacturing companies which
have begun with ASEAN and In addition to the customs import restrictions on certain are also engaged in the import
its partner countries, including duties, an Indonesian company products including alcoholic trading business, i.e. importing
Australia, China, and Japan, importing goods from overseas drinks, ammunition, and finished products for direct sale
over free-trade pacts. may also be subject to value hazardous waste. to the customers.
added tax, sales tax on luxury
A free-trade agreement goods and prepayment of Customs issues may create A manufacturing company will
between ASEAN and China corporate income tax. a serious compliance obligation. not be given wide flexibility
came into effect in January Non-compliance may lead to anymore to import finished
2010. The authorities are also To promote investment and significant additional exposure products for direct sale to
making efforts to strengthen international trading, various to administrative penalties customer. The New Regulation
multilateral and regional trade customs facilities are available, which can be up to 500%. only allows a manufacturing
arrangements. Although the which include: In view of monitoring import company to import limited type
authorities have gradually activities and increasing of finished products, such as:
lowered the level of import • Exemption from value state revenue, controlling a. market testing products: goods
tariffs, they also remain added tax and customs of import compliance by for market testing purposes and
wedded to restrictive practices duty for importation of the Directorate General imported only for limited period.
extending existing import bans capital goods and raw of Customs and Excise b. complementary products:
such as on sugar and rice to materials for a certain period has recently been stricter. products which are imported
boost domestic producers. for a new or expansion project. The Ministry of Trade finally has by the manufacturing importers
Under ASEAN commitments issued a regulation effective as from and produced by the foreign
Indonesia has reduced tariffs • Duty exemptions and at 2 May 2012 (New companies having a special
for all products included in its preferential duties for most Regulation) which stipulates relationship with the importer.
original commitment involving imported goods of ASEAN in particular the following two
more than 7,000 tariff lines to Origin. In this case, ASEAN provisions: This New Regulation provides
5% or less for products of at origin certification is critical. a transition period up to
31 December 2012.
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