Expanding to Indonesia

Expanding to Indonesia

Whether you're a seasoned entrepreneur or a business looking to tap into the vibrant Indonesian market, a comprehensive understanding of various key elements is essential to navigate potential challenges successfully. From the initial requirements for establishing a business to the nuances of workforce management and human resources, this guide aims to furnish you with detailed insights. Serving as your go-to resource, it equips you with the knowledge needed to make well-informed decisions as you embark on the journey of expanding your business into Indonesia.

How to set up a business in Indonesia?

Starting a company in Indonesia involves careful consideration of various factors to ensure a smooth entry into the market and sustainable business operations. 

Things to consider for starting a Company in Indonesia:

Business Plan: Before establishing a company in Indonesia, thorough market research and a well-structured business plan are essential. This involves identifying business opportunities, gaining insights into the local market, and understanding the demand for the industry in the target country. A comprehensive business plan will serve as a roadmap, outlining the goals, strategies, and financial projections for the new venture.

Sales Channel and Logistics: Creating a useful supply chain is crucial for the success of any business. Identifying sales channels and partners, including sales agents and logistics providers, is key to ensuring a smooth and efficient distribution process. Establishing strong partnerships can contribute to the overall success of the company by streamlining operations and reaching a wider customer base.

Local Labor Market Insights: Understanding the local labour market is vital for hiring and retaining skilled employees. Knowledge of labour market norms, staff benefits, and employment regulations is crucial for compliance and building a positive workplace culture. This insight will help in crafting competitive employment packages and promote good relationships with the local workforce.

Networking and Support: Building connections within the local business community is essential. Researching and participating in local business networks, chambers of commerce, and seeking government support available for startups or new businesses can provide valuable resources, guidance, and potential collaboration opportunities. Look for business networks like IBCSD for networking opportunities, workshops, and mentorship programs and Startup Grind Indonesia (SGI) for events and workshops.

Cultural and Language Considerations: Acknowledging and respecting local customs, language preferences, and business etiquette are fundamental for successful integration into the Indonesian business environment. The official language is Bahasa Indonesia. Indonesians often rely on gestures and facial expressions to convey meaning. A slight nod can signify agreement, while a raised eyebrow may indicate confusion. Avoid bluntness and use polite phrases like "maaf" (sorry) and "terima kasih" (thank you) frequently.  Acknowledging these cultural and language nuances, you can foster genuine connections, build trust, and pave the way for a successful and enriching experience in Indonesia.

Infrastructure and Resources: Landing your B2B HQ in Indonesia isn't scary. Explore workspace options like CoHive and Regus for dynamic coworking or polished suites. Need a virtual address? Brands like BizziBox have you covered. For essentials, plug into the national grid with PLN, ensure water flow with PAM, and stay connected digitally with companies like Telkomsel. It's about plugging into a thriving ecosystem that fuels your entrepreneurial spirit.

Local Partnerships: Connecting with a local partner who possesses expertise in the Indonesian business landscape is a strategic move. A local partner can provide valuable insights, assist in navigating regulatory frameworks, and facilitate relationships with key stakeholders. This collaboration can significantly enhance the company's chances of success in the Indonesian market.

How to Set up a Company in Indonesia ?

Establishing a business in Indonesia necessitates a well-defined plan. Here's a quick guide to help you through the company setup procedure:

  • Business Structure: When choosing a business structure in Indonesia , you have several options, each with its own advantages and disadvantages: some text
    • Perseroan Terbatas (PT): Similar to a Limited Liability Company, it protects your personal assets.
    • Penanaman Modal Asing (PT PMA): Ideal for foreign businesses, offering full ownership but needing more investment. 
    • Firma/Partnership: Share the workload and profits with partners, but everyone faces the risks equally. 
    • Commanditaire Vennootschap (CV): Combine partners with and without unlimited liability for a flexible approach.
    • Usaha Dagang (UD): Simple and quick to set up, but you personally take on all the risks.
    • Representative Office: Test the waters with a limited presence, focusing on research and liaison. Like dipping your toes in the market.

  • Registration Process: The registration process in Indonesia involves several steps. some text
    • Identity Formation: Conduct a thorough company name search through the Ministry of Law and Human Rights to secure your unique identifier.
    • Documentation Assemblage: Gather key documents like articles of association, shareholder information, and director details. These serve as your foundation.
    • Online Navigation: Utilise the Online Single Submission (OSS) portal to register your business. Choose your appropriate corporate structure (PT, PMA, etc.) and meticulously complete the required forms.
    • Regulatory Compliance: Depending on your industry, be prepared to acquire permits and licences from relevant authorities. These may act as necessary checkpoints on your journey.
    • Fiscal Framework: Register for applicable taxes, including Value Added Tax (VAT) and Income Tax. Understand the prevailing rates and potential incentives.
    • Financial Access: Open a reliable business bank account to facilitate financial transactions. Explore funding options like loans, grants, and venture capital for potential support.

Fees for name searches, registration, and specific licences can vary. Plan your budget accordingly.

  • Local Regulations: Navigating the intricacies of Indonesian business regulations can feel like traversing a jungle path – dense, unexpected, and requiring a little expertise. But fear not, aspiring entrepreneurs! Here's a compass to guide you through the legal landscape:

1. General Laws:

  • Investment Law: Regulates foreign investment in Indonesia, outlining permitted sectors, ownership limitations, and approval processes.
  • Company Law: Governs the formation, operation, and governance of various business structures (sole proprietorship to public companies).
  • Labor Law: Sets parameters for working conditions, employee rights, and employer obligations.
  • Tax Law: Covers corporate income tax, individual income tax, value-added tax (VAT), and other levies.

2. Compliance:

  • Online Single Submission (OSS): This central platform streamlines business registration, permit acquisition, and compliance reporting.
  • Permits and Licences: Depending on your industry and location, specific permits and licences might be required. Consult the OSS or local authorities for details.
  • Tax Registration: Register your business for relevant taxes and file regular returns with the Directorate General of Taxes.

3. Industry-Specific Regulations:

Certain industries like pharmaceuticals, finance, and telecommunications have additional regulations and licensing requirements. Research your specific industry for detailed compliance needs.

  • Taxation: Setting up a business in Indonesia opens exciting possibilities, but understanding the tax system is crucial to securing long-term success. Here's a breakdown of key tax considerations for your Indonesian startup journey:some text
    • Corporate Taxpayer Identification No. (NPWP): Every business operating in Indonesia, including foreign-owned ones, needs a NPWP. This unique identification number acts as your tax file and is required for various transactions, including filing tax returns, opening bank accounts, and applying for permits. Obtaining your NPWP is straightforward, involving an online registration process through the Directorate General of Taxes (DGT) website.
    • Corporate Tax Incentives & Deductible Expenses: Indonesia offers various tax incentives to attract foreign investment. These can include reduced tax rates, tax holidays, and accelerated depreciation allowances. Some of those incentives are, some text
      • Companies with a 50 billion rupiah (US$3.5 million) annual turnover get a 50% tax cut, applicable to the part of gross turnover up to 4.8 billion rupiah (US$336,000).
      • Stock exchange-listed companies with at least 40% of total share capital are subjected to a three percent tax cut from the standard rate.

There are several other specific incentives available depending on your industry, location, and investment level. Additionally, certain business expenses are deductible from your taxable income, further lowering your tax burden. Familiarise yourself with these incentives and deductible expenses to optimise your tax efficiency.

  • Double Tax Avoidance (DTA) Agreement: If your home country has a DTA agreement with Indonesia, you can avoid double taxation on the same income. This means you won't pay taxes on the same income in both countries. However, the terms of each DTA vary, so it's crucial to understand the specific provisions of your home country's agreement with Indonesia. Consulting a tax advisor can help you navigate the intricacies of DTA agreements and optimise your tax liability.
  • Tax payment and Deadlines: Corporate taxes in Indonesia are typically paid quarterly, with an annual tax return filed at the end of the fiscal year. Deadlines for payments and filings vary depending on your company's size and type. Late payments incur penalties, so ensuring timely compliance is crucial. Consider setting up automatic payments or reminders to avoid any unintentional lapses.
  • Banking & Finance: Opening a business bank account in Indonesia is a necessary step for financial transactions. To do this, the company will need to provide relevant documents, including the Deed of Establishment, NPWP, and TDP. Understanding the banking system and exploring financial services available for businesses, such as loans and credit facilities, is essential for managing the company's finances effectively.

Engaging with a local business consultant or legal advisor can be beneficial throughout the process, as they can provide guidance on compliance with local regulations and streamline the setup of the company in Indonesia. Most of the key information is published in Bahasa Indonesia only. 

How do I go about manpower and human resources?

Building a successful B2B venture in Indonesia involves not just securing the right market fit, but also navigating the nuances of managing manpower and human resources (HR). Here's a comprehensive breakdown of key aspects to consider:

Work Permits and Visas: 

  • Indonesia, with its thriving economy and dynamic market, beckons international businesses seeking exciting opportunities. But before setting foot in this archipelago, understanding the visa landscape is crucial. Here's your guide to the three most relevant work visas for business expansion:
  • Limited Stay Permit (KITAS): Your long-term key to Indonesian business success, the KITAS allows employees to reside and work based on specific job offers.some text
    • 6 months or less: Ideal for shorter projects, initial market research, or establishing initial contacts. Application involves your Indonesian sponsor submitting documents to the Ministry of Manpower and obtaining an Expatriate Placement Plan (RPTKA).
    • Over 6 months: Perfect for long-term commitments, establishing operations, or hiring key personnel. Application requires extensive documentation, including educational certificates, work experience letters, and a detailed job description from your Indonesian sponsor.
  • Visa on Arrival (VOA): Need a quick entry for meetings, conferences, or initial business explorations? Consider the VOA. However, remember its limitations: business activities are restricted, and the maximum stay is 30 days (extendable up to 60 days). Application is simple, done upon arrival at designated Indonesian airports.
  • Business Visa: Geared towards entrepreneurs and investors, this visa lets you officially establish your business presence in Indonesia. Be prepared to present a comprehensive business plan and proof of investment capital. Application involves documentation like company registration documents, financial statements, and a detailed investment breakdown, submitted to the Indonesian Investment Coordinating Board (BKPM).

Payroll Administration:

  • Accurate Calculations: Ensure meticulous salary computations factoring in taxes, deductions, and applicable regulations. Even locals may not have a thorough understanding of tax calculations in Indonesia.
  • Clear Payslips: Transparency builds trust, issuing detailed pay slips for each employee enhances the trustful relationship between you and your employee.
  • Compliance with BPJS: Register with Badan Penyelenggara Jaminan Sosial (BPJS) for both Ketenagakerjaan (Social Security) and Kesehatan (Health Insurance).
  • Payroll Software or Outsourcing: Consider automation through HR software or partner with professional payroll services for efficient management.

Tax and Social Security:

  • Tax Rates and Reporting: Adhere to corporate tax rates and deadlines, registering to the Direktorat Jenderal Pajak (DJP).
  • BPJS Contributions: Both employer and employee contribute to BPJS Ketenagakerjaan and BPJS Kesehatan based on a percentage of monthly salary.
  • There are a total 5 programs in BPJS Ketenagakerjaan:
    1. Jaminan Hari Tua (JHT/Old Age Insurance)
    2. Jaminan Kecelakaan Kerja (JKK/Work Accident Insurance)
    3. Jaminan Kematian (JKM/Death Insurance)
    4. Jaminan Pensiun (Pension Fund)
    5. Jaminan Kehilangan Pekerjaan (JKP/Job Loss Insurance). Employees Provident Fund (Dana Pensiun Lembaga Kerja/DPLK):

  • DPLK: While not mandatory, some companies offer optional DPLK schemes as supplementary retirement savings for employees.
  • Employer and Employee Contributions: Contributions are typically negotiated and agreed upon in employment contracts.

Essential Provisions of Indonesian Employment Law:

  • Working Hours: 8-hour workdays, 48-hour workweeks with overtime regulations for exceeding these limits.
  • Minimum Wage: Adhere to the national minimum wage or higher industry-specific minimums.
  • Leave Entitlements: Guarantee annual leave, sick leave, maternity/paternity leave, and public holidays.
  • Termination Procedures: Follow defined legal processes for termination or retrenchment, respecting employee rights.

Other Employer Costs and Insurance:

  • Beyond BPJS: Additional costs may include health insurance plans, workers' compensation, training expenses, and performance incentives.
  • Flexible Benefits: Consider offering flexible benefits like travel/entertainment allowances, relocation assistance, or childcare support to attract and retain talent.
  • Religious Bonus (THR): Religious Bonus or 13th month pay is mandatory in Indonesia. It’s an employee's right in the form of income outside of salary (non-wage) that must be paid by employers to employees before religious holidays. As regulated by the Manpower Law, it shall be paid 7 days prior to the religious holiday of the employee. 
  • Layoff Compensation in Indonesia:
    • Fixed-term Contract Compensation: As of December 29, 2023, employers in Indonesia must take note of Supreme Court Circular Letter No. 3 Year 2023 (SEMA No. 3) concerning compensation for fixed-term employees. This circular clarifies and strengthens employee rights regarding balance of contract pay and compensation pay, providing crucial guidance for both employers and employees.
    • A. Balance of Contract Pay: This is the remaining salary owed to an employee whose fixed-term contract is terminated early, for reasons other than death, completion of the agreed-upon work, natural contract expiry, court order, or specific termination clauses in the contract.
    • B. Compensation Pay: This is a form of compensation due to an employee upon the natural expiration of their fixed-term contract, unless they are a foreign employee (as per Government Regulation No. 35 of 2021).

  • For Indefinite Contract or Perjanjian Kerja Waktu Tidak Tertentu (PKWTT), when layoffs occur, workers have the right to receive compensation, therefore you must know how to calculate severance pay. However, it should be noted that compensation for laid-off workers is not only severance pay, but also long service pay “Uang Penghargaan Masa Kerja (UPMK)” and compensation for rights “Uang Penggantian Hak (UPH)”. The amount is based on the reason the  layoff occurred.
    • A.Severance Pay (Uang Pesangon, UP): This forms the core financial compensation in a layoff situation. Calculated as one month's wages for each year of service, with a minimum of one month and a maximum of nine months, it provides terminated employees with a financial cushion during job search and transition.
    • B. Long Service Pay (UPMK): Recognizing employee loyalty, this component rewards extended service. Refer to the table below for easy calculation of long service pay corresponding to the employee's years of service.

The Severance Payment

Total Years of Working

1-month salary

Less than 1 year

2 months salary

1 year but less than 2 years

3 months salary

2 years but less than 3 years

4 months salary

3 years but less than 4 years

5 months salary

4 years but less than 5 years

6 months salary

5 years but less than 6 years

7 months salary

6 years but less than 7 years

8 months salary

7 years but less than 8 years

9 months salary

More than 8 years

    • C.Compensation for Rights (UPH): Ensuring fair treatment, this element covers accrued entitlements like unused annual leave, repatriation expenses for foreign employees, and any outstanding benefits earned during the employment period. This comprehensive approach guarantees that employees receive all rightful compensation upon termination.

      1.  Annual leave that has not been taken and has not yet expired;
      2. Costs or return costs for workers/labourers and their families to the place where the worker/labourer is accepted to work; and
      3. Other matters stipulated in the work agreement, company regulations or collective work agreement.

Remember, building a positive and compliant HR environment is crucial for long-term success in Indonesia. Consulting with experts in immigration, payroll, and tax matters can ensure smooth navigation and minimise risks. By prioritising employee well-being and respecting legal regulations, you'll empower your workforce and pave the way for a thriving B2B journey in this dynamic market.

Should I set up my own entity or outsource to a local expert?

Conquering Indonesia's vibrant market means navigating the tangled vines of Payroll & HR compliance. Choosing your weapon - own entity or local expert - requires careful aim. Own entity offers control and flexibility, ideal for customised benefits and quick decisions. Yet, it's like forging your own blade, demanding resources and risking compliance pitfalls. Outsourcing, like a trusty machete, slashes through complexities with local expertise, ensuring smooth operations and freeing you to focus on growth.


Outsourcing HR & Payroll

Managing HR & Payroll In-House


Generally cheaper, especially for small teams. Payroll software and hardware expenses are avoided.

More expensive due to salary costs for in-house HR and payroll staff, plus potential software and hardware expenses.


Access to experienced HR and payroll professionals who specialise in Indonesian regulations and compliance.

Requires hiring and training qualified in-house staff with knowledge of Indonesian HR and payroll practices.

Time Commitment

Less time spent on HR and payroll tasks, freeing up internal resources for core business activities.

Significant time commitment to setting up and managing in-house HR and payroll functions.


Easier to scale HR and payroll services up or down as needed.

May be less flexible, especially with fixed-cost salaries for in-house staff.

Language and Cultural Understanding

Local experts better address language & cultural nuances

In house team may not have that level of expertise


Outsourcing provider handles compliance with Indonesian regulations, but ultimately, you remain responsible for ensuring compliance.

Full responsibility for ensuring compliance with Indonesian HR and payroll regulations.

Innovare: Your Partner in managing Payroll, Compliance & More

Innovare, with its extensive partnership and network, can assist you with company setup, initial market research as well as manage your HR matters in a compliant manner for your new company. We recognize the challenges new businesses face as they embark on their entrepreneurial adventure. We can alleviate the burden of payroll, compliance, immigration and more from day one, allowing you to focus on growth with complete peace of mind. Think of us as your experienced guide, helping you clear the path, avoid the pitfalls, and reach your destination with success. Partner with Innovare to navigate the intricacies of business setup in Indonesia and get your payroll & HR managed compliantly & seamlessly.

Contact us today to book a consultation and discuss your needs with our experts.