Everything you need to know before incorporating a foreign company in Indonesia.
Being the largest economy in Southeast Asia, Indonesia is an attractive market to start a business for foreigners. However, the business formation in Indonesia can be a tricky one and we understand it may be difficult to absorb so much information on both the country and processes.
Here at Greenhouse, we have helped hundreds of our foreign clients start their businesses successfully in the Indonesian market. With that experience, we decided to compile a few important points you need to know before you start the incorporation process so that you can avoid some pain points in the future.
Also, read on how we ensure trust and safety between our clients and service providers.
- Find out if your business field is available in Indonesia
- Prepare a company name
- Make sure you have enough capital
- Prepare a business address
- Spare at least two months of time
- Build relationships before you expand
- Recruit the right people
1. Find out if your business field is available in Indonesia
Indonesia offers many business opportunities, identifying what business activities you will focus on at first it’s important. Many companies start with a small range of products and services and gradually expand into a wider range of products.
Before starting the incorporation process, you should clearly decide what business field you’re going to register as. This is important because companies in Indonesia are grouped into business classifications or Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) in Bahasa Indonesia. Your business field might be closed or restricted to foreign investors.
If you want to do business in Indonesia, you should read our 2021 Summary of Indonesia's Negative and Positive Investment Lists and see if your field is available. After that, you can contact an experienced consultant to help review the list with you and discuss options if your field isn’t open.
2. Prepare a company name
Other than accurately representing your business activities, your company name should also follow a few criteria including:
- Must consist of three words
- Cannot be similar to another company or organization
- Cannot contain vulgar or obscene words
We recommend coming up with at least three options so you can have alternatives.
Having to choose a three-word company name might seem complicated, but it’s just for administrative purposes. You can come up with another term as your brand name, which you can then register as a trademark separately.
3. Make sure you have enough capital
The minimum capital is another typical concern for aspiring foreign investors. Many entrepreneurs plan to invest in Indonesia without having the proper funds or investment plan, which would severely complicate things.
A foreign company in Indonesia needs to submit at least ±IDR 2.5 billion (±USD174,750) of paid-up capital and plan to invest at least ±IDR 10 billion(±USD698,998) in total. This rule applies to foreign-owned companies (PT Penanaman Modal Asing or PT PMA), which is the type of foreign company that’s allowed to generate revenue.
The best thing to do is to prepare the necessary minimum capital. But if you’d still like to build a presence in Indonesia without that much money, you can consider opening a representative office.
4. Prepare a business address
You need an official address to register a company in Indonesia. It can be a virtual office or a physical location in a commercial area.
Any business seeking to set up in Indonesia needs to submit an official address in a commercial area. This part of the process is usually more straightforward than the others, but can still delay your incorporation if you’re not aware of it.
However, this address is only for mailing and administrative purposes; it doesn’t have to be your actual working location. You might have heard of virtual office services and they are popular with businesses that work remotely. With a virtual office, you can register a commercial building as your official address without having a physical space there.
Keep in mind that some business fields aren’t allowed to use virtual offices. If this is the case, then your most practical options are getting a physical office or a dedicated desk in an office building.
5. Spare at least two months of time
There’s no getting around it. Market entry agencies can make things much simpler for you, but setting up any company in Indonesia isn’t quick. Coordinating between different government offices will still take a lot of time.
If you plan to invest in Indonesia, don’t expect to have your new entity up and running by next week. To be safe, we advise you to spare at least two months for your business incorporation process.
However, it might take more time depending on the complexity of your business and if there are more licenses or permits you need. It’s important to be transparent with your timeline expectations when using a service provider so that you can work out the best way to meet your needs.
Now that we are done with the technicalities of setting up your company in Indonesia, we have 3 tips for strategizing your business for success. These points were also brought up by our COO, Viktor Kyosev, in one of our videos. In that video, he discussed the Indonesian marketplace, the challenges he has seen companies face, and how you can ensure the success of your business in 2021.
As such we would like to reiterate the importance of three more points in helping to make your incorporation process a much pleasant and positive one!
6. Build relationships before you expand
Indonesia’s business culture is heavily on trust and heavily on the presence of an existing relationship.
While contracts and agreements are important so that business details are explicitly mapped out and fulfilled, the Indonesian culture calls for a relationship-driven partnership to even talk about contracts.
As such, it is crucial to network and expand your connections, either on business platforms such as LinkedIn or attend networking events. This is helpful to build your existing contacts before you think about expanding your business.
Although you can get more cost-effective manpower in Indonesia, automating your business processes could be even more efficient for your business.
An article by McKinsey on automation and the future of work in Indonesia states that Indonesian President Joko Widodo has been pushing the country into an Industry 4.0 economy. We also see many of the work incorporation processes being turned digitally, like Indonesia's Online Single Submission (OSS) in which the process previously had to be done physically.
Hence, we recommend exploring how your business can be automated to reap benefits such as higher productivity and growth for your company.
8. Recruit the right people
Indonesia has one of the largest populations and hence the one issue that most companies we have served face is finding the right people for your business.
It is important to understand the labor laws in Indonesia and the kind of company culture you’d like to create for your employees. We have also compiled a guide on Job Employment in Indonesia to help you navigate the necessary requirements, especially for foreign nationals.
Okay, so what’s the next step?
It’s important to know these things before expanding to Indonesia, but it doesn’t stop there. You still have to consider a lot of stuff from regulations, funds, to logistics, and it might be hard to keep track of everything.
Using incorporation services will help you navigate the challenges and get details about important things to know. However, it’s still important to know the basics beforehand to get a better idea of the process and help you get things done quicker.
All in all, do try and experiment with strategies that are localized and also build your network to find out what could work best for your business in Indonesia.
Greenhouse empowers you to book business incorporation services and connect with market entry consultants in your target markets.
We’ll connect you with experienced consultants on the ground who can help answer your questions about doing business in Indonesia.