What’s in this article
After incorporating your company in Indonesia, you must comply with all government regulations. Most countries’ company laws outline what is deemed appropriate behaviour by corporations operating within their boundaries.
Such company regulations are implemented to protect firms, consumers, and the government against corporate misbehaviour that may cause or exacerbate negative business conditions.
Governments adopt laws aimed at businesses, such as taxation, health practices, and registration, to create a favourable regulatory environment for business activities. While most regulatory compliance regulations are designed to safeguard local businesses, they must also be flexible enough to protect international businesses.
What is Regulatory Compliance?
Regulatory compliance refers to a company’s adherence to policies, rules, and procedures that define the rules that it must follow during its operations. Regulations’ efficiency determines how easy or difficult it is to conduct business in a certain country.
Public corporations, financial and non-financial banks, foreign investment companies, and other private companies are primarily affected by these compliance initiatives. In Indonesia, independent agencies such as the Financial Services Authority (OJK), which monitors the financial elements of corporations’ operations in Indonesia, are frequently tasked with implementing compliance procedures.
What are the Regulatory Compliances in Indonesia?
Here are some of the regulations imposed on Indonesian companies:
1. Capital Market Law
The Capital Market Law is a regulation in Indonesia that controls the listing of companies on the Indonesia Stock Exchange (IDX).
A corporation must have at least 1,000 shareholders with securities accounts and all shareholders must be stock exchange members to be listed on the main board. Companies with development boards must have at least 500 shareholders who meet the same criteria.
The capital market law also requires public companies in Indonesia to develop dedicated internal structures such as the position of a corporate secretary, an audit committee, and an internal audit unit.
2. Trademark and Geographical Indication Laws
Renowned brands from Indonesia and other countries are recognised under trademark and geographical indication rules. These rules are designed to prevent legitimate firms and their products from being copied or modified by the general public.
The legislation establishes the requirements for trademark registration and the rules under which a brand may be used in the Indonesian commercial environment. Recent changes to trademark law have been aimed at punishing businesses that have utilised well-known trademarks without first obtaining authorisation from the trademark owners.
3. Investment Law
The registration of foreign investments in the country is governed by this regulatory compliance statute. It also specifies the terms of registration and the procedures to be followed when forming a foreign corporation in Indonesia. This law’s other laws and regulations help to govern all foreign investments in Indonesia.
4. Indonesian Company Law
This is the primary law in Indonesia that controls regulatory compliance. It goes over each of the preceding legislation in great detail, as well as providing very detailed definitions of the processes and procedures that must be followed by all Indonesian businesses. The Indonesian Company Law is a set of laws that allow the Indonesian government to have control over firms operating in the country.
What Happens When There is a Lack of Regulatory Compliance by a Company in Indonesia?
Moreover, the regulatory compliance standards are designed to establish a management system that allows the government to track company performance and regulatory compliance.
Companies who fail to comply with regulatory compliance obligations, on the other hand, will face penalties. The following are some of the penalties that may be imposed under Indonesian corporate laws:
- Termination of licenses
A company that fails to pay its taxes could have its business license withdrawn and its operations terminated. A company must therefore verify its tax residence before initiating operations. Doing so helps in determining the type of income tax to be imposed on a company’s revenue. - Suspension of business activities
A company’s business activities may be suspended if it fails to meet the operational standards specified under regulatory compliance requirements. Therefore, companies are required to update their standards before receiving a license. - Litigation
A company may be sued if its activities violate any of the statutes stipulated in Indonesia’s company laws. Such companies’ fates are decided by court authorities who may decide to impose any of the preceding punishments, a fine, or possibly both.
FAQs
The Company Law mandates that financial statements of a limited liability company must be audited by a public accountant registered in Indonesia if they meet at least one of the following criteria:
- Companies with assets exceeding 50 billion rupiah (US$3.6 million);
- Public companies;
- Companies that issue debt instruments;
- The company is a state-owned enterprise; or
- The company collects or manages public funds (such as banks and insurance companies).
In Indonesia, a regional regulation (Indonesian: peraturan daerah or its acronym perda) is a regulation that is passed by Indonesian local governments and carry the force of law in that region.
Indonesia’s tax laws specify which companies in Indonesia are to be regarded as tax residents. These are companies which have either been domiciled or established in Indonesia. The location in which commercial and managerial decisions of the company are made is unrelated to a company’s tax resident status.
Today, it is much easier to conduct business in Indonesia than it has been in the past. The current ease of doing business rankings place Indonesia 73rd in the world. Over the last 12 years, its ranking has improved significantly; its lowest ranking was 135th in 2007.
