Every company in Indonesia ought to be compliant with all of the country’s many business regulations. Companies which comply with these regulations will find themselves on the path to much financial gain and many other positive outcomes, thus proving the importance of such regulations.
Company laws in most countries define what is considered to be acceptable conduct by businesses operating within their borders. Such company laws are enforced in order to protect businesses, consumers, and the government from corporate malpractices that may create or exacerbate unfavorable business conditions. Governments enact laws regarding taxation, health practices, and registration which are targeted at businesses; these laws are intended to create a favorable regulatory environment for the conducting of business activities. While most regulatory compliance laws are meant for the protection of local firms, such laws must also be flexible enough to protect foreign firms. In Indonesia, there are laws which specify details about a wide range of compliance issues. All companies need to adhere to these laws to ensure that their business operations may be performed in the proper manner.
Definition of Regulatory Compliance
Regulatory compliance refers to adherence to policies, rules, and procedures that create the regulations that businesses are to follow during the course of their operations. The effectiveness of regulatory compliance laws determine how easy or difficult it is to conduct business activities in a certain country. According to the ease of doing business rankings issued by the World Bank, Indonesia currently ranks 73rd in the world. The level of ease of doing business in Indonesia is similar to those of countries such as Mongolia, Ukraine, Greece, and Jamaica. Thus, one can conclude that the efficacy of regulatory compliance laws in Indonesia is approximately the same as those of the preceding four countries.
Compliance programs in Indonesia mainly affect the business entities that prospective business owners could start. Each entity has its distinct set of regulatory compliance matters which may sometimes overlap with those of another entity. These compliance programs mainly affect public companies, financial and non-financial banks, foreign investment companies, and other private companies. In Indonesia, the implementation of compliance programs is often carried out by independent bodies such as the Financial Services Authority (OJK), which oversees the financial aspects of companies’ operations in Indonesia. Each regulation has specific implications towards the Indonesian business environment.
Regulations Imposed on Indonesian Companies
Capital Market Law
The Capital Market Law is a regulation in Indonesia that controls the listing of companies on the Indonesia Stock Exchange (IDX). The law creates two main boards on the IDX which are controlled by the OJK. One of the two boards is the main board which lists prospective companies and issuers with extensive track records. The second is the development board which is meant for companies which have not fulfilled the full listing requirements for the main board.
In order to be listed on the main board, a company must have at least 1,000 shareholders with securities accounts; all shareholders are also required to be stock exchange members. Development board companies are required to have at least 500 shareholders who meet the same criteria.
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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. People involved in such structures serve regulatory authorities, especially the OJK. However, documentation that represents the company’s status at any point when such documents are needed has to be provided by these people.
Trademark and Geographical Indication Laws
Trademark and geographical indication laws recognize well-known brands from both Indonesia and foreign countries alike. Such laws are intended to protect reputable businesses and their products from being copied or modified by the general business community. The law dictates the conditions for trademark registration and the terms of agreement for using a trademark within the Indonesian business environment. Recent adjustments to the trademark law have been directed towards punishing companies which have used established trademarks without prior permission from the owners of the trademarks in question.
This regulatory compliance law controls the registration of foreign investments in the country. It also dictates the terms of registration as well as the processes to be followed while registering a foreign company in Indonesia. Other rules and regulations related to this law assist in governing all foreign investments in Indonesia.
Indonesian Company Law
This is the primary law that governs regulatory compliance in Indonesia. It describes in detail each of the preceding laws and also provides several clear descriptions of processes and procedures which are to be followed by all companies in Indonesia. The Indonesian Company Law is a collection of articles which enable the Indonesian government to exert its authority over businesses which are run in the country.
Bodies that Oversee Regulatory Compliance
The Indonesian government is in charge of several ministries and other bodies. These ministries and bodies control various areas of the economy. These ministries and bodies in turn create oversight authorities that oversee regulatory compliance matters as they relate to Indonesian companies. Indonesia’s Ministries of Trade, Finance, Industry, and Foreign Affairs are some of the government authorities which regulate businesses in Indonesia. There are also several other minor oversight authorities which assist the ministries with the overseeing of regulatory compliance.
Financial Services Authority of Indonesia (OJK)
The OJK is tasked with ensuring that the financial services sector protects the interests of its customers as well as the general public. Its primary objective is to ensure regular, transparent, fair, and accountable operations in the financial services sector. It also strives to ensure stability in the financial sector so as to ensure stable economic growth throughout Indonesia.
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Ministry of Trade
The Indonesian Ministry of Trade receives annual audited financial reports from limited liability companies as part of regulatory compliance.
Capital Markets Investment Board
The Capital Markets Investment Board is a non-ministerial government agency which oversees all investments in the capital market, especially those from foreign companies which intend to conduct business activities in Indonesia. It also provides business licenses to certain businesses. Recent developments saw the revocation of the Capital Markets Investment Board’s powers to issue licenses for two sectors. These are the property business and development sector as well as the housing sector.
The Ministry of Finance
The Indonesian Ministry of Finance also oversees specific matters related to regulatory compliance. The Directorate General of Taxes works directly under the Ministry of Finance to ensure that companies are compliant with all necessary tax obligations. Companies must therefore pay taxes at rates prescribed by the company laws of Indonesia.
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Punishments for Lack of Regulatory Compliance by a Company
The purpose of the regulatory compliance requirements is to provide a management system that enables the government to track the performance and regulatory compliance of companies. However, when companies fail to adhere to regulatory compliance requirements, there must be punishments which are to be imposed upon errant companies. The following are some of the possible punishments under Indonesian company laws:
Termination of licenses: A company that fails to pay its taxes could have its license withdrawn and its operations terminated. A company must therefore verify its tax residence prior to 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 prior to receiving a license.
Litigation: A company may be sued in the event that 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.
The Indonesian business scene has multiple regulatory compliance matters that need to be addressed by each company that seeks to enter the Indonesian market. While the compliance requirements may be numerous, they are broken down into multiple sections to make it easier for companies to deal with them. The compliance environment allows for proper business practices to prevail. Adherence to regulatory compliance requirements also provides many advantages for local companies. Foreign companies who likewise adhere to all of Indonesia’s regulatory compliance requirements can also be assured of successful business operations in the country.
Regulatory Compliance in Indonesia FAQs
Which Companies are Tax Residents of Indonesia?Tiwi2020-04-02T15:33:13+08:00
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.
How has Indonesia’s ease of doing Business Ranking Changed over the Years?Tiwi2020-04-02T15:32:32+08:00
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.