Indonesia has been gaining in prominence as a location in which many have decided to start a company. However, those who choose to start a company in Indonesia ought to be aware of the risks of doing so before they proceed with the setup and operation of the new company in Indonesia.
Many prospective company owners, whether locals or foreigners, have expressed interest in starting a company in Indonesia. This fact should not be one which is surprising to anyone for various reasons. Indonesia’s economy has been in a constant state of growth for many years. The country’s gross domestic product (GDP) has increased every year since 1999. The government of Indonesia has also been welcoming of foreigners who are interested in starting a company there. The Indonesian government recognizes that the contributions of foreign entrepreneurs only serve to strengthen the economy of Indonesia. Corporate tax rates, while not particularly low, are nevertheless reasonable, especially when measured against most other countries in the world.
However, anyone who plans to start a company in Indonesia ought to be aware of the inherent risks that come with doing so. Anyone who attempts to start a company in Indonesia but fails to make adequate plans to address these risks is likely to witness the eventual failure of the company.
Relative Difficulty of Conducting Business Activities
The proper conducting of business activities in Indonesia is not particularly easy. According to the World Bank’s Ease of Doing Business Index, Indonesia ranks 73rd. Although this position represents a significant improvement from its rankings in previous years, it is nevertheless a detail of which those starting a company in Indonesia must take note. When the rankings are restricted to only countries in the Asia-Pacific region, Indonesia ranks 12th, behind many of its neighbouring countries. As the conducting of business activities in the country is not always as easy as it could be, those who plan on starting a company there must find ways to overcome these challenges so that they may discover simpler and more viable ways in which business activities can be conducted.
Difficulties in Hiring of a Nominee Director
Foreigners who start a company in Indonesia usually set up a foreign-owned company (PMA). However, PMAs have a large number of restrictions placed upon them. Therefore, some foreigners who plan to start an Indonesia-based company choose to set up a locally-owned company (PT) instead. In Indonesia, the laws that govern the ownership and management of a PT require that a nominee director be hired if the PT is owned and run by a foreigner. In this way, the foreigner will be able to maintain complete control of the PT. However, in Indonesia, there are not particularly many people who have the qualifications required by most PTs which are planning to hire a nominee director. Therefore, PTs which are not careful in this regard might find that the person who is hired to serve as the nominee director of the PT might be one who is not suited for the position. For this reason, it is absolutely crucial that the foreign owner of a PT take extreme caution when selecting the person who will be the nominee director of the company. Selection of the wrong person could cause disastrous consequences to fall upon the company.
With this fact in mind, some who have been reading this may now be apprehensive about selecting a nominee director. However, if such applies to you, there is no need for you to worry any longer. This is because we at Paul Hype Page & Co provide an incorporation packages which also includes the appointment a nominee director on your behalf. By working with us and using our packages, you can be sure that a deserving and qualified person will be the one who will serve as the nominee director of your PT. This fact will give you much peace of mind as you run your Indonesia-based company.
High Costs of Product Transport
Indonesia is a truly massive nation. It is the 14th largest country in the world. The land area of Indonesia covers over 1.8 million square kilometers. This often makes the transportation of products required for business owners to conduct business operations between different areas of Indonesia somewhat difficult and costly. Adding to the costs of transportation and shipping is the fact that Indonesia is comprised of thousands of different islands. Therefore, in many cases, transporting products by road is impossible; only air or sea transport is possible. For this reason, the transportation of products between different areas in Indonesia often forces business owners to incur high costs which are unavoidable.
The costs of transporting products are among the many costs which must be taken into consideration by every business owner in Indonesia. Business owners who have not formulated a suitable financial plan may soon find that they will face many financial troubles and potentially the eventual forced closure of their business due to insolvency. This is where we at Paul Hype Page & Co come in. We will work with you in order to formulate a financial strategy which will enable your business’s finances to be in the best possible position. Our advice and solutions will ensure that your business is able to maximize its revenue, thus also allowing you to help yourself to a greater share of its profits.
Lack of Suitable Infrastructure and Technology
Many countries around the world have very high levels of infrastructural and technological development. Unfortunately for those who own an Indonesian business, Indonesia is not one such country. According to the Human Development Index (HDI) which is authorized by the United Nations, Indonesia is ranked 116th in the world with regard to overall development level in the country. Therefore, there are conveniences which may be enjoyed and utilized by business owners in other countries which those in Indonesia would not be able to access. Some of these conveniences are related to infrastructure and technology which might not necessarily be available in Indonesia. Therefore, those who own a company in Indonesia must sometimes find ways to overcome this relative lack of development in order to set their company on the path towards obtaining the best possible financial results. Although doing so might not always be easy, the rich rewards which await those who are able to do so make it a worthwhile endeavor.
It has clearly been shown that starting and running a business in Indonesia can sometimes be difficult. There are many risks and challenges which company owners across the country must recognize. They must then act accordingly to ensure that their respective companies are not burdened by the threats posed by these business risks. Company owners in Indonesia who are able to overcome these risks will soon find that their company will receive many benefits, whether financial or otherwise. Thus, even though there may be certain risks that come with starting a company in Indonesia, those who have made proper plans will not be adversely affected by these risks; they will instead find that their experience as a company owner in Indonesia will be extremely positive.
Paul Hype Page & Co – OSS service provider and Asean Chartered Accountant.
Paul Hype Page & Co. have 3 physical offices in Singapore, Malaysia and Indonesia
Our Firm Goal is to assist Foreigner and Foreign Companies to set up business in Asean.
How we can help you:
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Step 1- Listen to your Business plan and Relocation needs.
Step 2- Analysis your Tax Planning
Step 3- Recommend the most suited type of Company Incorporation, Open Bank account and Work Visa
Step 4- Arrange for your Spouse and Children Visa
Step 5- Assist as your company to hire staffs and handle all HR matters
Step 6- Every financial year end, we assist you with your yearly OSS Finanical and Tax Complianc
Step 7- Assist you to expand business to Malaysia, Indonesia, Vietnam and Thailand.
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Paul Hype Page
Risks of Starting a Company in Indonesia FAQs
The Human Development Index (HDI) is a set of rankings which, as is implied by its name, tracks the general development level of every country in the world. Factors such as life expectancy, educational standards, and per capita income also play a role in determining a country’s HDI ranking.
Under certain conditions, a foreigner may take up a role as the director of an Indonesian company. A foreigner must have a Taxpayer Identification Number (NPWP) before serving as the director of an Indonesian company. A foreign director must also have a residence permit (KITAS), a personal domicile letter, and a valid work permit.
The Ease of Doing Business Index is a set of rankings which assesses the condition of a country’s business scene during a given year. It was created by the World Bank. The higher a country’s ranking according to this index, the more conducive a country’s business scene is towards to the conducting of business activities.