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Starting a Company in Indonesia: Challenges and Benefits

Ashish M. Shaji

| Updated: Apr 22, 2022 | Category: Company Registration

Starting a Company in Indonesia: Challenges and Benefits

One of the Southeast Asia’s largest economic hub, Indonesia has eclipsed majority of Asian countries such as Singapore, Thailand, Malaysia etc., in terms of its entrepreneurial growth. Due to the wealth of natural resources and stable growth in Indonesia, foreign investors in big numbers have invested in the country. However, setting up a company anywhere in the world encompasses challenge. Knowing the challenges involved beforehand can go a long way in being prepared for the potential challenges. In this article, we provide you with a complete perspective including challenges and benefits of starting a Company in Indonesia.

Benefits of starting a Company in Indonesia

Apart from the wealth of natural resources available in Indonesia there are many other reasons why you should start a company there. Below we have explained few of the major benefits that business owners can exploit:

  • After India and China, Indonesia has the largest domestic market in the Asian continent which makes it a viable option for foreign entrepreneurs.
  • When compared with other western countries, the cost of living in Indonesia is cheaper.
  • Moreover, it has signed Free Trade Agreements (FTAs)[1] with different countries which open up business opportunities for expansion. Indonesia is also a member of ASEAN and has many other FTAs with various European countries such as Norway and Switzerland.
  • It has over 140 million internet savvy consumers. This is due to easy access to mobile devices which means that the citizens of that country use the internet exclusively through their mobile phones. This opens up opportunities for those who want to start a new business through mobile apps and tech platforms.
  • Indonesia has cheap labour costs, when compared to other Asian Countries which means labour can be recruited cheaply to carry out work. Also, the labour force is diverse in Indonesia; which means it would offer multiple opportunities.
  • Indonesia is a young country which means there is a lucrative business opportunity within the next few years for those who wish to set up a company there.
  • There are various Special Economic Zones established in Indonesia. It provides different types of benefits to investors like tax incentives, different types of subsidies as well as manufacturing benefits. Tax exemptions will also be available such as exemption from VAT and reduction of corporate income tax.
  • Foreign business owners who have set up a company in Indonesia will benefit from the fact that by global standards, corporate tax rates in country are relatively reasonable.
  • Indonesia’s economy has constantly registered growth rates in positives every quarter of the last two decades. On an average, the economy of Indonesia grows by approximately 5% every year.
  • The business environment in Indonesia is very welcoming to the foreign business owners. This is mainly because the government there recognises that the foreign investors can add value to the country.
  • Indonesia has more than 65 double taxation avoidance agreements with different countries.
  • Indonesia is one of those countries where middle class citizens have been growing. If citizens have high disposable income then it opens up opportunities for businesses especially in the luxury goods and commodities market.

Challenges of starting a company in Indonesia

Some of the primary challenges of starting a company in Indonesia includes complex market, business culture, corruption, lack of transparency bureaucratic inefficiency, red tapism, elaborate tax system, among others.

Indonesia is an archipelago with over 17000 islands and 500 languages being spoken. It is a complex market to do business in. This means you need to conduct serious market research, validation and study about which customer segment you wish to target. Hence it is advisable to test the market first before starting a company there. Further, in order to do most forms of businesses you will require obtaining special licenses and permits from the regulatory authority. This can be a challenging tasks if you have to do it all yourself. It can be a time taking administrative hurdle. Investors will be required to interact with different organizations and ministries during the process of doing business in Indonesia.

Corruption has been the biggest obstacle which has reduced investment benefits. While there have been various steps taken to curb corruption in the country, the change has been gradual. However, by moving the process online, the Indonesian government has taken steps to reduce bribery and collusion.

Dealing with the challenges

Having discussed about the challenges, Indonesia still remains one of the hotspot locations to start a company and do business. The challenges mentioned above should not discourage any entrepreneur from exploring business opportunities in Indonesia but these have been mentioned in order to make you aware of the obstacles beforehand. The Indonesian government has promised certain structural reforms as priority. Hence going forward one can expect more relaxation in regulations which will reduce formality, ease barrier for investments and tighten norms to fight corruption.

Tips to consider before starting a company in Indonesia

Please note the following tips that can be handy for someone who is looking to expand business to Indonesia:

  • Find out if your business field is available in Indonesia;
  • Make sure you have enough capital and avoid setting up the business with too small capital;
  • Spare at least two months of time;
  • Build relationships before you expand;
  • Automate- Take advantage of modern technology;
  • Recruit the right people;
  • Be Aware of the Barriers to Entry;
  • Adapt your business model to suit the market;
  • Protect your intellectual property.

Read Our Article: How to Register Company in Indonesia?

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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