Overview of Regulatory Compliance in Indonesia
A large number of entrepreneurs choose Indonesia as a viable place to start a business. To enter the Indonesian market, however, a business must first resolve a number of regulatory compliance difficulties that are present in the country's business environment. A company's adherence to the policies, procedures and rules that specify the regulations it must follow while conducting business is referred to as regulatory compliance. The effectiveness of regulations impacts how simple or complicated doing business is in a certain nation. These compliance activities largely affect public corporations, financial and non-financial banks, foreign investment companies, and other private companies. Independent organisations in Indonesia, including the Financial Services Authority (OJK), which keeps an eye on the financial aspects of businesses operating there, are typically tasked with carrying out compliance measures. Such requirements relating to Regulatory Compliance in Indonesia are put in place to safeguard businesses, consumers, and the government from unethical corporate behaviour that can have a negative impact on the economy.
Authorities that Oversee Regulatory Compliance in Indonesia
Ministry of Investment
The Ministry of Investment, formerly known as the Indonesian Investment Coordinating Board or BKPM, is a government agency with the responsibility of carrying out policy and service coordination in investment in accordance with the board of regulations. The Ministry of Investment is tasked with promoting both local and foreign direct investment by maintaining a favourable investment climate as the constitutional contact between business and government.
This investment promotion body's goal is to draw in high-quality investments that will aid Indonesia's economy is expanding and absorbing a large number of people, in addition to increasing local and foreign investment. Every investment company is required to create a quarterly and semester Investment Activity Report (Laporan kegiatan Penanaman Modal or LKPM) and submit it to the Ministry of Investment, according to Law Number 25 of 2007 Article 15.
Financial Services Authority of Indonesia (OJK)
The OJK is in charge of seeing to it that the financial services sector protects the interests of both its clients and the general public. Its fundamental objective is to guarantee the consistency, transparency, fairness, and responsibility of all financial services activities.
Ministry of Trade
As part of Regulatory Compliance in Indonesia, public firms are required to submit annual audited financial reports to the Indonesian Ministry of Trade.
The Ministry of Finance
Certain concerns relating to Regulatory Compliance in Indonesia fall under the purview of the Indonesian Ministry of Finance. The Directorate General of Taxes is in charge of making sure that enterprises obey all relevant tax rules and immediate answers to the Ministry of Finance. Companies are therefore required to pay taxes at the rates outlined by Indonesian corporate law.
Capital Markets Investment Board
A non-ministerial government organisation called the Capital Markets Investment Board oversees all capital market investments, especially those made by foreign companies interested in doing business in Indonesia. It also offers business licences to specific types of companies.
Laws Relating to Regulatory Compliance in Indonesia
Company Law in Indonesia
The main statute that governs Regulatory Compliance in Indonesia is the Company Law. It contains highly thorough definitions of the processes and procedures that all firms operating in Indonesia must adhere to, as well as a thorough review of every previous piece of legislation. Learn more about the significance of post-incorporation compliances that may affect your business if you have successfully formed a company in Indonesia.
Capital Market Law
The Indonesian Capital Market Law is a rule that controls how companies are listed on the Indonesia Stock Exchange (IDX). Two mainboards on the IDX are established by law, and both are governed by the OJK.
Prospective businesses and issuers with long track records are included on the mainboard. A corporation must have at least 1,000 shareholders with securities accounts in order to become publicly traded, and each shareholder must be a member of a stock exchange in order to be listed on the main board.
The second is the development board, which is for businesses that haven't fully complied with the mainboard's listing requirements. A minimum of 500 shareholders must meet these requirements in order for a company to have a development board.
Trademark and Geographical Indication Laws
The trademark and geographical indication laws recognise well-known brands from Indonesia and other nations. These Regulatory Compliance in Indonesia are made to stop reputable businesses and their goods from being imitated or altered by the general public.
This Regulatory Compliance in Indonesia law controls the registration of foreign investments in the nation. Additionally, it outlines the conditions for registration and the steps that must be taken in order to establish a foreign corporation in Indonesia. All foreign investments in Indonesia are governed by this law and other relevant laws and regulations.
Investment Activity Reports also referred to as LKPM in general, are periodic updates on the development and limitations of your business. BKPM or other pertinent Investment Boards may impose administrative consequences if LKPM and/or reports are not submitted by the deadline.
Sanctions also apply to PMAs and PMDN Companies that have operated any enterprises without a Business License or who have strayed from the conditions of their investment approvals. This is in addition to the failure to file reports.
According to Article 32, Paragraph 7 of BKPM Regulation No. 5 of 2021, PMA Companies must submit their Investment Reports (Laporan Kegiatan Penanaman Modal) through the OSS System on a quarterly basis by the following dates: Quarter 1: April 10 in the relevant year; Quarter 2: July 10 in the relevant year; Quarter 3: October 10 in the relevant year; and Quarter 4: January 10 in the following year. According to Article 5 paragraph (3) of Ministry of Manpower Regulation No. 18 of 2017, businesses must also file a Manpower Report (Wajib Lapor Ketenagakerjaan Perusahaan) annually every December. The regional regulation may also impose additional corporate/company secretarial annual compliance requirements on businesses, such as the requirement that businesses in Jakarta submit the Welfare Facility Report (Wajib Lapor Fasilitas Ketenagakerjaan) in accordance with Jakarta Province Regulation No.6 of 2004.
Compliance Needs in Indonesia
The following additional Regulatory Compliance in Indonesia must be adhered to by a business:
Annual General Meeting of Shareholders
An annual GMS must be held in accordance with Indonesian Company Law within six months of the end of the company's accounting year, as specified in the AOA of the relevant company. The following details must be included in the annual report that the BOD submits during the annual GMS:
- A financial statement;
- A report on the company's activities;
- A report on the implementation of corporate social and environmental responsibility;
- Detailed issues that arose during the accounting year that affect the company's line of business;
- A report on the supervising duties that the BOC performed during the prior year; f)
- The names of members.
All BOD and BOC members who were in office during the relevant accounting year must sign the annual report, which must be made available at the company's headquarters before the date of the notice of the GMS so that shareholders may review it. The annual GMS shall, in line with the Indonesian Company Law and/or the Articles of Association, approve the annual report, including approval of a financial statement and a report on the overseeing responsibilities of the BOC.
Annual Financial Statements Standards for Indonesian Companies
To comply with legal criteria, businesses with Indonesian registration must submit their annual financial accounts. Financial statements are records of financial transactions for a period of 12 consecutive months, most frequently the usual calendar year from January to December. However, businesses have the option to choose a different 12-month period in place of a calendar year as their fiscal year.
Additionally, public corporations must publish reports detailing the entire year's financial performance in addition to financial statements at specific times during the year. The company's yearly financial statements are recognised to be full-year reports.
The following data should be included in an annual financial statement, per the Indonesian Financial Accounting Standards (SAK):
- Assets, liabilities, and owner equity are listed on a company's balance sheet.
- The company's income, profits, and expenses are detailed in the profit and loss statement.
- A report on the company's cash flow activities is given in a cash flow statement.
- Report on changes in equity is included in the statement of changes in firm equity.
- The financial report's notes: are used to augment annual financial statement information and may contain a more thorough explanation of the aforementioned elements.
It is crucial to remember that all financial accounts and accounting records must be prepared in Indonesian (Bahasa Indonesia). However, the Ministry of Finance can grant approval for the use of another language.
Audit Needs under Regulatory Compliance in Indonesia
According to the Company Law, if a limited liability company's financial statements satisfy at least one of the following requirements, a public accountant registered in Indonesia is required to audit them:
- Companies that are publicly traded, issue debt instruments, have assets greater than 50 billion rupiahs ($3 million), or
- Companies that are state-owned enterprises.
The business manages or collects public cash (such as banks and insurance companies).
Every year, each registered business must deliver its yearly financial accounts to the local tax office. The following financial statements are included:
- Statement of changes in equity;
- Cash Flow Statement;
- Statement of profit and loss.
Financial statements must show comparative information and include data from the current and prior fiscal years. Every financial statement must be written in Indonesian. A corporation may only employ a different language with the MOF's approval.
The rupiah must also be used as the currency in the accounting records. The US dollar is the only other functional currency that is acceptable. Therefore businesses will need to ask the tax authorities for authorisation before using it.
Deadlines and Non-Compliance wrt Regulatory Compliance in Indonesia
If a company's fiscal year is reckoned from January 1 to December 30, the annual filing and payment date is April 30. The deadline is four months after the conclusion of the company's fiscal year if its fiscal year is different from the calendar year.
The goal of the standards relating to Regulatory Compliance in Indonesia is to create a management system that enables the government to monitor business operations and regulatory compliance.
On the other hand, businesses that don't follow regulatory compliance requirements will be penalised. Some of the penalties that may be applied in accordance with Indonesian business rules include the following:
If a business doesn't pay its taxes, it risks having its license revoked and having its business operations shut down. Therefore, a business must confirm its tax residency before starting operations. By doing this, it becomes easier to choose the kind of income tax to be applied to a company's revenue.
Suspension of business operations
If a corporation does not adhere to the operational standards outlined in the requirements related to Regulatory Compliance in Indonesia, its business operations may be suspended. As a result, organisations must update their criteria before being granted a license.
If a business violates any of the rules outlined in Indonesia's corporate laws, it may face legal action. Court officials decide what will happen to these companies and may choose to impose any of the aforementioned penalties, a fine, or maybe both.