Doing Business in Indonesia - Download

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Doing Business in Indonesia - Download

  1. 1. DOING BUSINESS IN INDONESIA A SHORT-FORM BUSINESS PROFILE INTRODUCTION (i) Foreign parties are allowed to own 100% of the issued capital of an Indonesia is the largest country in South East Indonesian company, apart from those Asia and the world’s largest archipelago. companies whose business activities The entire archipelago has a total land area are categorized as important to the of about 2 million square kilometers and has State and public in general, where 13,667 islands, of which around 6,000 foreign investment is limited to 95%. islands are inhabited. The main islands are Java, Sumatra, Kalimantan, Sulawesi and (ii) There is no more prescribed minimum Irian Jaya. amount of capital required to be invested in an FDI company. The country has 30 provinces with Jakarta as the capital city and the main business centre. (iii) The foreign shareholders are no longer Indonesia has a population of about 200 required to sell down their capital in a million people, of which around 55% live in 100% foreign-owned FDI company to Java. The official language is called a minority position at some future “Bahasa Indonesia” but English is widely time. The 100% foreign-owned FDI used in the business community. company is only required to sell at least a part of its shares to Indonesian Indonesia is rich in natural resources with oil citizens or entities within a maximum as its main source of revenues. The country of 15 years after the start of is Asia’s largest oil producer and the only commercial operations. OPEC member in the region. (iv) The business activities of an FDI company can now be located anywhere FOREIGN INVESTMENT in Indonesia, with the proviso that factories must be established in areas zoned for manufacturing. The foreign investment in Indonesia is supervised by the Investment Coordinating (v) The legal life of an FDI company has Board (BKPM) and is governed by the been extended by allowing the renewal Foreign Investment Law No. 1 of 1967 as of the operating license for an amended by Law No. 11 of 1970. additional 30 years, after a 30-year initial operating period. In line with its desire to stay competitive in the global market and to more seriously The FDI company may be established in the attract foreign investment, the Indonesian form of joint venture between foreign capital government issued recently important and domestic capital owned by Indonesian deregulation packages on foreign direct citizens or entities; or straight investment, in investment (FDI). This action of the the sense that 100% of the capital is owned government is considered a very significant by foreign citizens or entities. step towards a more conducive and attractive BKPM has the list of sectors that are closed investment environment in Indonesia. for foreign investment. Such list is known Among the new investment deregulation in Indonesia as the “Negative List”. The measures are as follows: Negative List is not applicable to portfolio Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  2. 2. 2 investment, where the purchase of shares of Companies operating and domiciled in the existing company is carried out through KAPET zones may enjoy the following the domestic stock exchange. facilities : (The Negative List can be acquired from the • Reduction in net income of up to a BKPM office or through our Jakarta office, maximum of 30% divided over 6 Johan, Malonda & Rekan). years from investments made, commencing commercial production. INVESTMENT TAX FACILITIES • Accelerated depreciation and amortization. a. Investments conducted under the foreign • Compensation of carried forward or domestic capital investment scheme losses for up to a maximum of 10 (PMA and PMDN) may enjoy certain years. tax facilities if conducted in certain line of businesses or in certain areas. • Income tax on dividends of 10%, except when the tax treaty states a The tax facilities are as follows : lower rate. • Reduction in net income of up to a d. Companies operating in bonded maximum of 30% divided over 6 zones located in KAPET zones enjoy years, from investments made. the facilities of both zones. • Accelerated depreciation and e. Venture Capital amortization. • Carried forward losses of more than Income received by a venture capital 5 years up to a maximum of 10 company from its venture business years. partner is exempted from tax provided : • Income tax on dividends of 10%, except when the tax treaty states a • The venture business partner is a lower rate. small or medium sized company, or it is engaged in the business sectors b. Bonded Zones determined by a Finance Minister decree. Companies operating in bonded zones • Its shares are not traded in the Stock may enjoy the following facilities : Exchange in Indonesia. • Postponement of import duties • Exemption from Value Added Tax and Luxury Sales Tax • Exemption from import withholding tax (Income tax article 22) • Exemption from excise duties c. Integrated Economic Development Zones (KAPET) Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  3. 3. 3 f. Pension Fund offer various banking services but in a limited scale. Income received by a Finance Minister approved Pension Fund from Non-bank financial institutions such as multi investments in certain businesses as finance and leasing companies are also the determined through a Finance Minister other sources of financing in Indonesia. decree is exempted from tax. Credit and charge cards, both local and g. Mutual Fund international, are widely used in almost all major cities in the country. Visa, Interest income from bonds received by MasterCard, American Express and Diners a Mutual Fund Company during the are among the commonly used international first five years of its operations since cards. establishment or the obtaining of an operating license is exempted from tax. TYPES OF BUSINESS ENTERPRISE EXCHANGE CONTROL - Limited Liability Company Indonesia has no foreign exchange control. A limited liability company is called FDI companies are required to report on the “Perseroan Terbatas” or PT. This type realization of investment. Indonesia is the most common used for companies and individuals receiving loans commercial purposes and is classified from overseas must report to Bank Indonesia as private company or public company for statistical purposes. (with shares of stock listed in the stock exchange). Presently, all PTs are Money transfers of USD 10,000 and above governed by the “1996 Corporation must be reported to Bank Indonesia. Law”. Public companies are being supervised by the Capital Market BANKING AND FINANCE Supervisory Board (BAPEPAM). The Corporation Law requires that a PT must have at least two shareholders. Bank Indonesia (BI), the central bank of Indonesia, controls the entire banking system To establish a PT, the Articles of of the country. BI’s main functions are to Association should be prepared and issue monetary policy, supervise and notarized and submitted for approval by regulate the banking sector, and act as the the Ministry of Justice and Human lender of last resort to the banking system. Rights. The companies in Indonesia are allowed by the government to obtain loans in foreign - Representative Office currencies from domestic or offshore banks A Foreign Representative Office is or both. normally formed to act as facilitator of business transactions between local Presently, there are 146 banks operating in suppliers/buyers and foreign buyers/ Indonesia, comprising 28 state commercial suppliers. banks, 84 private commercial banks, and 34 As such, it can perform as a liaison joint venture foreign banks. All these banks office, act as quality inspectors and offer a wide range of banking services. facilitate the preparation of import and There are also several private-owned rural export documents. However, a banks (Bank Perkreditan Rakyat or BPR) Representative Office is not allowed to operating all over the country. BPRs also perform operational activities such as Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  4. 4. 4 submitting bids, receiving orders or appointed at a general shareholders’ meeting signing contracts. (GSM). Generally, there is no minimum number of members of the BOD and BOC, A foreign Trading Representative Office except for specific industries. Non- must obtain approval from the Ministry Indonesian citizens, except in FDI of Trade while Foreign Regional companies, may not be directors nor foreign Trading Representatives should get investment commissioners. approval from the BKPM. The GSM consists of the annual GSM and - Joint Operations other GSM. The annual GSM must be held Joint Operations or “JO” are usually within the second half of the financial year. formed between domestic and foreign Other GSM may be held from time to time construction companies to execute as needed. construction projects, especially government projects funded by IBRD, ACCOUNTING AND ABD, World Bank and other funding agencies. REPORTING REQUIREMENTS The foreign party should establish a The government requires that every business Representative office in Indonesia for with revenue above a certain amount must which approval should be obtained from maintain proper accounting records for the Ministry of Public Works. This JO financial reporting and income tax purposes. is not established as a legal entity in The accounting must be done in accordance Indonesia. with the Statement of Financial Accounting Standards established by the Indonesian - Other Business Organizations Institute of Accountants. The government owned companies are Accounting records must be retained for at called Badan Usaha Milik Negara or least 10 years. BUMN, which are mainly in the plantation, mining and service The Corporation Law requires independent industries. audit of the financial statements only of those companies whose business activities Private trading enterprises are called are connected with the mobilization of Perusahaan Dagang or PD. These public funds and those who have issued debt enterprises are mostly sole instruments. proprietorships. The companies are usually obliged to have their books of accounts audited by public Limited liability partnerships are called accountants are public companies, stock CV. Such limited liability applies only brokers, underwriters, banks, non-bank to silent partners. Unlimited liability financial institutions, insurance, and logging partnerships are called Firma. Both companies. Foreigns Investment companies CV and Firma are Dutch terms. and companies with assets of Rp 25 billion and above are required to submit audited financial statements to the department of COMPANY ADMINISTRATION Industry and Trade. Exporting companies enjoying exemption from import duties and The management of a PT is done by the other tax facilities are also required to submit Board of Directors (BOD), while the audited accounts. supervision of the BOD is vested on the Board of Commissioners (BOC). The LANGUAGE AND CURRENCY members of both the BOD and BOC are Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  5. 5. 5 Only English and the US Dollar are allowed to be used in the company’s accounts other TAXATION OF INDIVIDUALS than Bahasa Indonesia and Rupiah. The company is required to report such intention Resident individuals are liable to Indonesian at the latest three months prior to the related income tax on all their worldwide income. book year. Tax returns must be filed in Residents are defined as individuals living in Bahasa Indonesia. For newly established Indonesia in excess of 183 days within a 12 companies such intention must be reported month period. within three months after its establishment date. The income tax rates for individuals are : TAXATION OF COMPANIES - up to Rp 25 million 5% - over Rp 25 million up to Rp 50 million 10% Resident companies are subject to corporate - over Rp 50 million up to income tax on their worldwide income. Rp 100 million 15% Foreign Investment companies are liable to - over Rp 100 million up to corporate income for their Indonesian source Rp 200 million 25% profit. - over Rp 200 million 35% The tax rates on income subject to corporate Certain personal allowances and deductions income tax are 10% on the first Rp 50 are permitted to be deducted from the million, 15% on profits in excess of Rp 50 taxable income in determining income million up to Rp 100 million, and 30% on subject to tax. profits above Rp 100 milllion. Income subject to corporate income tax is Generally, business expenses incurred by a equivalent to taxable income less allowable resident are in principle deductible from deductions. Foreign taxes paid are allowed taxable income. as credits from income tax to be paid. Dividends received by a company (either resident or FDI) from another company incorporated in Indonesia (domestic tax subject) are not taxable income, if : - Source of dividends is retained earnings. - A minimum of 25% ownership from paid-in capital - Conducts active business besides investments. Non-resident companies are liable to income tax only on income derived from Indonesia in the form of withholding tax. Tax losses are allowed to be carried forward for 5 years to offset against future profits. Certain industries are allowed to extend the carry forward of losses to a maximum of 8 years for initial losses sustained. Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  6. 6. 6 All employers are required by law to calculate, withhold and pay the income tax of their employees income on a monthly Foreign source income is subject to income basis (Article 21). tax. Withholding tax at source is a tax credit. Dividends received by resident individuals are subject to a 15% withholding tax which OTHER TAXES/CHARGES represents a tax credit for the recipient. Non-residents are liable to income tax on All sales of manufactured products and Indonesian source income at the rate of 20%. services are subject to 10% Value-Added- The tax rate may be reduced for residents of Tax (VAT). Exported goods are not subject tax treaty countries. to VAT. In addition to VAT, certain luxury goods are CAPITAL GAINS TAX subject to Sales Tax at the rates ranging from 10% to 75%. Capital gains are treated the same as the normal profit of a company and subject to Land and buildings owned by a company or the same corporate income tax rates. an individual are subject to Property Tax. However, capital gains on the sale of land The tax is based on the market value of the and buildings by individuals are subject to a land and building and is payable annually. 5% final tax based on the transactions value or market value whichever is higher. Road tax is applicable to all motor vehicles and payable annually. The amount of tax is dependent on the value of the vehicles. WITHHOLDING TAXES Transfer tax is imposed on every purchase Collections of income tax in Indonesia are and transfer of ownership or motor vehicles. made mainly through a system of withholding taxes. These withholding taxes Excise duties are imposed on all cigarettes are referred to by the corresponding Article and alcohol manufactured in or imported number of the Income Tax Law (PPh), as into Indonesia. follows : Stamp duty is chargeable on certain - Article 21 for Salaries documents, contracts, deeds, and others at - Article 22 for Imports either Rp 6,000 or Rp 3,000. - Article 23 for Interests, Dividends, Royalties, Rentals, and Fees for INTERNATIONAL TAX Technical, Management and AGREEMENTS Professional Services rendered in Indonesia. Indonesia has tax agreements with various - Article 26 for Payments to Non- countries which include; Australia, Austria, residents. Belgium, Bulgaria, Canada, Czech, Denmark, Finland, France, Germany, Hungary, India, Italy, Japan, Jordan, Kuwait, South Korea, Luxembourg, Malaysia, Mauritius, Mongolia, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Romania, Saudi Arabia, Seychelles, FOREIGN SOURCE INCOME Drs Johan, Malonda & Rekan Public Accountants & Management Consultants
  7. 7. 7 Singapore, South Africa, Sri Langka, Sudan, contained in or implied by this publication Syria, Sweden, Switzerland, Taiwan, without taking appropriate professional advice. Thailand, Tunisia, Turkey, Ukraine, United NEXIA INTERNATIONAL Kingdom and Northern Ireland, United INDONESIAN OFFICES States of America, Uzbekistan and DRS JOHAN, MALONDA & REKAN Registered Public Accountants & Management Consultants Venezuela Jakarta Jl. Pluit Raya 200 Block V No. 1-5, Jakarta 14450 - The agreements mainly aim to avoid double Indonesia taxation of income by allowing foreign tax Ph (62-21) 661-7155, 669-0170, 669-6921 credits. Fax (62-21) 669-6918, 663-0455 Email : jmmajkt@johanmalonda.com Contact Partner : Johan Yoranouw EMPLOYMENT AND Surabaya INDUSTRIAL RELATIONS Jl. Manyar Kertoarjo V No. 20, Surabaya 60285- Indonesia The employment relationship in Indonesia is Ph (62-31) 594-7939, 592-5981 Fax (62-31) 593-8601 regulated by the Ministry of Manpower. Email : jmsby@johanmalonda.com Contact Partner : DR. J. Malonda Wage levels vary according to location. The Medan minimum wage of workers in Jakarta Jl. S. Parman No. 56, Medan - Indonesia amounts to approximately Rp 600,000 per Ph (62-61) 4520-350 month commencing 1 January 2002. Fringe Fax (62-61) 4571-681 benefits are about 30% of the wage. Contact Partner : Ms. Rosni Oendang Email : jmmamdn@johanmalonda.com There are two main labour unions in MDI-TACK TRAINING INTERNATIONAL Indonesia. Workplaces with more than 25 Management Development Training employees may establish their own workers’ Jl. Pluit Raya 200 Block V No. 1-5 Jakarta 14450 -Indonesia union. Ph (62-21) 668-1571, 668-1572 Fax (62-21) 661-7157 Expatriates are allowed to be employed Email : mditack@dnet.net.id provided they are expert in their respective Contact Person : Ferry W. Atmadi - Executive fields, enabling them to train their Director Indonesian counterparts. A work permit is PT MA CONSULTANTS needed to be able for them to work in General Management Consulting, Indonesia. Feasibility Studies & Agrobusiness Jl. Pluit Raya 200 Block V No. 1-5, Jakarta 14450 - Indonesia Ph (62-21) 661-7155, 669-0170, 669-6921, 669-4873 Fax (62-21) 669-6918 Contact Persons : Benedictus Hardjito - for Agrobusiness Johan Yoranouw - for other businesses Ferry W. Atmadi - for other businesses Website : www.johanmalonda.com August 2002 Disclaimer The material contained in this publication is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Reader should not act or rely upon any matter or information Drs Johan, Malonda & Rekan Public Accountants & Management Consultants

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