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1、AN INTRODUCTION TODoing Business in Indonesia2023VISIT US ON FACEBOOKFOLLOW US ON TWITTERDezanShiraASEANBriefingVISIT US ON LINKEDINThis edition of Doing Business in Indonesia was produced by a team of professionals atDezan Shira&Associates,with Ayman Falak as Editor.Creative design of the guide was
2、 provided by Aparajita Zadoo.2023 Dezan Shira&Associates DisclaimerThe contents of this guide are for general information only.For advice on your specific business,please contact a qualified professional advisor.Copyright 2023,Asia Briefing Ltd.No reproduction,copying,or translation of materials wit
3、hout prior permission of the publisher is permitted.China GuideIndia GuideVietnam GuideASEAN GuideIndonesia GuideHong Kong GuideRussia GuideSingapore GuideBelt&Road GuideTHE DOING BUSINESS IN ASIA GUIDES SERIES3AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023About Dezan Shira&AssociatesAt Dezan S
4、hira&Associates,our mission is to guide foreign companies through Asias complex regulatory environment and assist them with all aspects of establishing,maintaining and growing their business operations in the region.Since its establishment in 1992,Dezan Shira&Associates has grown into one of Asias m
5、ost versatile full-service consultancies with operational offices across China,Hong Kong,India,Singapore and Vietnam,as well as liaison offices in Italy,Germany and the United States,and partner firms across the ASEAN region.With over 30 years of on-the-ground experience and a large team of professi
6、onal advisers,we are your reliable partner in Asia.4AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023CONTACTDezan Shira&Associates After gaining independence in 1945,Indonesia experienced rapid industrialization during the 1970s on the back of strong oil exports before labor-intensive industries b
7、ecame the new engine of growth in the late 1980s.The country is now the largest economy in Southeast Asia with a US$1.38 trillion economy by nominal GDP,and a member of the G20.Indonesias most important export commodities are oil and gas,palm oil,minerals,such as tin,gold,nickel,copper,bauxite,as we
8、ll as coal.However,the country is moving away from exporting raw minerals to developing its own downstream industries which is key to the governments economic growth strategy.For 2023,Indonesia is expected to see between 4.5-5.3 percent growth supported by growth in commodities,infrastructure,touris
9、m,and manufacturing of high-value products like electric vehicle batteries.The government of Joko Widodo remains prudent about its macroeconomic policies and structural reforms to attract foreign investment.Infrastructure is still the cornerstone of the governments policies,with Indonesia needing ov
10、er US$400 billion of infrastructure financing until 2024.Other important considerations for foreign investors are Indonesias ongoing amendments to various laws to remove bureaucratic inefficiencies,simplify business licensing requirements,and liberalize more industries.An example is Government Regul
11、ation in Lieu of Law No.2 Year 2022.Consequently,for investors and firms seeking to do business in Indonesia,it is important to have a long-term outlook.After all,with a population of close to 300 million,a competitive labor market,a rapidly expanding digital economy,and rising incomes,it is not a m
12、arket to be taken lightly.This publication,designed to introduce the fundamentals of investing in Indonesia,was compiled by Dezan Shira&Associates,a specialist foreign direct investment practice providing corporate establishment,audit,business advisory,tax advisory and compliance,accounting,payroll,
13、due diligence,and financial review services to multinationals and small-and medium-sized enterprises investing in emerging Asia.An Introduction to Doing Business in Indonesia 2023 covers the following:Indonesias Positive Investment List Corporate establishment;Taxation;Human resources and payroll;an
14、d Audit and compliance.PrefaceALBERTO VETTORETTIManaging PartnerDezan Shira&Associates5AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Highlights from the guideGovernment Regulation in Lieu of Law No.2 of 2022 is Indonesias biggest attempt at bureaucratic reforms since independence.The Law amends
15、 more than 75 current laws that aims to simplify the process to obtain business licenses and starting a business,formalizing special economic zones,and amending the countrys strict labor laws.Further,Indonesia has liberalized emerging sectors of interest for foreign investors,such as construction,he
16、althcare,and telecommunications,among others.In this guide,we review the important changes that will impact foreign businesses looking to invest in Indonesia.Below are some of the key changes foreign businesses need to aware of.Business licensing regimeIndonesia has now introduced a new business lic
17、ensing regime whereby business licenses are issued based on the assessment of business risk level,determined by the scale of hazards a business can potentially create.The business activities undertaken by the applicant company will be classified into one of the following risk-level types:Low-risk bu
18、sinesses;Medium-low risk businesses;Medium-high risk businesses;and High-risk businesses.Positive investment listUnder the Law,Indonesia has liberalized over 245 business lines,including important sectors,such as transportation,energy,and telecommunications.The general principle under the positive i
19、nvestment list is that a business sector is open to 100 percent foreign investment unless it is subjected to a specific type of limitation.As such,the government has classified business fields into four categories.1.Priority sectors;2.Business fields that stipulate specific requirements or limitatio
20、ns;3.Businesses fields open to large enterprises,including foreign investors,but are subject to a compulsory partnership with cooperatives and micro,small,and medium-sized enterprises(MSMEs);and4.Business fields that are fully open to foreign investment.6AN INTRODUCTION TO DOING BUSINESS IN INDONESI
21、A 2023Labor lawsThe Law has amended Indonesias labor laws.Changes include a formula for calculating the minimum wage,eliminating sectoral minimum wages,introducing provisions for hourly wages(for the first time),and income support for workers made redundant.Further,a new procedure for the disbursal
22、of severance payments has been established.Tax overhaulThe government has overhauled the existing tax structure to optimize tax revenue collection.The overhaul includes changes in the topline personal income tax rate.Individuals earning more than 5 billion rupiah(US$351,000)per year in net income wi
23、ll now be subject to a 35 percent income tax,and individuals with an annual net income of up to 60 million rupiah per year(US$4,220)will be subject to a five percent tax rate,up from the previous threshold of 50 million rupiah(US$3,517).7AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Sectors to
24、Watch for in Indonesia in 2023Indonesias central bank,Bank Indonesia,predicts that the countrys economy is expected to grow at between 4.5-5.3 percent in 2023 one of the highest among G20 members and will be supported by several important sectors,including commodities,infrastructure development,tour
25、ism,and manufacturing of high-value products,such as electric vehicle batteries.GDP had accelerated to 5.31 percent in 2022,bringing Southeast Asias largest economy back to pre-pandemic growth.The pace of growth in 2022 was largely supported by Indonesias large domestic consumption and further bolst
26、ered by the export of commodities as global prices of key shipments,such as coal,palm oil,and iron,rallied upwards.The highest priority for the Indonesian government for 2023 will be to hold inflation at three percent.Further,weakening global economic activity and a slowdown in commodity prices coul
27、d impact GDP this year.However,external demand for commodities and pent-up domestic consumption will continue to be the backbone of growth in 2023.Downstream miningAs Southeast Asias largest economy,Indonesia has enjoyed an exports boom on the back of rising commodity prices caused by the Russian-Uk
28、raine conflict.As such,Indonesias commodity exports will continue to be a backbone to the economy in 2023.In 2014,the Indonesia government began banning the export of raw mineral ores to encourage foreign investments in the downstream mining sector and development of local smelters besides boosting
29、exports of higher-value processed commodities as well as increasing government revenue.For 2023,the country is set to expand the raw mineral export ban to include bauxite.Indonesia has a large and unprospected variety of mineral deposits and is the worlds biggest exporter of tin,palm oil,and thermal
30、 coal,as well as a major exporter of nickel,copper,bauxite,rubber,manganese,zinc,and lead,among other resources.Mining roughly accounts for over one-tenth of Indonesias GDP and has been integral to its economic growth.The country is also home to the Grasberg mine one of the biggest gold mines,and th
31、ird-largest copper mine in the world which is estimated to have 275 billion ounces of copper and 14.2 million troy ounces of gold reserves.NickelIndonesia announced a ban on the export of nickel ores in 2019 and introduced a requirement for nickel miners to process or purify raw nickel in Indonesia
32、before export.The country is home to the worlds largest nickel reserves and its ban caused major shifts in the supply chains of electric vehicle makers and stainless-steel producers.Nickel is a major component of EV batteries and of stainless-steel.8AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 202
33、3Indonesias exports of processed nickel have soared from US$1 billion in 2015 to US$30 billion in 2022 with the country expected to account for half the global production increase in nickel up to 2025.The ban on nickel ores prompted the European Union to launch a complaint to the World Trade Organiz
34、ation(WTO)in 2019 who argued that Indonesias ban was unfairly harming the EUs stainless-steel industry.In November 2022,the WTO ruled in favor of the EU,citing that Jakartas ban was not in line with global trade rules.Indonesia has appealed the ruling.The WTO ruling poses a direct challenge to Indon
35、esias desire to ensure its mineral raw materials are processed domestically.The government has not announced its next strategy if it loses the appeal,but has not ruled out implementing a heavy tax on nickel raw exports as one initiative.Electric vehicle batteries supply chainIndonesias nickel reserv
36、es are making the country indispensable to the global EV industry with the country aiming to be a global EV hub.Global EV makers,which include USs Tesla and Chinas BYD,are said to be finalizing deals to invest in Indonesia,according to the countrys Coordinating Minister for Maritime Affairs and Inve
37、stment,Luhut Binsar Pandjaitan.Indonesia aims to be one of the top three producers of EV batteries in the world by 2027.Moreover,to complement its nickel-based battery industry,the country is also developing lithium refineries and anode material productions facilities.With its 278 million population
38、,Indonesia also presents opportunities for the sale of EV vehicles ranging from motorbikes to cars.Formidable challenges and opportunities for investors include consumer affordability and the lack of publica charging infrastructure.The government has an ambitious target of having 2.5 million EV user
39、s by 2025.Coal Indonesia is the worlds third-largest exporter of coal after China and India and the worlds biggest thermal coal exporter.Indonesia produced 687 million tons of coal in 2022 of which 494 million tons was exported and the remainder for domestic use.Coal exports earn the country roughly
40、 US$3 billion per month with China,India,South Korea,and Japan accounting for 70 percent of exports.Vietnam and the Philippines are growing export markets for Indonesian coal.The government left the thermal coal market in a volatile state in January 2022 when it issued an export ban to meet domestic
41、 demand.The ban displaced an estimated four percent of the global seaborne supply or 36 million tons of coal.For 2023,the country is targeting a record 518 million tons of exports and production at 695 million tons.9AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023As with other commodities,the gov
42、ernment is eager to develop Indonesias downstream coal industry,specifically surrounding the below seven subsectors:1.Coal liquefaction;2.Coal quality enhancement;3.Coal gasification;4.Coke manufacturing;5.Underground coal gasification;6.Briquette manufacturing;7.Coal-water mixture production.This s
43、trategy will need immense foreign investment,particularly in infrastructure and technology.InfrastructureInfrastructure development has been the cornerstone of President Joko Widodos government for most of the past decade.During eight years of his tenure,his government has built 1,700km of highway,o
44、ver 4,000km of non-highway roads,30 reservoirs,18 ports,and 21 airports,with most developed outside the island of Java.To take this into perspective,Indonesia had only 780km of highway for the past 40 years.Between 2022 and 2024,Indonesia requires over US$400 billion for infrastructure investments.S
45、pecifically for 2023,the government has set aside US$25 billion in the national budget for infrastructure.As such,Indonesia is pushing for private involvement in its infrastructure development through private-public partnership(PPP)initiatives.There are also opportunities for small and large-scale e
46、nergy and infrastructure projects in Indonesias eastern regions,which is lacking the most in connectivity and is seeing increased focused from the government(Java currently constitutes 60 percent of total GDP and 60 percent of the population).Healthcare and pharmaceuticalsGiven its large market size
47、,Indonesias healthcare sector presents a lucrative opportunity for foreign investors.The governments annual spending on healthcare has skyrocketed since the implementation of the universal healthcare program(BPJS)in 2014,which has now grown to be the worlds largest,covering some 240 million people.E
48、very citizen and expatriate are mandated to join,and companies must register their employees to the program,paying a percentage of the premiums.Increasing spending on healthcare will impact important sub-sectors,such as the medical devices industry,which was valued at US$4.5 billion in 2019.The majo
49、rity of this,US$2.8 billion,10AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023was from imports.Indonesia mainly imports sophisticated medical instruments,such as PET-CT scanners and ICU equipment,and exports low-tech equipment,such as gloves and syringes.The pharmaceutical industry is dominated b
50、y generic drugs(70 percent)with the remainder from over the counter(OTC)drugs.The BPJS program has boosted sales of generic drugs in the country,valued at more than US$700 million.TourismIndonesia has set an ambitious target of up to 7.4 million tourists for 2023,generating some US$5 billion for the
51、 country.This is still not at the pre-pandemic levels of 16 million foreign visitors.However,the sector will have its challenges in 2023.Despite all countries lifting their COVID-19 travel policies,the threat of a global recession,high air fares,and inflation are impacting consumer spending behavior
52、.The countrys tourism ministry has opened the sector to foreign investment for developing sustainable-based tourism projects,five priority tourist destinations,and eight special economic zones catered to tourism.The ministry also highlighted that these opportunities were valued at US$1.5 billion in
53、total and would create 1.5 million new jobs.11AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Table of ContentsPreface04Highlights from the guide05Sectors to Watch for in Indonesia in 202307Chap 1|The Positive Investment List and the Liberalization of Business Sectors12Chap 2|Corporate Establishm
54、ent19Chap 3|Taxation33Chap 4|Human Resources and Payroll46Chap 5|Audit and Compliance6912AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023The Positive Investment List and the Liberalization of Business Sectors113AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 20231The Positive Investment List and t
55、he Liberalization of Business SectorsPresidential Regulation 10 of 2021 as amended to President Regulation No.49 of 2021(PR 49/2021)liberalizes many business sectors for foreign investment.Dubbed the positive investment list,PR 49/2021 liberalizes over 200 business lines,including transportation,ene
56、rgy,and telecommunication.The general principle under the positive investment list is that a business sector is open to 100 percent foreign investment unless it is subjected to a specific type of limitation.The regulation presents one of the greatest liberalizations in foreign ownership limitations
57、in Indonesia since the negative investment list was first introduced in the 1980s.The design of the positive investment list The government has classified business fields into four categories.1.Priority sectors;2.Business fields that stipulate specific requirements or limitations;3.Businesses fields
58、 open to large enterprises,including foreign investors,but are subject to a compulsory partnership with cooperatives and micro,small,and medium-sized enterprises(MSMEs);and4.Business fields that are fully open to foreign investment.Priority sectorsTo classify as a priority sector,business enterprise
59、s must meet the following criteria:Must be labor intensive;Must be capital intensive;Must be part of a national project/program;Must be export-oriented;Must involve a pioneer industry(renewables,oil refining,metals,etc.);Must utilize advanced technologies;and Must implement research and development
60、activities.There are 246 business fields under this category of the positive investment list.Moreover,businesses in priority sectors are eligible for a range of fiscal and non-fiscal incentives.Fiscal incentives include a 50 percent corporate income tax reduction for investments between 100 billion
61、rupiah(US$6.9 million)and 500 billion rupiah(US$34.9 million)for a period of five years and 100 CIT reduction for investments over 500 billion rupiah(US$34.9 million)for a period between five and 20 years.In addition,there are tax allowances available in the form of a reduction in the taxable income
62、 of 30 percent of the total investment for six years,a special withholding tax rate on dividends of 10 percent,and tax losses carried forward for up to 10 years.“Foreign investors,entering Indonesia and taking advantage of what the country has to offer requires having a long-term outlook.”MARCO FRST
63、ERManagerASEAN Advisory UnitDezan Shira&AssociatesHo Chi Minh City Office14AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Examples of non-fiscal incentives are the provision of supporting infrastructure,simplified business licensing procedures,and the guaranteed energy supply and raw materials.W
64、e explore a few examples of the prioritized business lines and their incentives below.Examples of Priority Business Sectors and Their IncentivesBusiness lineIncentive typeTextile and garment industryTax allowance and investment allowancePharmaceutical industryTax allowanceDigital economy(hosting,dat
65、a processing etc.)Tax holidayGeothermal(exploring and drilling)Tax allowanceCooking palm oil industryTax allowanceIron and steel industryTax allowanceAutomotive industryTax allowanceOil and gas refineryTax holidayCosmetics industryTax allowanceCoal gasificationTax allowanceBusiness fields that stipu
66、late specific requirements or limitationsUnder this category,business fields are open to foreign investments but are subject to the following types of restrictions:Lines of business reserved for domestic investors;Lines of business subject to foreign ownership limitations;Lines of business that requ
67、ire special licenses;and Other investment requirements,namely business lines that are restricted and strictly supervised as well as regulated in separate laws and regulations in the field of alcoholic beverage control and supervision.The business lines include:Wholesale trade of alcoholic beverages(
68、importers,distributors,and sub-distributors);Retail trade of alcoholic beverages;and The street retail of alcoholic Beverages.15AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Business Fields with Specific RequirementsBusiness fieldsRequirementsPublishing of newspapers,magazines(press)100 percent
69、 domestic capital required for establishment,and up to 49 percent foreign capital ownership for business development and expansionPrivate broadcasting agency100 percent domestic capital required for establishment,and up to 20 percent foreign capital ownership for business development and expansionSu
70、bscription-based broadcasting agency100 percent domestic capital required for establishment,and up to 20 percent foreign capital ownership for business development and expansionPostal servicesMaximum foreign capital ownership of 49 percentDomestic scheduled air transportationForeign capital ownershi
71、p of 49 percent.However,domestic capital ownership needs to be the single majorityDomestic non-scheduled air transportationForeign capital ownership of 49 percent.However,domestic capital ownership needs to be the single majorityAir transport activitiesForeign capital ownership of 49 percent.However
72、,domestic capital ownership needs to be the single majorityDomestic passenger liner and tramp activitiesMaximum foreign capital ownership of 49 percentDomestic sea transport for tourismMaximum foreign capital ownership of 49 percentDomestic liner and tramp sea freight for goodsMaximum foreign capita
73、l ownership of 49 percentDomestic sea transportation for special goodsMaximum foreign capital ownership of 49 percentPioneer domestic sea transportation of goodsMaximum foreign capital ownership of 49 percentDomestic sea transportation using public shippingMaximum foreign capital ownership of 49 per
74、centOverseas liner and tramp sea freight for goodsMaximum foreign capital ownership of 49 percentOverseas sea transportation for special goodsMaximum foreign capital ownership of 49 percentInterprovincial sea public transportMaximum foreign capital ownership of 49 percentInterprovincial sea public t
75、ransport(pioneering)Maximum foreign capital ownership of 49 percentInterprovincial city/regency public transportMaximum foreign capital ownership of 49 percentInterprovincial city/regency public transport(pioneering)Maximum foreign capital ownership of 49 percentInter-city and regency public transpo
76、rtMaximum foreign capital ownership of 49 percentRiver and lake transportation with non-fixed and irregular routesMaximum foreign capital ownership of 49 percent16AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Business Fields with Specific RequirementsBusiness fieldsRequirementsRiver and lake tr
77、ansportation with non-fixed and irregular routes for tourismMaximum foreign capital ownership of 49 percentRiver and lake transportation for general goods and/or animalsMaximum foreign capital ownership of 49 percentRiver and lake transportation for special goodsMaximum foreign capital ownership of
78、49 percentRiver and lake transportation for dangerous goodsMaximum foreign capital ownership of 49 percentWeapons equipment industryCapital ownership based on approval from Ministry of DefenseHorticultureMaximum foreign capital ownership of 30 percentTraditional medical products(for humans)100 perce
79、nt domestic capitalFish processing industry100 percent domestic capitalWood-based building products100 percent domestic capitalCoffee processing industry that already acquire geographical indications100 percent domestic capitalShip industry Outriggers;and Traditional vessels100 percent domestic capi
80、talTraditional handicrafts100 percent domestic capitalTraditional cosmetics100 percent domestic capitalRaw materials for traditional medicine(for humans)100 percent domestic capitalBatik industry100 percent domestic capitalCrackers and chips industry100 percent domestic capitalHajj and Umrah activit
81、ies100 percent domestic capital and must be Muslim17AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023The foreign ownership limitations(bullet point 2)do not apply in the following circumstances:The investments are conducted in special economic zones;Investments are in the form of non-direct invest
82、ments taken through the Indonesian stock exchange;Investments subject to more favorable treatment under a treaty between Indonesia and the investors country of origin;or Any investments approved prior to the issuance of the positive investment list.The positive investment list provides for this thro
83、ugh a grandfathering policy.Business fields open to foreign investors but are subject to a compulsory partnership with MSMEsBusiness fields under this category are open to foreign investors or large-scale enterprises through a compulsory partnership agreement with an MSME.There are 106 business line
84、s for this category,being:Business lines that do not use advanced technology;Are labor-intensive businesses,characterized by a special cultural heritage;or The capital for the business activities does not exceed 10 billion rupiah(US$701,000).Further,they cover businesses that are commonly carried ou
85、t by MSMEs and/or sectors that have the potential to enter the larger supply chain.The partnership arrangement can be in the form of operational cooperation,profit sharing,subcontracting,outsourcing,or distribution.Businesses open to 100 percent foreign investmentThe following business fields are op
86、en to 100 percent foreign investment:Oil and gas construction;Onshore upstream oil installation;Onshore and offshore distribution pipelines;Onshore and offshore oil and gas drilling service;Oil and gas well maintenance service;Electricity generation;Construction of electricity installation;Geotherma
87、l electricity generation;Supermarkets(with areas less than 1,200 sqm);Department store(with areas between 400 2,000 sqm);Ports;Airport and airport supporting services;Maritime cargo handling;18AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023 Telecommunication;E-commerce;Pharmaceutical industry;an
88、d Hospitals.What business activities are closed for investments?There are six business sectors closed for investments for both domestic and foreign companies.These are:Class-I narcotics and cultivation;All forms of gambling and/or Casino activities;Fishing of endangered species;Utilization of corals
89、 found in nature for the production of jewelry,souvenirs,building materials,etc.;Chemical weapons production;Alcoholic beverage manufacturing;Manufacturing of beverages containing alcohol-wine;Manufacturing of beverages containing alcohol-malt;and Industrial ozone-depleting substances industries and
90、 industrial chemicals.19AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Corporate Establishment220AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Corporate EstablishmentIndonesias government has sought to simplify the corporate establishment process through the Omnibus Law.As such,Government R
91、egulation in Lieu of Law No.2 of 2022 has amended several aspects of the corporate establishment process and norms of doing business in Indonesia.Based on the Investment Coordinating Board of the Republic Indonesia Regulation No.4 of 2021(BKPM Reg 4/2021),the minimum capital requirement for a foreig
92、n investment company or PT PMA shall be a total investment of at least10 billion rupiah(US$696,000).Previously,the minimum capital requirement for a PT PMA was 2.5 billion rupiah(US$167,065).Further,the government has also implemented a risk-based approach to the issuance of business licenses.Busine
93、ss activities will be assessed on the scale of the hazards they can potentially create(low risk,medium-low risk,medium-high risk,and high risk).Previously,foreign businesses had to endure multi-layered bureaucratic structures that involved multiple local and federal authorities,making it difficult f
94、or investors to determine which business licenses to obtain.Another important amendment is the introduction of individually owned companies for Indonesian citizens.It is a type of company category that can be incorporated by a single individual.What are my options for investment?Investors should ass
95、ess their specific needs carefully before deciding which corporate structure to operate from.Using a reliable local advisor is recommended for first-time investors in the country,as they find it easier to remain compliant with applicable regulations.There are two legal options for foreign investors
96、looking to set up in the country:a PT PMA or representative office(RO).Foreign investment companyEstablishing a foreign investment company or PT PMA,is the preferred structure for companies looking to have a legal presence in the country.Foreign investors will need to have a minimum paid-up capital
97、equivalent of 10 billion rupiah(US$696,000),an increase from the previous 2.5 billion rupiah(US$174,135),as the government aims to attract more high-value investments into the country.RELATED READINGOpportunities in Indonesias Special Economic ZonesASEAN Briefing MagazineJuly,2022In this issue of th
98、e ASEAN Briefing magazine,we provide an overview of Indonesias special economic zones and explore the tax incentives available.Finally,we discuss choosing the ideal location in Indonesias SEZs by highlighting select zones.AVAILABLE HERE21AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Set up requ
99、irements for a foreign investment companyAccording to BKPM Reg 4/2021,investors looking to incorporate a PT PMA need to adhere to the following requirements:A minimum paid up capital of 10 billion rupiah(US$696,000)to cover operational activity;Appointment of two shareholders(these can be foreign in
100、dividuals or corporations-the percentage of local involvement will depend on the foreign ownership limitation based on the Positive Investment List);The appointment of at least one commissioner and a director(these can be held by foreign individuals),although it is advisable to have one local direct
101、or for the ease of administration;and The director will be responsible for running the day-to-day activities of the company.Set up process for a PT PMA1.Reserve a company name with the Ministry of Law and Human Rights(which should not be similar to the name of other companies or contain vulgar langu
102、age),Further the company name shall consist of three words and can be in English.2.Determine the industrial business classification code(KBLI)based on the intended business activities.3.Establish a legal entity with the companys activities stated in the Deed of Establishment(this must be done with a
103、 local notary and the Deed of Establishment will have to be ratified by the Ministry of Law and Human Rights).4.Obtain a taxpayer identification number from the local tax office and domicile letter from the district government(businesses establishing in Jakarta do not require a domicile letter).5.Ob
104、tain a tax registration certificate through the tax office where the business is domiciled.6.Obtain a Business Identification Number(NIB)by applying through the Online Single Submission(OSS)system.The NIB functions as the companys import identification number,customs ID,and registration certificate.
105、Further,the NIB will also automatically register your company under the governments health and social security scheme.7.Some companies may need to apply for additional business licenses(such as for mining and fintech).Business licenses will now be issued based on the assessment of business risk leve
106、l determined by the scale of hazards a business can potentially create.Risk-based business licensing for a PT PMAGovernment Regulation 5 of 2021(GR 5/2021)an implementing regulation of the Omnibus Law introduces criteria on how business licenses are issued in the country.Business licenses will now b
107、e issued based on the assessment of business risk level,determined by the scale of hazards a business can potentially create.22AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023To determine the risk level,the government will conduct a risk analysis of each applicationbefore deciding on issuing a bu
108、siness license.This will comprise of:1.dentifying the relevant business activity;2.Assessing the hazard level;3.Assessing the potential occurrence of hazards;4.Determining the risk level and business scale rating;and5.Determining the type of business license.Based on the aforementioned risk analysis
109、,the businesses activities undertaken by the applicantcompany will be classified into one of the following types:Low-risk businesses;Medium-low risk businesses;Medium-high risk businesses;and High-risk businesses.Based on this risk-based approach,the lower the business risk,the simpler the businessl
110、icensing requirements will be.What sectors will be impacted?The government will undertake the risk-analysis for business activities in the following sectors:1.Maritime affairs and fisheries;2.Agriculture;3.The environment and forestry;4.Energy and mineral resources;5.Nuclear energy;6.Industry;7.Trad
111、ing;8.Public works and housing;9.Transport;10.Health,medicine,and food;11.Education and culture;12.Tourism;13.Religious affairs;14.Post,telecommunications,broadcasting,and electronic system,and transactions;15.Defense;and16.Employment.23AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023What are the
112、 requirements to obtain a business license?The requirements vary depending on the risk level of the business with those in the high-riskcategories requiring more permits and licenses.The first stage of the process is obtaining an NIB through the OSS system.To register for anNIB,businesses will need
113、to provide the following information:Taxpayer number(Nomor Pokok Wajib Pajak NPWP);Business activity code according to the KBLI;Business profile;The capital structure of the business;and The proposed location of the business.Furthermore,the OSS system will be linked to all relevant ministries,such a
114、s the Ministry of Finance,the Ministry of Home Affairs,and the Ministry of Law and Human Rights.Low-risk business activitiesLow-risk business activities are only required to obtain an NIB to commence their operations.Inaddition to serving as the formal identity of the business,the NIB also serves as
115、 a companysimport identification number,as well as the number for registering with the national social insurance program.Medium-low risk business activitiesBusiness activities in this category must obtain a NIB and Certificate of Standards before beginning operations.A Certificate of Standards is a
116、statement of the fulfillment of certain business or product standards,which must be filled in through the OSS system.The NIB allows the business to conduct activities from preparation to the commercial stage.The preparation stage includes:The procurement of tools or facilities;Land acquisition;Recru
117、itment of manpower;Feasibility studies;Financing operations for the construction phase.The commercial-stage includes:The production of goods/services;Distribution of goods/services;Marketing of goods/services;and Other commercial activities.24AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Medium
118、-high risk business activitiesFor medium-high risk business activities,companies will need to obtain a NIB and Certificateof Standards.However,the certificate will need to be verified by the central or regional government.A company with a NIB and an unverified Certificate of Standards are only permi
119、tted to conductactivities deemed in the preparation stage of operations.Once the central or regional government is satisfied the business has fulfilled the specificbusiness standards,they will issue the verified certificate and the company can begin thecommercial stage of operations.High-risk busine
120、ss activitiesHigh-risk business activities will require an NIB and a license to operate.The license will be issued once the business has fulfilled certain conditions and verifications set out by the central or regional government,which may include an environmental impact analysis.The NIB,however,all
121、ows the business to conduct activities in the preparation stage of operations.Depending on the products or services being provided,businesses may have to obtain other supporting licenses to conduct commercial activities regardless of what risk level their activities are classified as.An illustration
122、 of the licensing requirements can be seen below.Business lineBusiness scaleRisk levelLicenseIssuing AuthorityWholesale distributionMicro,small,medium,and largeLowNIBGovernor,or Regent or MayorE-commerce operatorLarge and mediumHighNIB and licenseMinistry of TradeFreight forwardingAll sizesMedium-hi
123、ghof StandardsGovernor25AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Individually incorporated companiesGovernment Regulation 8 of 2021(GR 8/2021),an implementing regulation of the Omnibus Law,which makes amendments to the Company Law of 2007 by introducing the concept of“individually owned co
124、mpanies”as well as leaving the required minimum paid-up capital to the discretion of the founder(s)of the company.Individually owned companies are a new type of company category in Indonesia that can be incorporated by a single individual,who is at least 17 years of age.Investors should note that GR
125、 8/2021 only impacts Indonesian nationals.GR 8/2021 sets out the criteria for businesses to get classified as micro or small enterprises,which was not previously regulated.Through this reform,the government hopes to increase the number of officially registered micro and small enterprises who will th
126、us pay tax as well as contribute to the national social security programs.Currently,the majority of Indonesias 64 million or so micro,small,and medium enterprises(MSMEs)are in the informal sector and employ more than 70 million informal workers.Importantly,an individually owned company is only appli
127、cable to businesses categorized as micro or small enterprises.GR 8/2021 states that businesses categorized as micro or small enterprises must fulfill the following capital or annual sales criteria.Enterprise scaleCapitalAnnual salesMicroUp to 1 billion rupiah(US$69,000),excluding land and buildingsU
128、p to 2 billion rupiah(US$138,000)SmallMore than 1 billion rupiah(US$69,000)and up to 5 billion rupiah(US$345,000),excluding land and buildingsMore than 2 billion rupiah(US$138,000)and up to 15 billion rupiah(US$1 million)26AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Further,the incorporation
129、of an individually owned company does not require a deed of establishment,rather the individual only needs to fill out an establishment statement through the Ministry of Law and Human Rights(MOLHR)website to obtain a registration certificate.The statement must include the following information:Name
130、and domicile of the company;Purpose and business activities of the company;The amount of authorized,issued,and paid-up capital of the company;Number of shares of the company;Details of the founder of the company;and Tax number of the founder of the company.The individually owned company must change
131、its legal status to a limited liability company if the number of shareholders is more than one person,or the business no longer meets the criteria of a micro or small business.Another important aspect with regards to an individually owned company is that their liability is limited to the companys ca
132、pital.Minimum authorized capital requiredGR 8/2021 stipulates that the amount of paid-up capital is to be agreed upon by the founder(s)of the company.Under the 2007 Company Law,companies need to have paid-up capital of at least 50 million rupiah(US$3,450).Once the founder(s)of the company are agreed
133、 on the amount of authorized capital,they must pay at least 25 percent of the total paid-up capital,and the proof of payment must be electronically submitted to the MOLHR within 60 days from the date of establishment.Obligation to file financial statementsFinancial statements of individually owned c
134、ompanies must be submitted within six months of the end of their accounting period.Failure to submit financial statements will result in administrative sanctions ranging from a written warning to the suspension of business activities.Improving the ease of doing business for MSMEsMSMEs are the backbo
135、ne of Indonesias economy(contributing to 60 percent of GDP)as well as its largest source of employment.However,a major impediment to these businesses is that they are handicapped in accessing bank loans and other types of financing because they and their workers are unregistered.This makes it diffic
136、ult for the government to support MSMEs expand and grow,or since the onset 27AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023of the pandemic,survive.As a result,an estimated 43 percent of Indonesian MSMEs were forced to shut down,and more are expected to close as the government has extended parti
137、al lockdown measures in the country.GR 8/2021 could give individuals the protection and benefits of a limited liability company without needing to fulfill all the administrative requirements.Moreover,these entities can access sources of financing,such as through non-banking institutions.These organi
138、zations(such as fintech firms)can provide microloans and are already gaining popularity among the countrys large unbanked and underbanked population.The microloans are popular because of their convenience as it normally takes just 24 hours for the funds to be disbursed,and the terms and maturity are
139、 small and short with borrowers typically receiving not more than US$100.Representative officesOpening an RO is the fastest and simplest way of establishing a legal entity in the country.This set up is a temporary arrangement ROs are not allowed to engage in any commercial activities,issue invoices,
140、sign contracts,or earn any revenue.Foreign investors,however,can own 100 percent of this business entity and dont have to contribute the same paid-up capital required by PT PMAs.The business activities of ROs are limited to market research activities,obtaining information on potential clients,develo
141、ping trade contacts,and gathering information on regulations and laws.There are four types of ROs,which we explore below.General representative office(KPPA)A KPPA is a general RO structure,ideal for investors who are still exploring opportunities in Indonesia.The KPPA has two main responsibilities:R
142、epresent,supervise,and manage its parent company in Indonesia;and Prepare for the establishment of a limited liability company for the parent company.The KPPA must be incorporated in the capital of any Indonesian province and must be located in an office building.The KPPA permit is valid for an init
143、ial three years and can be extended twice for one year each time.28AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Representative office for a foreign trading company(KP3A)A KP3A is similar to a KPPA but is more ideally suited for manufacturers or product owners looking to establish a network of
144、distributors in the country.The KP3A is divided into the following categories:Act as a buying/or selling agent for the parent company,performing liaising or promotional activities;or Act as a manufacturing agent with its activities also limited to market research and liaising.Unlike a KPPA,the KP3A
145、does not have to be established in the capital city of a province;they can set up in any district or regency in the country.Foreign investors will also need to obtain a Foreign Company Trade Representative license(SIUP3A),which can be done through the OSS system of the BKPM.The KP3A permit is limite
146、d to two months(temporary license)to a maximum of one year(permanent license).Representative office for a foreign construction company(BUJKA)A BUJKA is an RO for foreign construction companies,and unlike the KPPA and KP3A entities,a BUJKA can undertake projects in Indonesia through a joint venture w
147、ith a local construction company.The BUJKA license is valid for three years and the local partner must be a limited liability company.Applicants must prove to the National Construction Services Development Board(LPJK)that they are classified as a large construction company,and they must have a servi
148、ce business license issued by the Department of Public Works.Representative office for a foreign oil and gas company(KPPA MIGAS)Foreign oil companies can set up a representative office through a KPPA MIGAS permit.The license is valid for three years and applicants will need to seek prior approval fr
149、om the BKPM.Representative Office for a foreign electricity supporting services(JPTLA)A JPTLA is a representative office for businesses in the field of electricity supporting services.The JPTLA must obtain a NIB and a business entity certificate.29AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023T
150、he JPTLA business licensing is granted to the following activities:Construction of electricity installation;Consultation for electricity installation;and Maintenance of electricity installation.The JPTLA can undertake high-cost electricity supporting services with the following threshold:Projects fo
151、r the construction and installation of electricity infrastructure worth at least 100 billion rupiah(US$6.9 million);or Projects for consultation in the field of electrical maintenance and installation worth at least 10 billion rupiah(US$696,000).Further,the JPTLA representative office must appoint a
152、n Indonesian citizen in charge of the office and conduct technology and knowledge transfers to Indonesian workers.The JPTLA must prioritize the utilization of domestic products as well as use high-tech and environmentally friendly technology.General set up requirements for ROsForeign investors looki
153、ng to open an RO will need to fulfil the following requirements:Register through the OSS online portal;The parent companys Articles of Association legalized by a notary and the Indonesian Embassy of the parent companys country of origin;Letter of Appointment by the Indonesian Embassy located in the
154、parent companys country of origin;Latest financial statements of the parent company;Letter of intent legalized by a notary and the Indonesian Embassy located in the parent companys country of origin;Certificates demonstrating competency in the relevant industry or sub-sector;Recommendation letter fr
155、om the Ministry of Energy and Mineral Resources(for KPPA MIGAS applicants;Lease agreements;Must be located in the capital of a province(unless it is a KP3A applicant);and A letter that states the RO will not engage in any commercial activities in Indonesia.30AN INTRODUCTION TO DOING BUSINESS IN INDO
156、NESIA 2023Protection and empowerment measures for small businessesIndonesias Government Regulation 7 of 2021(GR 7/2021)looks to provide greater protection and empowerment to Indonesias cooperatives,micro,small,and medium-sized enterprises(MSMEs).GR 7/2021 provides several facilities to encourage the
157、 growth of local MSMEs,such as mandating regional governments to provide at least 30 percent of the total land area for commercial areas for the promotion and development of MSMEs.In addition,the regulation has made it easier for MSMEs to obtain a business license,tax reductions,and reliefs,and are
158、exempt from paying the provincial or the regency/city minimum wage.MSME criteriaGR 7/2021 expands the criteria for an MSME.Previously,there were only two criteria:assets and revenue,and each had its own threshold for a company to be recognized as an MSME.Under GR 7/2021,MSMEs are categorized by thei
159、r business capital or annual sales.The criteria exclude land and buildings.Micro enterprisesMicro enterprises are businesses that have capital of no more than 1 billion rupiah(US$69,900)and annual sales of no more than 2 billion rupiah(US$139,800).Small enterprisesSmall enterprises are businesses th
160、at have capital of more than 1 billion rupiah(US$69,900)and annual sales of more than 2 billion rupiah(US$139,000)but less than 5 billion rupiah(US$349,551).Medium enterprisesFor medium enterprises,they are businesses with a capital of more than 5 billion rupiah(US$349,551)and annual sales of more t
161、han 15 billion rupiah(US$1.04 million)but less than 50 billion rupiah(US$3.5 million).Ease of obtaining a business licenseThe Omnibus Law has implemented a centralized business licensing system.An MSME only needs to submit their national ID and a reference letter from their neighborhood association
162、online to receive their business number.31AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023The government will provide technical guidance,consultation,and training for all MSMEs in this process,hoping it will also increase their knowledge of national standards,such as for Halal certification,as we
163、ll as other regulatory certificates.Ease of obtaining financing and incentivesMSMEs can use their business activity as a form of credit guarantee to obtain financing.Additionally,their tax administration process has been simplified.Micro and small enterprises are eligible for incentives in the form
164、of:Regional tax reduction or relief;Regional fee reduction or relief;Subsidized loans;Capital for MSMEs with innovative products that have market potential or are technology-based;Financing of intellectual property rights;Vocational training;and Support for research and development.The government ca
165、n act as a guarantor for up to 80 percent of loans or financing provided by banks and other non-bank financial institutions to MSMEs.Micro and small businesses must first fulfill the following criteria:Must have just started business operations or are already operating;Have a gross income of no more
166、 than 7.5 billion rupiah(US$524,381)per year;The business activities are in:Agriculture;Plantations;Livestock;Guesthouses/hostels;Boarding houses;Campgrounds;Industry;Transportation;Restaurants;and Stalls;and/or Procure government goods or services electronically.Medium-sized enterprises and large b
167、usinesses can also receive the above-mentioned incentives if they develop export-oriented products,hire a local workforce,utilize micro or small enterprises to expand the business,and train and provide upskilling programs for micro or small businesses.For advice on incorporating a businss in Indones
168、ia,please email our specialists at I.RELATED SERVICES32AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023MSMEs are also exempt from paying the regional/city minimum wage rates.Priority location and developmentGR 7/2021 mandates ministries,state-owned enterprises,and regional-owned and private busin
169、esses to allocate 30 percent of their commercial areas,shopping centers,and public infrastructure for the promotion and development of MSMEs.Public infrastructure includes airports,toll road rest and service areas,railway stations,and terminals.The rental fee for the area used for the promotion of t
170、he MSME should not exceed 30 percent of the commercial rental fee.Government and state-owned entities to help facilitate demandThe central and regional government(s)are obligated to allocate 40 percent of their goods and services procurement budget for MSMEs.CooperativesThere are also provisions to
171、assist Indonesian cooperatives.GR 7/2021 reduces the requirement of primary cooperatives from 20 members to nine,and cooperatives can now be either single-purpose or multi-purpose cooperatives,aimed at attracting more members through this enterprise.Shariah-based cooperativesGR 7/2021 allows for the
172、 establishment of shariah-based cooperatives,but the entity must contain the word shariah in the official name,and the shariah principles must be stated in the cooperatives articles of association.33AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Taxation334AN INTRODUCTION TO DOING BUSINESS IN IN
173、DONESIA 2023TaxationThe Harmonized Tax Law(HTL)or Law No.7/2021 overhauls Indonesias existing tax structure.Changes include an increase in the value-added tax(VAT)rate,a new carbon tax,scrapped plans to reduce the corporate income tax(CIT),and changes to the topline personal income tax(PIT)rate.The
174、law aims to optimize tax revenue collection and compliance amid state revenues already battered to cover the costs caused by the pandemic.Some business groups have questioned the timing of the tax hikes,considering that economic recovery is still fragile.Corporate taxationCorporate income tax is set
175、 at a basic rate of 22 percent for the 2023 fiscal year.There are several facilities given to businesses regarding the CIT if they fulfil the following conditions:Companies that are listed on the stock exchange that offer the minimum requirement of 40 percent of total share capital are subjected to
176、a three percent tax cut from the standard rate;Companies that have an annual turnover of 50 billion rupiah(US$3.5 million)are eligible for a 50 percent tax cut from the standard rate,which is imposed proportionally on the part of the gross turnover of up to 4.8 billion rupiah(US$336,000);and Compani
177、es with gross turnover of no more than 4.8 billion rupiah(US$336,000)are subject to a 0.5 percent tax of total turnover.Value-added taxValue-added tax in Indonesia is imposed on the provision of services or the transfer of taxable goods.VAT rates are set out below:11 percent imposed on most manufact
178、urers,retailers,wholesalers,and importers from April 2022 and 12 percent by 2025;Export of tangible and intangible goods are subject to zero percent VAT;and Export of services is subject to zero percent VAT.The governments negative list sets out all the goods and services that are non-taxable.These
179、include,among others mining or drilling products,basic food commodities,food and drink served in hotels,restaurants,restaurants,stalls,and money,gold bullion and securities.insurance services,religious services,arts and entertainment services,non-advertising broadcasting services,medical health serv
180、ices,financial services,and educational services.35AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Personal income taxExpatriate workers need to know that personal income tax(PIT)in Indonesia is determined through a self-assessment scheme.The country has adopted a worldwide income taxation system
181、,meaning that individuals considered as Indonesia tax residents pay tax to the government on the income they earned in Indonesia,and also on income they earned from abroad,unless there is an applicable double tax agreement.Non-resident taxpayers will only be liable to pay PIT for income they earn in
182、 Indonesia,unless the country in which they are a tax resident has an applicable tax treaty with Indonesia.In these cases,the taxpayer might not pay any tax in Indonesia or pay a reduced amount.Given these tax treatments,it is important for expatriate workers to understand their tax liabilities in I
183、ndonesia.It is advisable to use the services of registered local tax advisors to help determine which tax law regime will be applicable along with any exemptions that may bring.Eligibility to pay income taxUnder Indonesias previous income tax law,an individual is considered a domestic tax subject if
184、 they were present in the country for more than 183 days during a 12-month period,or they have an intention to stay in Indonesia.Through PMK 18/2021,the government has provided further clarification on the definition of residing in Indonesia and the intention to stay in Indonesia.Residing in Indones
185、ia is defined as an individual who:Lives at a place of residence in Indonesia that is at their disposal and can be accessed at all times,which they own,rent,and is not a place of transit;Have their vital interests in Indonesia;and Have their habitual abode in Indonesia.An intention to stay in Indone
186、sia needs to be substantiated with the following documents:A permanent stay permit;A limited stay visa;A limited stay permit;or Other documents that support their stay of more than 183 days in Indonesia.36AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Territorial taxation for foreignersForeigner
187、s who have become domestic tax subjects will only be taxed on Indonesian-sourced income.This is only applicable if they meet the expertise requirements from Appendix II of PMK-18.Their expertise,however,must be supported by:A certificate issued by a government-authorized institution,or have a minimu
188、m of five years work experience in the field of science,technology,and math;and An obligation for knowledge transfer to an Indonesian citizen.The territorial tax treatment is available for four years of residency.If the foreign individual leaves Indonesia and re-enters Indonesia within the four-year
189、 period,the territorial taxation will begin from the time they first became a domestic tax subject.Foreigners looking to apply for the territorial tax treatment must do so through the Directorate General of Taxes(DGS).Those who were already a domestic tax subject prior to the issuance of PMK-18/2021
190、 can also apply to the DGS for this tax treatment.Certain foreign expatriates,because of their special legal status,are not considered as Indonesian tax residents and are exempted from paying PIT,even if they stay for more than 183 days per year or reside and intend to stay in Indonesia.These exempt
191、ions apply for:Foreign diplomatic and consular personnel;Military personnel and civilian employees of foreign armed services;and Representatives of international organizations specified by the Minister of Finance.When it comes to tax rates,residents and non-residents are taxed differently:Residents
192、are subject to a withholding progressive tax(their net taxable income is set at graduated rates,with current rates ranging from five percent up to a maximum of 30 percent,depending on an individuals income);and Non-residents are subject to a final withholding flat tax of 20 percent on gross income.3
193、7AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Deductions and reliefThere are several elements that can be deduced from the gross income when determining the annual taxable income of an individual.It is worth noting that a family is regarded as a single tax reporting unit with a single tax iden
194、tity number(NPWP)in the name of the head of the family.The head of the family needs to report the income of their dependent spouse and children on their tax return.The following personal deductions are available for resident taxpayers.Personal Income Tax Rates in IndonesiaAnnual incomeRate(%)Up to 6
195、0 million rupiah(US$4,220)5Above 60 million rupiah(US$4,220)to 250 million rupiah(US$17,500)15Above 250 million(US$17,500)to 500 million rupiah(US$35,170)25Above 500 million rupiah(US$35,170)to 5 billion rupiah(US$351,000)30Above 5 billion rupiah(US$351,000)35Income Tax Deductions in IndonesiaBasic
196、of deductionDeductible amount per yearIndividual taxpayer54 million rupiah(US$3,739)SpouseAdditional 4.5 million rupiah(US$311)Each dependent(max.3)Additional 4.5 million rupiah(US$311)38AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Employer compliance obligationsIncome tax in Indonesia is most
197、ly paid by withholding by the employer.The tax withheld by employers must be remitted to the government body on a monthly basis.Employee compliance obligationsExpatriate employees are required to complete an annual tax return and compute their tax liability by March 31 of the following tax year.The
198、majority of PIT is paid through statutory employer withholdings on earned income.However,for any other income that a taxpayer in Indonesia earns on a regular basis,they must make monthly provisional tax payments to the tax department based on the income earned in the previous year.Filing a tax retur
199、nTo file a tax return,an individual must register as a taxpayer in order to obtain a tax identification number(NPWP).Expatriates must obtain a NPWP if they are a tax resident.While employers are responsible for deducting tax from their employees salaries,it is the individual employees responsibility
200、 to register as a taxpayer and file their tax returns.Tax deregistration when leaving IndonesiaIt is highly recommended that expatriates leaving Indonesia permanently cancel their tax registration to avoid any misunderstandings,and thus avoid being continuously considered a tax resident of Indonesia
201、.To do so,expatriates should submit an application to the local tax office,which will then perform a tax audit on the taxpayers returns and supporting documents prior to granting approval to deregister.The individual should ensure that all tax related documents are readily available in anticipation
202、of a tax audit(including bank statements,salary slips,foreign tax documentation if applicable,work contracts,etc.).Dividends and offshore income exempted from income taxTo increase investments in Indonesias financial markets and the real sector,the government has provided income tax exemptions for f
203、oreign dividends received by domestic taxpayers.The reinvestment requirements are not required for domestic dividends received by domestic corporate taxpayers.39AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Such concessions will require reinvestment for a certain period from when the dividend i
204、s received.PMK-18/2021 provides details on these reinvestment requirements:Qualifying reinvestments are shown below.Investment in financial market instruments,such as:Government bonds,including shariah instruments;Bonds or sukuk issued by a state-owned enterprise,private companies;Financial investme
205、nts in perception banks including shariah banks;or Other legal forms of investments.Investments in financial instruments outside the money market,which include:Investment in real sector;Investment in infrastructure through a private-public partnership;Equity cooperation in an already existing compan
206、y domiciled in Indonesia;Cooperation with the Indonesian Sovereign Wealth Fund;or Lending to small and medium-sized businesses in Indonesia.The investment must be held for a minimum of three years from when the dividend or offshore income is received.The taxpayer must also invest the dividend or off
207、shore income recorded as part of the qualifying investment by the end of the third or fourth month after the end of the fiscal year.Finally,the investment cannot be transferred except to another qualifying investment.Type of incomeReinvestment requiredThreshold(%)Domestic dividends received by corpo
208、rate taxpayersNoN/ADomestic dividends received by domestic individual taxpayersYesNotaxpayers from a listed companyYesNotaxpayers from a listed companyYes30Yes30business(not from a PE or subsidiary)YesNo40AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023If the reinvestment requirement provides a 3
209、0 percent threshold,the taxpayer can enjoy the full exemption if this threshold is fulfilled.However,if the reinvestment is less than the 30 percent threshold,the taxpayer must pay income tax on the spread between the investment amount and the 30 percent threshold to enjoy the exemption.Investors sh
210、ould note that the exemption does not apply to foreign citizens who utilize the double tax avoidance agreement(DTA)between Indonesia and the partner country/jurisdiction of the DTA.Digital taxAs of April 2022,under PMK 60/2022,non-resident suppliers of digital services within Indonesia can now be ap
211、pointed as VAT collectors and as such,are now required to collect 11 percent VAT and pay to the Indonesian government.The following utilization of intangible goods will now be subject to VAT:a.The use of or right to exercise the copyright in the field of literature,art or scientific work,patent,desi
212、gn or model,plan,secret formula or process,trademark,or other forms of intellectual property right,industrial property right,or other similar rights;b.The utilization or right to use industrial,commercial,or scientific tools/equipment;c.Utilization of knowledge or information obtained from the scien
213、tific,technical,industrial,or commercial sectors;d.The use of additional or complementary assistance in the utilization or right to exercise the right as referred to in point(a),the utilization or right to use the tools/equipment as referred to in point(b),or provision of knowledge or information as
214、 referred to in point(c);e.The use of or the right to use motion picture films,films or video tapes for television broadcasting,or sound tapes for radio broadcasts;and f.The acquisition of all or part of the rights relating to the use or granting of intellectual property rights,industrial property r
215、ights,or other rights as referred to in points(a)to(e).The utilization of intangible taxable goods also includes the utilization of digital goods.The government recognizes the following e-commerce entities based on their activities:Merchants(sellers):Businesses or individuals that conduct electronic
216、 offerings through electronic systems either managed or owned by themselves or through an e-commerce organizer.E-commerce organizers(PPMSE):Businesses or individuals that provide electronic systems to facilitate e-commerce transactions.These include business models,such as online streaming platforms
217、,online marketplaces,online classified advertisements,and price comparison platforms,among others.Intermediary Service Organizers(PSP):These are businesses or individuals that provide search system facilities(for example,Google,Bing)or those that provide information storage services(hosting and cach
218、ing).RELATED READINGOpportunities for Foreign Investors in Indonesias Digital EconomyASEAN Briefing Magazine March,2021In this issue of the ASEAN Briefing magazine,we provide an overview of Indonesias digital economy,its vibrant startup scene,and how investors can utilize Singapore as a base for exp
219、ansion into the country.We then analyze Indonesias new laws for digital tax and the process for foreign companies to stay compliant.AVAILABLE HERE41AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023The aforementioned entities can be either domestic or foreign businesses and the legal requirements f
220、or each type will also differ.Domestic merchantsDomestic merchants must obtain a business license from the governments Online Single Submission(OSS)Agency.Under the countrys Standard Classification of Business Fields,businesses carrying out trading via the internet need to comply with KBLI classific
221、ation 4791.Domestic e-commerce organizersBusinesses who operate their own e-commerce facilities are classified as PPMSEs and must obtain a special license named Surat Izin Usaha Perdagangan melalui Sistem Elektronik(business license for trading through an electronic system(SIUPMSE).The SIUPMSE can b
222、e applied through the OSS system and businesses will need to adhere to certain criteria to be eligible.These are:Obtaining an Electronic System Provider certificate within 14 days after the SIUPMSE is issued;Must provide a website and/or application name to the government;Must establish a consumer c
223、omplaints section on their website/application,which includes e-mail address and contact number in addition to the details of the Directorate-General of Consumer Protection and Trade Compliance;The PPMSE must provide facilities that inform or link customers to the OSS Agencys website;and The busines
224、s must submit its transaction data(subscribers,payments,complaints,contracts,shipments etc.)to Statistics Indonesia(BPS),the government agency responsible for conducting statistical surveys.Foreign merchantsForeign merchants must provide a valid business license issued in the country where they are
225、established to the domestic PPSME company which provides their electronic communication facilities.The domestic PPSME will then need to report all the transactional activities(subscribers,payments,complaints,contracts,shipments,etc.)of the foreign merchant to the BPS.Foreign e-commerce organizersFor
226、eign PPSMEs that have been appointed as a VAT collector by the Ministry of Finance are obligated to charge the 11 percent VAT rate on the sales of digital products to Indonesian consumers.42AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023They must first have local transaction values of the follow
227、ing:The PPSME has completed transactions with Indonesian consumers that exceeds 600 million rupiah in a year or 50 million rupiah(US$3,500)per month;or Traffic or visitors to the e-commerce site exceeds 12,000 users per year or 1,000 users per month.Withholding taxWithholding tax applies to both res
228、idents and non-resident companies in Indonesia.The tax rate on dividends is 15 percent for residents and 20 percent for non-residents(unless they have an applicable tax treaty).The withholding tax rate on interest and royalties are also set at 15 percent for residents and 20 percent for non-resident
229、s.Withholding Tax Rates for Resident and Non-Resident Companies in IndonesiaNature of income Tax rate(%)ResidentsNon-residentsDividends1520Interest1520Royalties152043AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Luxury-goods sales taxThe import of certain manufactured taxable goods may be liabl
230、e to luxury-goods sales tax(LST).LST must be accounted every month together with VAT.A summary of the LST rates is set out below.Luxury-Goods Sales Tax in Indonesia GroupLST rates(%)075125Luxury residences such as luxury homes,town houses,condominiums,apartments.Dirigibles,balloons,and ot
231、her non-powered aircraftFirearms and other arms,except for state purposesAircraft other than those for the state or commercial air-transport purposesLuxury cruisers,except for the need of the state and public transport as well as yacht for tourismMotor vehicles44AN INTRODUCTION TO DOING BUSINESS IN
232、INDONESIA 2023Stamp dutyIndividuals,companies,and other organizations in Indonesia must pay stamp duties on certain legal documents.As of January 2021,the standard stamp duty tax rate is 10,000 rupiah(US$0.70).Indonesia requires stamp duties on two main types of documents:documents created to explai
233、n events of a civil nature and documents to be used as evidence in a court of law.Documents of a civil nature include the following:Agreements,certificates,statement letters,and similar documents and their copies;Notarial deeds and executorial deeds(grosse)and their copies;Deeds made before a land d
234、eed officer(also known as a land conveyance officer)and their copies;Securities in any form and name;and Documents stating a sum of money above 5,000,000 rupiah(US$350),which describe the receipt of money or contain an acknowledgment of debt payment or settlement,either entirely or partially.In addi
235、tion to these documents,the Law also applies to the following civil documents:Securities transaction documents,including futures contract transactions in any name or form;Auction documents in the form of excerpts,minutes,copies,and minutes of auction executorial deeds(grosse);and Other documents sti
236、pulated by Government Regulation.The Law exempts the following documents from stamp duty:Land transfer and building rights documents used for handling and restoring social conditions following natural disasters;Land transfer and building rights documents used solely for religious or non-commercial a
237、ctivities;Documents relating to the implementation of government programs and monetary or financial policies;and Documents relating to the implementation of international agreements under binding international treaties or reciprocal laws.Our experienced team of tax accountants can help on a wide spe
238、ctrum of tax service areas across all major industries in Indonesia.Contact us at .RELATED SERVICES45AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Electronic stamp dutyElectronic stamps,which carry a unique code and description,will apply to electronic transaction documents with a value above 5
239、,000,000 rupiah(US$350).The Indonesian government,however,is still building the infrastructure to manage electronic stamp duties.Indonesias DTA networkIndonesia has signed over 60 double tax avoidance(DTA)agreements with various countries,which eliminate instances of double taxation from cross-borde
240、r activities.The withholding tax rate on dividends are set between seven to 15 percent whereas interest rates are set between five to 15 percent unless an applicable tax treaty is in place wherein there will be no tax.The tax rate for royalties is between 10 to 15 percent.Countries with Signed DTAs
241、with IndonesiaA-BC-JK-OP-ST-ZAlgeriaCambodiaKorea(North)PakistanTaiwanArmeniaCanadaKorea(South)Papua New GuineaTajikistanAustraliaChinaKuwaitPhilippinesThailandAustriaCroatiaLaosPolandTunisiaBangladeshCzech RepublicLuxembourgPortugalTurkeyBelarusDenmarkMalaysiaQatarUkraineBelgiumEgyptMexicoRomaniaUn
242、ited Arab EmiratesBruneiFinlandMongoliaRussiaUnited KingdomBulgariaFranceMoroccoSerbiaUnited States of AmericaGermanyNetherlandsSeychellesUzbekistanHong KongNew ZealandSingaporeVenezuelaHungaryNorwaySlovakiaVietnamIndiaSouth AfricaZimbabweIranSpainItalySri LankaJapanSudanJordanSurinameSwedenSwitzerl
243、andSyria46AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Human Resources and Payroll447AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 20234Human Resources and PayrollLabor lawThe main sources of employment and labor laws in Indonesia are:Labor Law of 2003 on Manpower as amended by Law No.11 of 2
244、020 on Job Creation and recently revoked by Government Regulation in Lieu of Law No.2 of 2022 on Job Creation;Law No.21 of 2000 on Labor Union;and Law No.2 of 2004 on Industrial Relations Dispute Settlement.Fixed-term contractsUnder implementing regulation 35 of 2021(GR35/2021),the government recogn
245、izes three types of fixed-term contracts(FTC):FTC based on the completion of work;FTC based on the period of time;and FTC related to non-permanent work.GR 35/2021 states that all FTC types are for work that is temporary and can be completed within a set time period,therefore any contract extensions
246、cannot be for prolonged periods(5 years maximum in total).Failing to adhere to these rules will result in the employee deemed to be on a permanent employment contract.Indonesias New Fixed-Term Contract SystemFTC based on completion of workFTC base on periodFTC related to non-permanent workType of wo
247、rk Temporary work;or One-time work Work that can be completed in short time;Seasonal work;or Work related to new products that are in in trial or experimentation.Work that is based on attendance;or Work that changes based on volume or time.Contract periodperiod,however,the employment agreement must
248、include provisions on the expected period for work completion.(including extension).Maximum 20 days per month.If the employee works for 21 days per month or more for three consecutive months,then they will be considered permanent workers.48AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Compensat
249、ion for FTC workersPrior to the Omnibus Law,any party terminating the FTC was required to pay the other party compensation equivalent to the employees salary for the remaining time of the FTC.If an FTC expired naturally,then neither party would have to pay compensation.This has changed with GR 35/20
250、21,which now obligates the employer to pay compensation to the employee,even if the employee terminates the FTC prematurely.The employers must pay compensation upon:The expiry of an FTC;Each extension of the FTC;and Early termination of the contract,irrespective of who terminates the contract.How is
251、 it calculated?Compensation is calculated using the following formula:Contract periodCompensation amountMore than one month but less than 12 months(work period in months/12)x one months salaryMore than 12 months12 consecutive monthsOne months salaryWhen an FTC expires and is then extended,the compen
252、sation for the initial contract must be paid when the FTC expires.For any ongoing FTCs,the compensation payment will be calculated from November 2,2020,the date from which the Omnibus Law came into effect.Further,foreign workers are not entitled to the aforementioned compensation.49AN INTRODUCTION T
253、O DOING BUSINESS IN INDONESIA 2023Working hoursNormal working hours in Indonesia is 40 hours per week,which can be divided into eight hoursper day for five working days or seven hours per day for six working days.GR 35/2021 recognizes working hours of less than 40 hours per week if the company has t
254、he following characteristics:Undertake work that can be completed in less than 35 hours per week;Can implement flexible working hours;and Undertake work that can be completed outside a particular location.OvertimeThe regulation extends the overtime working hours to four hours per day and 18 hours pe
255、r week,which does not apply to public holidays.GR 35/2021 requires that collective labor agreements,company regulations,or employment agreements specifically state which roles are entitled to overtime pay.If this is not expressed,then the employee will automatically be entitled to receive this payme
256、nt.The overtime payment is based on the employees monthly wage.Every hour,the calculation is applied,which is 1/173 times the monthly wage.The calculation of the overtime payment is also categorized by the day of the overtime:working days,weekends,or public holidays.The regulation does include provi
257、sions on employees that are exempt from overtime pay eligibility.These are:Employees that hold certain positions with responsibilities as thinkers,controllers,planners,executors,etc.;Workers whose working hours cannot be capped,such as those in managerial roles;and Workers that are paid high salarie
258、s.OutsourcingThe regulation makes it clear for employers to include the provisions of transfer of rights protection in the contract in the event of a change in an outsourcing company.The outsourcing company must be a legal entity and comply with the business license they were issued from the central
259、 government.RELATED READINGASEAN Talent and HR Compensation BenchmarkingASEAN Briefing Magazine August,2021In this issue of the ASEAN Briefing magazine,we provide an overview of current talent availability in ASEAN,and future factors that will impact human resource development in the region.We then
260、explore hiring costs in the bloc before finally focusing on the industrialization plans of select ASEAN members.AVAILABLE HERE50AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Termination of employmentGR35/2021 sets the procedures to unilaterally terminate employment.The employer must first notif
261、y the employee in writing,setting out the reasons for termination,and the termination payments and entitlements at least 14 business days before the date of termination.If the employee has no objection to the termination,then the employer can notify the Ministry of Manpower of this notice.If,however
262、,the employee objects to the termination,they must provide,in writing,the reasons for this within seven business days from receiving the termination notice.Any disagreements related to termination should be discussed between the relevant parties to agree to mutual separation.If this fails,then the m
263、atter can be brought to the local employment office for mediation,and if this fails,to the Industrial Relations Court.Prior to the changes in the Omnibus Law,employers had no right to unilaterally terminate employment in any circumstance,unless the termination was agreed upon by both parties through
264、 negotiations.The employer would then be able to obtain an approval for the termination from the labor courts and the employee was entitled to up to six months salary.If the employee has no objection to the termination,then the employer can notify the Ministry of Manpower of this notice.If,however,t
265、he employee objects to the termination,they must provide,in writing,the reasons for this within seven business days from receiving the termination notice.Termination paymentsTerminated employees are entitled to termination payments and the amount varies depending on the length of employment of the e
266、mployee.Termination payments are comprised of severance payments,long service pay,and compensation of rights.There is another component called separation pay,but this must be stipulated in the employment agreement.Compensation pay refers to compensation for any untaken annual leaves and other costs
267、incurred such as for relocation.Long service pay refers to a type of compensation given to employees based on the number of years they have worked at the company.An employee who has had their contract terminated may be eligible for the long service pay in addition to their severance pay.51AN INTRODU
268、CTION TO DOING BUSINESS IN INDONESIA 2023Severance Payment in IndonesiaCompleted years of serviceSeverance paymentLess than 1 year1 month wageMore than 1 year but less than 22 months wageMore than 2 years but less than 33 months wageMore than 3 years but less than 44 months wageMore than 4 years but
269、 less than 55 months wageMore than 5 years but less than 66 months wageMore than 6 years but less than 77 months wageMore than 7 years but less than 88 months wageMore than 8 years9 monthsService Payment in IndonesiaCompleted years of serviceService paymentMore than 3 years but less than 62 months w
270、ageMore than 6 years but less than 93 months wageMore than 9 years but less than 124 months wageMore than 12 years but less than 155 months wageMore than 15 years but less than 186 months wageMore than 18 years but less than 217 months wageMore than 21 years but less than 248 months wageMore than 24
271、 years10 months wage52AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Termination Payment FormulaReason for terminationSeverance payment(as accordance to the previous tables)Long service payment(as accordance to the previous tables)Compensation of rights(as accordance to the previous tables)Separ
272、ation payLong-term illness or disability resulting in the worker unable to work for 12 moths2x1x1xNoEmployee deathRetirement1.75x1x1xNo Merger,consolidation,separation of company and which the employee is not willing to continue with their employment or the employer will no longer accept the employe
273、e;to prevent losses;Acquisitions;Employees self-termination due to violations committed by the employer;and Employer is involved in debt payment 1x1x1xNoForce majeure but does not result in the company closing down0.75x1x1xNo Acquisition resulting in changes of employment for the employee;Closure of
274、 the company due to force majeure;Company bankruptcy;Employees violation of the employment agreement(after being served warning letters);and Employer is involved in debt payment proceedings as a result of its losses0.5x1x1xNo employees allegations against the employer not proven;Employees voluntary
275、termination;Employees absence without permission Employee being found guilty of a violation that creates losses for the companyYesYesEmployee unable to work for six months due to detention by the authorities,and creates losses for the companyYesNoEmployee unable to work for six months due to detenti
276、on by the authorities,but does not create losses for the company1xYesNoReg 35/2021 does provide changes to calculating termination pay for certain cases,such as merger or consolidation of the company resulting in the termination of the employee,or closure of the company due to mounting losses,among
277、others.In such cases,the severance pay is not as high as mentioned in the previous tables.53AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Termination Payment FormulaReason for terminationSeverance payment(as accordance to the previous tables)Long service payment(as accordance to the previous ta
278、bles)Compensation of rights(as accordance to the previous tables)Separation payLong-term illness or disability resulting in the worker unable to work for 12 moths2x1x1xNoEmployee deathRetirement1.75x1x1xNo Merger,consolidation,separation of company and which the employee is not willing to continue w
279、ith their employment or the employer will no longer accept the employee;to prevent losses;Acquisitions;Employees self-termination due to violations committed by the employer;and Employer is involved in debt payment 1x1x1xNoForce majeure but does not result in the company closing down0.75x1x1xNo Acqu
280、isition resulting in changes of employment for the employee;Closure of the company due to force majeure;Company bankruptcy;Employees violation of the employment agreement(after being served warning letters);and Employer is involved in debt payment proceedings as a result of its losses0.5x1x1xNo empl
281、oyees allegations against the employer not proven;Employees voluntary termination;Employees absence without permission Employee being found guilty of a violation that creates losses for the companyYesYesEmployee unable to work for six months due to detention by the authorities,and creates losses for
282、 the companyYesNoEmployee unable to work for six months due to detention by the authorities,but does not create losses for the company1xYesNoTermination Payment FormulaReason for terminationSeverance payment(as accordance to the previous tables)Long service payment(as accordance to the previous tabl
283、es)Compensation of rights(as accordance to the previous tables)Separation payLong-term illness or disability resulting in the worker unable to work for 12 moths2x1x1xNoEmployee deathRetirement1.75x1x1xNo Merger,consolidation,separation of company and which the employee is not willing to continue wit
284、h their employment or the employer will no longer accept the employee;to prevent losses;Acquisitions;Employees self-termination due to violations committed by the employer;and Employer is involved in debt payment 1x1x1xNoForce majeure but does not result in the company closing down0.75x1x1xNo Acquis
285、ition resulting in changes of employment for the employee;Closure of the company due to force majeure;Company bankruptcy;Employees violation of the employment agreement(after being served warning letters);and Employer is involved in debt payment proceedings as a result of its losses0.5x1x1xNo employ
286、ees allegations against the employer not proven;Employees voluntary termination;Employees absence without permission Employee being found guilty of a violation that creates losses for the companyYesYesEmployee unable to work for six months due to detention by the authorities,and creates losses for t
287、he companyYesNoEmployee unable to work for six months due to detention by the authorities,but does not create losses for the company1xYesNo54AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Relevant visa categories for foreign workersThere are a variety of visas foreign visitors can apply for depe
288、nding on their purpose of visit.Business visasThis is a single-entry visa valid for 60 days upon arrival and can be extended up to four times.This type of visa is intended for businesspeople who are engaging in meetings in the country,attending conferences,or undertaking market research.This visa mu
289、st be sponsored by a legal entity in Indonesia and the holders are not allowed to gain employment while in the country.Multiple entry business visasMultiple entry business visas allow foreign visitors to make repeated trips into Indonesia for one year.The visa,however,has a 60-day limit upon arrival
290、,meaning that visitors will have to leave the country before it expires before entering Indonesia again.The requirements for obtaining this visa type are the same as that of the business visa.The fee is US$100.Application requirementsThe application requirements for the business visa is as follows:A
291、 passport valid for at least six months;A letter of invitation from the Indonesian-based sponsor mentioning the purpose of the applicants visit,and length of stay.The Indonesian sponsor will also need to do an online application to the immigration office in Jakarta on behalf of the applicant;The pro
292、cess usually takes five working days by which the immigration office will issue a visa approval letter.This will then be sent to the applicants nearest Indonesian Embassy,who will issue the visa.A business cover letter from the applicants own company;One passport-sized photograph(white background);A
293、 copy of the applicants round trip,electronic airline ticket;Pay the US$50 fee;and A bank statement proving the applicant has at least US$1,500.55AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Working visasA work visa(IMTA)can only be applied by the Indonesian company that will hire the foreign
294、worker.The company must prove to the Ministry of Manpower(MOM)that the foreign applicant is required to fulfil certain positions.Foreign employees in Indonesia are not allowed to obtain work in the following sectors:Human resource management;Legal;Health and safety;Quality control;and Supply chain m
295、anagement.Foreign worker utilization planOn March 31,2021,Indonesias Ministry of Manpower issued Regulation No.8 of 2021(MOM Reg 8/2021)on the Employment of Foreign Workers.MOM Reg 8/2021 is an implementing regulation to GR 34/2021 and provides in detail the requirements for businesses to fulfill in
296、 order to hire foreign workers.For a local company to employ a foreign worker,they must prepare a Foreign Worker Utilization Plan(Rencana Penggunaan Tenaga Kerja Asing(RPTKA)a document that details the specific work,position,and length of employment the foreign employee will undertake in Indonesia.T
297、he RPTKA now also serves as the basis for the MOM to grant visas and stay permits.Types of RPTKAThere are four types of RPTKA categorized under MOM 8/2021.RPTKA CategoriesRPTKA typeValidityTemporary work(production quality control,Valid for up to six months and cannot be extendedEmployment for more
298、than six monthsValid for up to two years with possibility for extensionEmployment that does not require payment to the Foreign Worker Utilization Compensation FundValid for up to two years with possibility for extensionEmployment in special economic zones(SEZ)The SEZ RPTKA for directors or commissio
299、ners can be granted for a period as needed by the employer56AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023What is the process of hiring foreign workers in Indonesia?It is the responsibility of the local company to apply for the RPTKA,which can be done through the online portal,under the Ministr
300、y of Manpower.The application is addressed to the Director of Foreign Manpower Utilization Management(Direktur Pengendalian Penggunaan Tenaga Kerja Asing).However,if the application is for less than 50 foreign workers then the application is addressed to the Director-General of Manpower Placement Gu
301、idance and Expansion of Work Opportunity(Direktur Jenderal Pembinaan Penempatan Tenaga Kerja dan Perluasan Kesempatan Kerja).Who can apply?According to MOM 8/2021,employers that can employ foreign workers include:Government institutions,international bodies,and foreign state representatives;Foreign
302、trade representatives,foreign news agencies conducting activities in Indonesia,and foreign representative offices;Foreign private companies conducting business in Indonesia;Legal entities such as private limited companies established in Indonesia;Social,religious,or cultural institutions;Entertainme
303、nt management entities;and Other business entities are allowed to employ foreign workers.RPTKA assessmentOnce submitted,the MOM will conduct a feasibility study to see if the employer and prospective employee meet all the requirements.Employers are required to submit the following information:Identi
304、ty of the employer;Reasons for utilizing a foreign worker;The position of the foreign worker within the companys organization structure;Number of foreign workers being employed;Contract length of the foreign employee;Working location of the foreign employee;Proof of mandatory employment reporting by
305、 the employer;and Statement letter affirming the following:The designation of the Indonesian employee(s)assigned as a co-worker to the foreign employee;The Indonesian employee(s)will receive training or education from the foreign employee in accordance with the position and qualifications of the for
306、eign employee;and Ensure the foreign worker returns to their home country once their work contract expires.Future plans to absorb Indonesian workers.The results of this assessment will be issued in no more than two working days.57AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Personal informatio
307、n submissionThe employer can submit the personal information and documents of the foreign worker after the RPTKA assessment or during the submission of the RPTKA documents.The personal information will be verified by the MOM within two working days.RPTKA approval and paymentIf the documents and info
308、rmation declared to the MOM are correct and complete,the MOM will issue a payment notification letter for the amount of US$100 to the Foreign Workers Compensation Fund(Dana Kompensasi Penggunaan Tenaga Kerja Asing or DKP-TKA).This amount is to be paid to the MOM every month.Once the employer has mad
309、e the payment,the MOM will issue the RPTKA approval,and the data will be sent to the Ministry of Law and Human Rights,who will process the visa and stay permits.Payment of the DKP-TKA is waived for foreign state representatives,international bodies,religious institutions,social institutions,and cert
310、ain positions in the education sector.Annual reporting obligationsEmployers must submit an annual report to the MOM that covers the scope of the foreign workers employment,the education or training facilitated to Indonesian co-workers,and the types of technology transfer implemented.RPTKA exemptions
311、There are RPTKA exemptions for foreign workers that are the members of the board of directors,members of the board of commissioners,diplomatic or consular staff,or are hired by the local employer in connection to emergency activities,vocational activities,or in connection to production activities of
312、 an Indonesian-based tech startup.Specifically,for tech-based startups and vocational training activities,the RPTKA exemption lasts for no more than three months,after which the company must apply for RPTKA approval.This application must be submitted at least two weeks before the expiration of the p
313、eriod of employment of the foreign worker,as stated in the foreign worker employment statement letter,which is issued in place of an RPTKA approval.The MOM will issue the IMTA,and the immigration office will issue a limited stay visa(VITAS).Upon arriving in Indonesia,the applicant must convert their
314、 VITAS into a limited stay permit Kartu Izin Tinggal Terbatas(KITAS).58AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Additional requirements to obtain a VITASOnce a foreigner has received sponsorship to work in Indonesia,they can apply for a limited stay visa(Visa Tinggal Terbatas or VITAS).Aft
315、er the VITAS is secured,their immigration status changes to a limited stay permit(ITAS),which requires an official stamp from an immigration office.After the VITAS is secured,their immigration status changes to an ITAS,which requires an official stamp from an immigration office.Once the ITAS is secu
316、red,the foreign worker can receive a KITAS,which will permit them to work in Indonesia for up to 12 months.This can then be extended when the expiry date approaches.The additional requirements to obtain a VITAS are:A letter detailing the applicant is of good standing from the embassy or consulate of
317、 the foreigners country of origin;and A health letter stating that the applicant is free from any contagious diseases.Changes in the length of limited stay permitsBefore the changes were implemented in regulation GR 48/2021(issued in March 2021),the limited stay permit(ITAS)was valid for a maximum o
318、f two years with the possibility to extend twice for two years each time.After six years,the foreigner must apply for a new ITAS.Under GR 48/2021,the ITAS is now valid for five years and can be extended once for another five-year period,meaning the foreigner can stay in the country in total for 10 y
319、ears.Any ITAS for work purposes that is valid for no more than 90 days can be extended up to a maximum of 180 days.Further,expatriates who have obtained their ITAS at a designated port of entry,such as airports and ports,will not be required to apply for the ITAS at their local immigration office in
320、 Indonesia,as was previously stipulated.This should ease the burden on expatriates and provide added certainty.Permanent stay visasThe permanent stay visa Kartu Izin Tinggal Tetap(KITAP)allows expatriates to permanently stay in Indonesia.To qualify for this visa,expatriate workers would need to have
321、 held a KITAS for four consecutive years,work in the same company,and having the same position.As with other visas,applicants will need a local sponsor.In addition to their employer,this could also be their spouse(who must be Indonesian).59AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Conversio
322、n of stay permitsForeigners can now convert their visit stay permit to an ITAS,or an ITAS to a permanent stay permit(KITAP),or permanent stay visa/permanent residence.The KITAP is valid for five years and is extended automatically if the status of the expat does not change.Obtaining a KITAP means th
323、e foreigner is no longer required to make the annual trip to the immigration office,as in the case of KITAS/ITAS holders,and no more costly visa extensions.Introduction of the second home categoryThe government has now allowed foreigners who treat Indonesia as a second home category to be eligible t
324、o receive a VITAS.The applicant must show evidence that they have settled in Indonesia.Further requirements will be issued in upcoming government regulations.Visa on arrival,social visit visas,and multiple-entry visasVisa on arrivals is still valid for 30 days but can no longer be extended.Previousl
325、y,this visa type could be extended for a further 30 days once it expired.The single-entry visa,or the social visit visa,is issued to foreigner travelers entering Indonesia for short internship programs,volunteer programs,meeting family,sports activities,and social activities,among others.The length
326、of this stay is for 180 days and with no extension possible.This visa type was previously valid for 60 days and could be extended four times with a maximum stay of six months.Finally,foreigners applying for the multiple entry visa can be granted 180 days stay in Indonesia,which can be extended for a
327、 total stay of no more than one year.Social visit visasUnder GR 48/2021,the government has added pre-investment activities as one of the activities foreigners can undertake in Indonesia under a visit visa.This refers to foreigners looking to start a business in Indonesia,and undertaking feasibility
328、studies,among others.Previously,a letter from a guarantor in Indonesia was required as part of the application process.Under the latest changes,if the foreigner does not have a guarantor,then the guarantee letter can be replaced with proof of payment of an immigration guarantee to the Directorate Ge
329、neral of Immigration.60AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2023Guarantors of expatriatesGR 48/2021 has provided an exemption for the requirement of a foreign worker in Indonesia to have a guarantor.Depending on their visa,foreigners needed a guarantor who was responsible for their activit
330、ies in the country and report any change to their civil or immigration status to the authorities.This requirement was not required for foreigners legally married to Indonesians,foreign investors,or citizens of countries that also waived the guarantee requirements for Indonesians.Foreign investors,fo
331、reigners who make Indonesia a second home,and foreigners engaged in pre-investment activities can now make an official payment to the Directorate General of Immigration,which will act as their immigration guarantee.The payment will cover the cost of repatriation,deportation,or other immigration cost
332、s.If the immigration guarantee is not used during the foreigners stay in Indonesia,the full amount will be paid back.Second home visaIndonesia has announced plans to issue second home visas,the first of its kind for the country,which will allow foreigners to stay for up to 10 years.Applicants must h
333、ave a minimum of 2 billion rupiah(US$133,000)as proof of funds,a passport that is valid for a minimum of 36 months,and a curriculum vitae.Positions open for employment for expatriate workersOn August 27,2019,Indonesias Ministry of Labor issued Regulation No.228 of 2019(“Regulation 228,2019”)to define the types of job positions foreign employees can hold in the country.The regulation widens the num