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1、AN INTRODUCTION TODoing Business in Indonesia2024This edition of Doing Business in ASEAN was produced by a team of professionals atDezan Shira&Associates,with Ayman Falak and Arendse Huld as Editors.Creative design of the guide was provided by Miguel Enrico Anciano.2024 Dezan Shira&Associates Discla
2、imerThe contents of this guide are for general information only.For advice on your specific business,please contact a qualified professional advisor.Copyright 2024,Asia Briefing Ltd.No reproduction,copying,or translation of materials without prior permission of the publisher is permitted.VISIT US ON
3、 FACEBOOKFOLLOW US ON TWITTERDezanShiraASEANBriefingVISIT US ON LINKEDINTHE DOING BUSINESS GUIDE SERIESAvailable to Download Now:China Guide India Guide Vietnam Guide ASEAN Guide Hong Kong Guide Singapore Guide China Super City Clusters Dubai GuideDoing Business in Indonesia and Singapore PortalsOur
4、 latest online Doing Business in Indonesia and Singapore Portals consists of 100+guides,videos,publications,and tools that are practical and easy to navigate,covering:Why Indonesia/Singapore,Regions to Invest,Sector Insights,How to Setup,Tax,Audit and Accounting,HR,Recruitment,PEO,and Payroll,News,E
5、vents,and more.3AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024About Dezan Shira&AssociatesAt Dezan Shira&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 oper
6、ations in the region.Since its establishment in 1992,Dezan Shira&Associates has grown into one of Asias most 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
7、firms across the ASEAN region.With over 30 years of on-the-ground experience and a large team of professional advisers,we are your reliable partner in Asia.4AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Since gaining independence in 1945,Indonesia underwent rapid industrialization in the 1970s
8、driven by robust oil exports before transitioning to labor-intensive industries as the main engine of growth in the late 1980s.Today,it stands as the largest economy in Southeast Asia,boasting a nominal GDP of US$1.38 trillion,and holds membership in the G20.On February 14,2024,Indonesia conducted t
9、he worlds largest single-day election,electing a new president,vice president,and parliament members.This marked a significant change in leadership after a decade under President Joko Widodo(Jokowi),who is constitutionally barred from seeking a third term.Prabowo Subianto,the current defense ministe
10、r and former special forces commander,has been elected as Indonesias new president,running alongside Gibran Rakabuming Raka,the eldest child of Jokowi.Prabowos administration will inherit an economy that has seen improvements in sovereign ratings under the outgoing leadership.The Prabowo-Gibran tick
11、et aims for an ambitious economic growth target of eight percent and intends to enhance Indonesias energy self-sufficiency by promoting the use of biodiesel derived from palm oil.Analysts predict a growth rate of 4.5-5 percent for Indonesia in 2024,attributed to lower commodity prices and subdued gl
12、obal demand.Continuity is a key theme for the Prabowo-Gibran administration,promising to uphold many of Jokowis policies,including developing downstream commodities sectors,modernizing infrastructure,and maintaining a disciplined macroeconomic governing agenda.The governments ban on the export of un
13、processed nickel and bauxite,with plans to expand to other metals,has elevated Indonesias position in the global resource supply chain,particularly for electric vehicle batteries,leading to increased exports.Additionally,Prabowo pledges to continue the ambitious US$35 billion project of relocating t
14、he capital to the island of Borneo,around 2,000km from Jakarta.Prabowos vision includes transforming Indonesia into an advanced and developed economy and integrating the Indonesian economy into global value chains.Such reforms entail regulatory changes to facilitate foreign investment,addressing a n
15、ascent tax base,and deepening capital markets.Therefore,foreign enterprises and investors eyeing Indonesia must adopt a long-term perspective,recognizing the nations sizable population of close to 300 million,its competitive labor market and growing incomes,and industrial opportunity.PrefaceALBERTO
16、VETTORETTIManaging PartnerDezan Shira&Associates5AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024CONTACTDezan Shira&Associates This publication,designed to introduce the fundamentals of investing in Indonesia,was compiledby Dezan Shira&Associates,a specialist foreign direct investment practice pr
17、oviding corporateestablishment,audit,business advisory,tax advisory and compliance,accounting,payroll,due diligence,and financial review services to multinationals and small-and medium-sizedenterprises investing in emerging Asia.An Introduction to Doing Business in Indonesia 2024 covers the followin
18、g:Indonesias Positive Investment List Corporate establishment;Taxation;Human resources and payroll;and Audit and compliance.6AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Table of ContentsPreface04Chap 1|The Positive Investment List and the Liberalization of Business Sectors07Chap 2|Corporate E
19、stablishment14Chap 3|Taxation28Chap 4|Human Resources and Payroll53Chap 5|Audit and Compliance787AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The Positive Investment List and the Liberalization of Business Sectors18AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The Positive Investment List
20、 and the 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 transportati
21、on,energy,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 limita
22、tions 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.Business fi
23、elds 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 enterp
24、rises 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 developm
25、ent 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 bill
26、ion 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 in
27、come of 30 percent of the total investment for six years,a special withholding tax rate on dividends at 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
28、FRSTERDirectorASEAN Advisory UnitDezan Shira&AssociatesHo Chi Minh City Office9AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Examples of non-fiscal incentives are the provision of supporting infrastructure,simplified business licensing procedures,and guaranteed energy supply and raw materials.W
29、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
30、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
31、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
32、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(
33、importers,distributors,and sub-distributors);Retail trade of alcoholic beverages;and The street retail of alcoholic beverages.10AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Business Fields with Specific RequirementsBusiness fieldsRequirementsPublishing of newspapers,magazines(press)100 percent
34、 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
35、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
36、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
37、,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
38、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
39、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
40、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
41、rtMaximum foreign capital ownership of 49 percentRiver and lake transportation with non-fixed and irregular routesMaximum foreign capital ownership of 49 percent11AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Business Fields with Specific RequirementsBusiness fieldsRequirementsRiver and lake tr
42、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
43、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
44、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
45、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
46、ies100 percent domestic capital and must be MuslimRELATED READINGProspects for Electric Battery Production in IndonesiaASEAN Briefing MagazineJanuary,2024In this issue of the ASEAN Briefing magazine,we provide an overview of Indonesias EV battery industry before exploring the various incentives offe
47、red by the government.Finally,we discuss the type of business entity foreign investors should use when entering this industry.AVAILABLE HERE12AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The foreign ownership limitations(bullet point 2)do not apply in the following circumstances:1.The investme
48、nts are conducted in special economic zones;2.Investments are in the form of non-direct investments taken through the Indonesian stock exchange;3.Investments subject to more favorable treatment under a treaty between Indonesia and the investors country of origin;or4.Any investments approved prior to
49、 the issuance of the positive investment list.The positive investment list provides for this through 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-scal
50、e enterprises through a compulsory partnership agreement with an MSME.There are 106 business lines for this category,being:Business lines that do not use advanced technology;and Are labor-intensive businesses,characterized by a special cultural heritage;or The capital for the business activities doe
51、s not exceed 10 billion rupiah(US$701,000).However,the government allows certain business fields to be open to foreign investors or large-scale enterprises through a compulsory partnership agreement with an MSME.There are 106 business lines that fall in this category and require partnership with coo
52、peratives or MSMEs(including 60 business lines which are allocated for MSMEs).Businesses open to 100 percent foreign investmentThe following business fields are open to 100 percent foreign investment:Oil and gas construction;Onshore upstream oil installation;Onshore and offshore distribution pipelin
53、es;Onshore and offshore oil and gas drilling service;Oil and gas well maintenance service;Electricity generation;Construction of electricity installation;Geothermal electricity generation;Supermarkets(with areas less than 1,200 sqm);Department store(with areas between 400 2,000 sqm);Ports;Airport an
54、d airport supporting services;13AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024 Maritime cargo handling;Telecommunication;E-commerce;Pharmaceutical industry;and Hospitals.What business activities are closed for investments?There are six business sectors closed for investments for both domestic a
55、nd foreign companies.These are:Class-I narcotics and cultivation;All forms of gambling and/or casino activities;Fishing of endangered species;Utilization of corals found in nature for the production of jewelry,souvenirs,building materials,etc.;Chemical weapons production;Alcoholic beverage manufactu
56、ring;Manufacturing of beverages containing alcohol-wine;Manufacturing of beverages containing alcohol-malt;and Industrial ozone-depleting substances industries and industrial chemicals.14AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Corporate Establishment215AN INTRODUCTION TO DOING BUSINESS IN
57、 INDONESIA 20242Corporate EstablishmentIndonesias government has sought to simplify the corporate establishment process through Government Regulation in Lieu of Law No.2 of 2022,which has amended several aspects of the corporate establishment process and norms of doing business in Indonesia.Based on
58、 the Investment Coordinating Board of the Republic Indonesia Regulation No.4 of 2021(BKPM Reg 4/2021),the minimum capital requirement for a foreign investment company or PT PMA shall be a total investment of at least 10 billion rupiah(US$696,000).Previously,the minimum capital requirement for a PT P
59、MA was 2.5 billion rupiah(US$167,065).Further,the government has also implemented a new risk-based approach to the issuance of business licenses.Business 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).Previ
60、ously,foreign businesses had to endure multi-layered bureaucratic structures that involved multiple local and federal authorities,making it difficult for investors to determine which business licenses to obtain.Another important and new amendment is the introduction of individually owned companies f
61、or Indonesian citizens.It is a new type of company category that can be incorporated by a single individual.What are my options for investment?Investors should assess their specific needs carefully before deciding which corporate structure to operate from.Using a reliable local advisor is recommende
62、d 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 looking to set up in the country:a PT PMA or representative office(RO).Foreign investment companyEstablishing a foreign investment compan
63、y 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 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 attrac
64、t more high-value investments into the country.RELATED READINGOpportunities in Indonesias Special Economic ZonesASEAN Briefing MagazineJuly,2022In this issue of the ASEAN Briefing magazine,we provide an overview of Indonesias special economic zones and explore the tax incentives available.Finally,we
65、 discuss choosing the ideal location in Indonesias SEZs by highlighting select zones.AVAILABLE HERE16AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024In addition to meeting the minimum capital requirement,the PT PMA must also satisfy a minimum total investment value exceeding 10 billion rupiah,whi
66、ch encompasses both fixed and working capital for a period of one year,excluding costs related to land and buildings,per 5 digits of the KBLI code.The investment funding can be realized through various sources,including(i)capital infusion,(ii)retained earnings(permissible for business expansion,such
67、 as adding additional KBLI codes),and(iii)loans(either from shareholders or third parties,bearing in mind that the maximum debt-to-equity ratio permitted by Indonesian laws is 1:4).Set up requirements for a foreign investment companyAccording to BKPM Reg 4/2021,investors looking to incorporate a PT
68、PMA needs 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 individuals or corporations-the percentage of local involvement will depend on the foreign ownership limitati
69、on 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 director for the ease of administration;and The director will be responsible for running the day-to-day activitie
70、s 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 language),Further the company name shall consist of three words and can be in English.2.Determine the industrial
71、 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 local notary and the Deed of Establishment will have to be ratified by the Ministry of Law and Human Right
72、s).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.Obtain a tax registration certificate through the tax office where the business is domiciled.6.Obtain a Busin
73、ess 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.Further,the NIB will also automatically register your company under the governments health and social secur
74、ity 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 level determined by the scale of hazards a business can potentially create.17AN INTRODUCTION TO DOING BUSINESS
75、IN INDONESIA 2024Risk-based business licensing for a PT PMAGovernment Regulation 5 of 2021(GR 5/2021)an implementing regulation of the Omnibus Law introduces new criteria on how business licenses are issued in the country.Business licenses will now be issued based on the assessment of business risk
76、level,determined by the scale of hazards a business can potentially create.To determine the risk level,the government will conduct a risk analysis of each applicationbefore deciding on issuing a business license.This will comprise of:1.Identifying the relevant business activity;2.Assessing the hazar
77、d 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,the businesses activities undertaken by the applicantcompany will be classified into one of the follo
78、wing 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 businesslicensing requirements will be.What sectors will be impacted?The government will undertake the risk-ana
79、lysis 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.Trading;8.Public works and housing;18AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 20249.Transport;10.Hea
80、lth,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.What are the requirements to obtain a business license?The requirements vary depending on the risk level of the bu
81、siness 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 to provide the following information:Taxpayer number(Nomor Pokok Wajib Pajak NPWP);Business activity c
82、ode 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 as the Ministry of Finance,the Ministry of Home Affairs,and the Ministry of Law and Human Rights.Low-ri
83、sk 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 a companysimport identification number,as well as the number for registering with the national social
84、 insurance program.Medium-low risk business activitiesBusiness activities in this category must obtain an NIB and Certificate of Standards before beginning operations.A Certificate of Standards is a statement of the fulfillment of certain business or product standards,which must be filled in through
85、 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;Recruitment of manpower;19AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024 Feasibility studies;and Fina
86、ncing 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.Medium-high risk business activitiesFor medium-high risk business activities,companies will need to ob
87、tain an NIB and Certificate of Standards.However,the certificate will need to be verified by the central or regional government.A company with an NIB and an unverified Certificate of Standards are only permitted to conductactivities deemed in the preparation stage of operations.Once the central or r
88、egional 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 business activitiesHigh-risk business activities will require an NIB and a license to operate.The l
89、icense 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.Business lineBusiness scaleRisk levelLicenseIssuing authorityWholesale distributionMicro,small,medium,and largeL
90、owNIBGovernor,or Regent or MayorE-commerce operatorLarge and mediumHighNIB and licenseMinistry of TradeFreight forwardingAll sizesMedium-highof StandardsGovernor20AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The NIB,however,allows the business to conduct activities in the preparation stage of
91、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.Individually incorporated companiesGovernment Regulation 8 of 2021(GR 8/2021)is an
92、 implementing regulation of the Omnibus Law,which makes amendments to the Company Law of 2007 by introducing the concept of“individually owned companies”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 ty
93、pe 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 8/2021 only impacts Indonesian nationals.Enterprise scaleCapitalAnnual salesMicroUp to 1 billion rupiah(US$69,000),excluding land and buildingsUp to 2 bil
94、lion 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)21AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024GR 8/2021 sets out the criteria for
95、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 thus pay tax as well as contribute to the national social security programs.Curr
96、ently,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.The incorporation of an individually owned company does not require a deed of establishment,rather the individual only needs to fill
97、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 and domicile of the company;Purpose and business activities of the company;The amount of authorized,issued,and paid
98、-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 its legal status to a limited liability company if the number of shareholders is more than one person,or the busine
99、ss 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 capital.Minimum authorized capital requiredGR 8/2021 stipulates that the amount of paid-up capital is to be agreed up
100、on 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 on the amount of authorized capital,they must pay at least 25 percent of the total paid-up capital,and the proof o
101、f 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 companies must be submitted within six months of the end of their accounting period.Failure to submit financial stat
102、ements will result in administrative sanctions ranging from a written warning to the suspension of business activities.22AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Improving the ease of doing business for MSMEsMSMEs are the backbone of Indonesias economy(contributing to 60 percent of GDP)as
103、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 difficult for the government to support MSMEs.GR 8/2021 could give i
104、ndividuals 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 organizations(such as fintech firms)can provide microloans and a
105、re 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 small and short with borrowers typically receiving not mo
106、re 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,sign contracts,or earn any revenue.Foreign investors,howev
107、er,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,developing trade contacts,and gathering information on regulatio
108、ns 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:Represent,supervise,and manage its parent company in Indone
109、sia;and Prepare for the establishment of a limited liability company for the parent company.23AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The 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 initial t
110、hree years and can be extended twice for one year each time.Representative 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 distributors in the country.The KP3A is divided into the f
111、ollowing 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 does not have to be established in the capital city of a p
112、rovince;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 limited to two months(temporary license)and a maximum of one yea
113、r(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 with a local construction company.The BUJKA license is val
114、id 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 service business license issued by the Department of Public Wo
115、rks.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 from the BKPM.24AN INTRODUCTION TO DOING BUSINESS IN INDONE
116、SIA 2024General set up requirements for ROsForeign investors looking 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 orig
117、in;Letter of Appointment by the Indonesian Embassy located in the 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 competen
118、cy in the relevant industry or sub-sector;Recommendation letter from 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 a
119、ctivities in Indonesia.New protection and empowerment measures for small businessesGR 7/2021 has made it easier for MSMEs to obtain a business license,tax reductions,and reliefs,and exempt them from paying the provincial or the regency/city minimum wage.New MSME criteriaGR 7/2021 expands the criteri
120、a 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 their business capital or annual sales.The criteria exclude land and buildings.25AN INTRODUCTION TO DOING BUSINES
121、S IN INDONESIA 2024Micro 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 that have capital of more than 1 billion rupiah(US$69,900)
122、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 than 15 billion rupiah(US$1.04 million)but less than 50 b
123、illion 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 online to receive their business number.The government w
124、ill 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 well as other regulatory certificates.Ease of obtaining financing and incentivesMSMEs can use their business ac
125、tivity 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 of:Regional tax reduction or relief;Regional fee reduction or relief;Subsidized loans;Capital for MSMEs with
126、innovative products that have market potential or are technology-based;Financing of intellectual property rights;Vocational training;and Support for research and development.26AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The government can act as a guarantor for up to 80 percent of loans or fi
127、nancing 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 than 7.5 billion rupiah(US$524,381)per year;The busines
128、s 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 businesses can also receive the above-mentioned incentive
129、s 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.Priority location and developmentGR 7/2021 mandates ministries,state-owned enterprises,and regional-owne
130、d and private businesses 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
131、 the promotion of the 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.For advice on incorpor
132、ating a business in Indonesia,please email our specialists at I.RELATED SERVICES27AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024CooperativesThere are also new provisions to assist Indonesian cooperatives.GR 7/2021 reduces the requirement of primary cooperatives from 20 members to nine,and coope
133、ratives 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 establishment of shariah-based cooperatives,but the entity must contain the word shariah in the official name,and the sha
134、riah principles must be stated in the cooperatives articles of association.28AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Taxation329AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 20243TaxationThe Harmonized Tax Law(HTL)or Law No.7/2021 introduced major changes to Indonesias tax structure.The
135、changes included 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.Corporate taxationCorporate income tax is set at a basic rate of 22 percent.There are several benefits given to
136、 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 a three percent tax cut from the standard rate;Companies that have an annual turnover of 50 b
137、illion 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 Companies with gross turnover of no more than 4.8 billion rupiah(US$336,000)are subject to a 0.5 per
138、cent 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 manufacturers,retailers,wholesalers,and importers and 12 percent by 2025;Export of tangible and intan
139、gible 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 include,among others mining or drilling products,basic food commodities,food and drink served in hotels,resta
140、urants,restaurants,stalls,and money,gold bullion and securities,insurance services,religious services,arts and entertainment services,non-advertising broadcasting services,medical health services,financial services,and educational services.Personal income taxExpatriate workers need to know that pers
141、onal income tax(PIT)in Indonesia is determined through a self-assessment scheme.30AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The country has adopted a worldwide income taxation system,meaning that individuals considered as Indonesia tax residents pay tax to the government on the income they
142、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 Indonesia,unless the country in which they are a tax resident has an applicable tax treaty with Indonesia.In
143、 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 Indonesia.It is advisable to use the services of registered local tax advisors to help determine which tax law
144、 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 they were present in the country for more than 183 days during a 12-month period,or they have an intention t
145、o 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 Indonesia is defined as an individual who:Lives at a place of residence in Indonesia that is at their disposal and c
146、an 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 Indonesia needs to be substantiated with the following documents:A permanent stay permit;A limited stay visa;A limi
147、ted stay permit;or Other documents that support their stay of more than 183 days in Indonesia.Territorial taxation for foreignersForeigners 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 Appen
148、dix II of PMK-18.31AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Their expertise,however,must be supported by:A certificate issued by a government-authorized institution,or have a minimum of five years work experience in the field of science,technology,and math;and An obligation for knowledge t
149、ransfer 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 period,the territorial taxation will begin from the time they first became a domestic tax subject.Foreigners
150、 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 can also apply to the DGS for this tax treatment.Certain expatriates,because of their special legal status,a
151、re 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 exemptions apply to:Foreign diplomatic and consular personnel;Military personnel and civilian employees of foreign armed se
152、rvices;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 are subject to a withholding progressive tax(their net taxable income is set at graduated rates,with current rates ran
153、ging from five percent up to a maximum of 35 percent,depending on an individuals income);and Non-residents are subject to a final withholding flat tax of 20 percent on gross income.The government has implemented Government Regulation 58 of 2023(GR 58/2023)concerning new income tax deduction rates fo
154、r individual taxpayers,which took effect on January 1,2024.The primary objective of GR 58/2023 is to streamline the monthly withholding tax calculation process for income received by individuals.The regulation outlines specific taxpayer categories and their corresponding deduction rates based on the
155、ir income brackets.Monthly income tax calculationGR 58/2023 stipulates that the monthly withholding tax calculation for the months from January to November must now be done using an effective tax rate(ETR).However,the annual calculation that is carried out in December is still done using the progres
156、sive income tax rate under Article 17(a)of the Income Tax Law.32AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024The ETR is calculated based on the individuals gross monthly income or an individuals dailyincome.Taxpayer categoriesMonthly ETRThere are three categories of taxpayers.Category A Single
157、 with no dependent(S/0);Single with one dependent(S/1);and Married with no dependent(M/0).Category B Single with two dependents(S/2);Single with three dependents(S/3);Married with one dependent(M/1);and Married with two dependents(M/2).Category CMarried with three dependents(M/3).Daily ETRThis ETR i
158、s applied to non-permanent employees who are paid on a daily/weekly/unit/piece rate basis.Zero percent income tax rate for a daily income of up to 450,000 rupiah(US$28.79);and 0.5 percent tax rate for daily income above 450,000 rupiah(US$28.79)and up to 2.5 million(US$159)rupiah.Deductions and relie
159、fThere are several elements that can be deduced from the gross income when determining the annual taxable income of an individual.33AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Category AMonthly gross income(IDR)ETR(%)Up to 5.4 million(US$345)0 5.4 million(US$345)5.65 million(US$361)0.25 5.65
160、million(US$361)5.95 million(US$380)0.5 5.95 million(US$380)6.3 million(US$403)0.75 6.3 million(US$403)6.75 million(US$431)1 6.75 million(US$431)7.5 million(US$479)1.25 7.5 million(US$479)8.55 million(US$547)1.5 8.55 million(US$547)9.65 million(US$617)1.75 9.65 million(US$617)10.050 million(US$643)2
161、10.050 million(US$643)10.35 million(US$662)2.25 10.35 million(US$662)10.7 million(US$684)2.5 10.7 million(US$684)11.050 million(US$707)3 11.050 million(US$707)11.6 million(US$742)3.5 11.6 million(US$742)12.5 million(US$800)4 12.5 million(US$800)13.75 million(US$880)5 13.75 million(US$880)15.1 millio
162、n(US$966)6 15.1 million(US$966)16.95 million(US$1,085)7 16.95 million(US$1,085)19.75 million(US$1,264)8 19.75 million(US$1,264)24.15 million(US$1,542)9 24.15 million(US$1,542)26.45 million(US$1,693)10 26.45 million(US$1,693)28 million(US$1,791)11 28 million(US$1,791)30.050 million(US$1,923)12 30.050
163、 million(US$1,923)32.4 million(US$2,073)13 32.4 million(US$2,073)35.4 million(US$2,265)14 35.4 million(US$2,265)39.1 million(US$2,500)15 39.1 million(US$2,500)43.85 million(US$2,803)1634AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Category AMonthly gross income(IDR)ETR(%)43.85 million(US$2,803
164、)47.8 million(US$3,057)17 47.8 million(US$3,057)51.4 million(US$3,287)18 51.4 million(US$3,287)56.3 million(US$3,601)19 56.3 million(US$3,601)62.2 million(US$3,980)20 62.2 million(US$3,980)68.6 million(US$4,390)21 68.6 million(US$4,390)77.5 million(US$4,958)22 77.5 million(US$4,958)89 million(US$5,6
165、95)23 89 million(US$5,695)103 million(US$6,590)24 103 million(US$6,590)125 million(US$7,997)25 125 million(US$7,997)157 million(US$10,044)26 157 million(US$10,044)206 million(US$13,179)27 206 million(US$13,179)337 million(US$21,561)28 337 million(US$21,561)454 million(US$29,046)29 454 million(US$29,
166、046)550 million(US$35,182)30 550 million(US$35,182)695 million(US$44,457)31 695 million(US$44,457)910 million(US$58,214)32 910 million(US$58,214)1.4 billion(US$89,560)33 1.4 billion(US$89,560)3435AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Category BMonthly gross income(IDR)ETR(%)Up to 6.2 mi
167、llion(US$396)0 Up to 6.2 million(US$396)6.5 million(US$415)0.25 6.5 million(US$415)6.85 million(US$438)0.5 6.85 million(US$438)7.3 million(US$467)0.75 7.3 million(US$467)9.2 million(US$588)1 9.2 million(US$588)10.75 million(US$687)1.5 10.75 million(US$687)11.25 million(US$719)2 11.25 million(US$719)
168、11.6 million(US$742)2.5 11.6 million(US$742)12.6 million(US$806)3 12.6 million(US$806)13.6 million(US$870)4 13.6 million(US$870)14.95 million(US$956)5 14.95 million(US$956)16.4 million(US$1,049)6 11.050 million(US$707)11.6 million(US$742)7 16.4 million(US$1,049)18.45 million(US$1,180)8 18.45 million
169、(US$1,180)21.85 million(US$1,398)9 21.85 million(US$1,398)26 million(US$1,666)10 26 million(US$1,666)27.7 million(US$1,771)11 27.7 million(US$1,771)29.35 million(US$1,877)12 29.35 million(US$1,877)31.45 million(US$2,011)13 31.45 million(US$2,011)33.95 million(US$2,171)14 33.95 million(US$2,171)37.1
170、million(US$2,373)15 37.1 million(US$2,373)41.1 million(US$2,628)16 41.1 million(US$2,628)45.8 million(US$2,930)17 45.8 million(US$2,930)49.5 million(US$3,166)18 49.5 million(US$3,166)53.8 million(US$3,442)19 53.8 million(US$3,442)58.5 million(US$3,742)2036AN INTRODUCTION TO DOING BUSINESS IN INDONES
171、IA 2024Category BMonthly gross income(IDR)ETR(%)58.5 million(US$3,742)64 million(US$4,093)21 64 million(US$4,093)71 million(US$4,541)22 71 million(US$4,541)80 million(US$5,117)23 80 million(US$5,117)93 million(US$5,949)24 93 million(US$5,949)109 million(US$6,971)25 109 million(US$6,971)129 million(U
172、S$8,251)26 129 million(US$8,251)163 million(US$10,425)27 163 million(US$10,425)211 million(US$13,495)28 211 million(US$13,495)374 million(US$23,926)29 374 million(US$23,926)459 million(US$29,364)30 459 million(US$29,364)555 million(US$35,496)31 555 million(US$35,496)704 million(US$45,026)32 704 mill
173、ion(US$45,026)957 million(US$61,212)33 1.405 billion(US$89,919)3437AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Category CMonthly gross income(IDR)ETR(%)Up to 6.6 million(US$396)0 Up to 6.6 million(US$396)6.95 million(US$444)0.25 6.95 million(US$444)7.35 million(US$470)0.5 7.35 million(US$470)
174、7.8 million(US$498)0.75 7.8 million(US$498)8.85 million(US$566)1 8.85 million(US$566)9.8 million(US$626)1.25 9.8 million(US$626)10.95 million(US$700)1.5 10.95 million(US$700)11.2 million(US$716)1.75 11.2 million(US$716)12.050 million(US$770)2 12.050 million(US$770)12.950 million(US$828)3 12.950 mill
175、ion(US$828)14.15 million(US$904)4 14.15 million(US$904)15.55 million(US$994)5 15.55 million(US$994)17.050 million(US$1,090)6 17.050 million(US$1,090)19.5 million(US$1,247)7 19.5 million(US$1,247)22.7 million(US$1,452)8 22.7 million(US$1,452)26.6 million(US$1,702)9 26.6 million(US$1,702)28.1 million(
176、US$1,797)10 28.1 million(US$1,797)30.1 million(US$1,925)11 30.1 million(US$1,925)32.6 million(US$2,085)12 32.6 million(US$2,085)35.4 million(US$2,264)13 35.4 million(US$2,264)38.9 million(US$2,488)14 38.9 million(US$2,488)43 million(US$2,752)15 43 million(US$2,752)47.4 million(US$3,036)16 47.4 milli
177、on(US$3,036)51.2 million(US$3,279)17 51.2 million(US$3,279)55.8 million(US$3,574)18 55.8 million(US$3,574)60.4 million(US$3,868)1938AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Category CMonthly gross income(IDR)ETR(%)60.4 million(US$3,868)66.7 million(US$4,272)20 66.7 million(US$4,272)74.5 mi
178、llion(US$4,771)21 74.5 million(US$4,771)83.2 million(US$5,327)22 83.2 million(US$5,327)95.6 million(US$6,121)23 95.6 million(US$6,121)110 million(US$7,045)24 110 million(US$7,045)134 million(US$8,582)25 134 million(US$8,582)169 million(US$10,824)26 169 million(US$10,824)221 million(US$14,156)27 221
179、million(US$14,156)390 million(US$24,981)28 390 million(US$24,981)463 million(US$29,660)29 463 million(US$29,660)561 million(US$35,921)30 561 million(US$35,921)709 million(US$45,398)31 709 million(US$45,398)965 million(US$61,794)32 965 million(US$61,794)1.405 billion(US$89,919)33 1.405 billion(US$89,
180、919)34It is worth noting that a family is regarded as a single tax reporting unit with a single tax identity 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 deduction
181、s are available for resident taxpayers.Employer compliance obligationsIncome tax in Indonesia is mostly paid by withholding by the employer.The tax withheld by employers must be remitted to the government body on a monthly basis.39AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Employee complianc
182、e obligationsExpatriate employees are required to complete an annual tax return and compute their tax liability by March 31 of the following tax year.The majority of PIT is paid through statutory employer withholdings on earned income.However,for any other income that a taxpayer in Indonesia earns o
183、n 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 returnTo file a tax return,an individual must register as a taxpayer in order to obtain a tax identification number or NPWP.Expatriates must obtain a N
184、PWP if they are a tax resident.While employers are responsible for deducting tax from their employees salaries,it is the individual employees responsibility to register as a taxpayer and file their tax returns.Tax deregistration when leaving IndonesiaIt is highly recommended that expatriates leaving
185、 Indonesia permanently cancel their tax registration to avoid any misunderstandings,and thus avoid being continuously considered a tax resident of Indonesia.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 supp
186、orting documents prior to granting approval to deregister.The individual should ensure that all tax related documents are readily available in anticipation of a tax audit(including bank statements,salary slips,foreign tax documentation if applicable,work contracts,etc.).Income Tax Deductions in Indo
187、nesiaBasic 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)40AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Dividends and offshore income exempted from income
188、taxTo increase investments in Indonesias financial markets and the real sector,the government has provided income tax exemptions for foreign dividends received by domestic taxpayers.The reinvestment requirements are not required for domestic dividends received by domestic corporate taxpayers.Qualify
189、ing 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 investments in perception banks including shariah banks;or Other legal forms of investment
190、s.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 company domiciled in Indonesia;Cooperation with the Indonesian Sovereign Wealth Fund;or
191、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 offshore income recorded as part of the qualifying investment by the end of the third
192、 or fourth month after the end of the fiscal year.Finally,the investment cannot be transferred except to another qualifying investment.If the reinvestment requirement provides a 30 percent threshold,the taxpayer can enjoy the full exemption if this threshold is fulfilled.However,if the reinvestment
193、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 should note that the exemption does not apply to foreign citizens who utilize the double tax avoidance agreement(DTA)betwee
194、n 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 be appointed as VAT collectors and as such,are required to collect 11 percent VAT and pay to the Indonesian government.41AN INTROD
195、UCTION TO DOING BUSINESS IN INDONESIA 2024The following utilization of intangible goods will be subject to VAT:a.The use of or right to exercise the copyright in the field of literature,art or scientific work,patent,design or model,plan,secret formula or process,trademark,or other forms of intellect
196、ual 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 scientific,technical,industrial,or commercial sectors;d.The use of additional or comp
197、lementary 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 referred to in point(c);e.The use of or the right to use motion picture films,f
198、ilms 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 rights,or other rights as referred to in points(a)to(e).The utilization of intang
199、ible 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 offerings through electronic systems either managed or owned by themselves or t
200、hrough an e-commerce organizer.Type of incomeReinvestment requiredThreshold(%)Domestic dividends received by corporate taxpayersNoN/ADomestic dividends received by domestic individual taxpayersYesNoOffshore dividends received by domestic taxpayers-from a listed companyYesNoOffshore dividends receive
201、d by domestic taxpayers-from a listed companyYes30Offshore income received from a permanent establishment(PE)Yes30Offshore income received from an active business(not from a PE or subsidary)YesNoNote:30 percent from profit after tax42AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024 E-commerce org
202、anizers(PPMSE):Businesses or individuals that provide electronic systems to facilitate e-commerce transactions.These include business models,such as online streaming platforms,online marketplaces,online classified advertisements,and price comparison platforms,among others.Intermediary Service Organi
203、zers(PSP):These are businesses or individuals that provide search system facilities(for example,Google,Bing)or those that provide information storage services(hosting and caching).The aforementioned entities can be either domestic or foreign businesses and the legal requirements for each type will a
204、lso 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 classification 4791.Domestic
205、 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 be applied through t
206、he 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 complaints section o
207、n 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 business must submit its t
208、ransaction data(subscribers,payments,complaints,contracts,shipments etc.)to Statistics Indonesia(BPS),the government agency responsible for conducting statistical surveys.43AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024RELATED READINGOpportunities for Foreign Investors in Indonesias Digital Eco
209、nomyASEAN 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 expansion into the country.We then analyze Indonesias new laws for digital tax and t
210、he process for foreign companies to stay compliant.AVAILABLE HEREForeign merchantsForeign merchants must provide a valid business license issued in the country where they are established to the domestic PPSME company which provides their electronic communication facilities.The domestic PPSME will th
211、en need to report all the transactional activities(subscribers,payments,complaints,contracts,shipments,etc.)of the foreign merchant to the BPS.Foreign e-commerce organizersForeign PPSMEs that have been appointed as a VAT collector by the Ministry of Finance are obligated to charge the 11 percent VAT
212、 rate on the sales of digital products to Indonesian consumers.They must first have local transaction values of the following: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
213、 e-commerce site exceeds 12,000 users per year or 1,000 users per month.Withholding taxWithholding tax applies to both residents 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).T
214、he withholding tax rate on interest and royalties are also set at 15 percent for residents and 20 percent for non-residents.Withholding Tax Rates for Resident and Non-Resident Companies in IndonesiaNature of income Tax rate(%)ResidentsNon-residentsDividends1520Interest1520Royalties152044AN INTRODUCT
215、ION TO DOING BUSINESS IN INDONESIA 2024Luxury-goods sales taxThe import of certain manufactured taxable goods may be liable 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 rate
216、s(%)075125Luxury residences such as luxury homes,town houses,condominiums,apartments.Dirigibles,balloons,and other non-powered aircraftFirearms and other arms,except for state purposesAircraft other than those for the state or commercial air-transport purposesLuxury cruisers,except for th
217、e need of the state and public transport as well as yacht for tourismMotor vehicles45AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Stamp dutyIndividuals,companies,and other organizations in Indonesia must pay stamp duties on certain legal documents.As of January 2021,the standard stamp duty tax
218、 rate is 10,000 rupiah(US$0.70).Indonesia requires stamp duties on two main types of documents:documents created to explain 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
219、similar documents and their copies;Notarial deeds and executorial deeds(grosse)and their copies;Deeds made before a land deed 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 des
220、cribe the receipt of money or contain an acknowledgment of debt payment or settlement,either entirely or partially.In addition 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
221、 documents in the form of excerpts,minutes,copies,and minutes of auction executorial deeds(grosse);and Other documents stipulated by Government Regulation.The Law exempts the following documents from stamp duty:Land transfer and building rights documents used for handling and restoring social condit
222、ions following natural disasters;Land transfer and building rights documents used solely for religious or non-commercial activities;Documents relating to the implementation of government programs and monetary or financial policies;and Documents relating to the implementation of international agreeme
223、nts under binding international treaties or reciprocal laws.46AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Electronic stamp dutyElectronic stamps,which carry a unique code and description,will apply to electronic transaction documents with a value above 5,000,000 rupiah(US$350).The Indonesian
224、government,however,is still building the infrastructure to manage electronic stamp duties.New tax regime for benefits-in-kindIndonesias Ministry of Finance issued Regulation 66 of 2023(MOF 66/2023)to govern the tax treatment of benefits-in-kind(BIK).MOF 66/2023 states there are two types of benefits
225、-in-kind:1.Compensation-in-kind:Compensation in non-cash form such as meals,uniforms;and2.Compensation in the form of facilities,such as housing,vehicles,and medical facilities.The regulation also sets out the types of benefits-in-kind in Indonesia,when employers can exempt benefits-in-kind from tax
226、able income,and how benefits-in-kind are taxed and valued.What types of benefits-in-kind are not taxable?The following benefits-in-kind are not taxable in Indonesia.Food and beveragesFood and beverages provided in the workplace are not taxable.Further,food coupons or reimbursement for meals outside
227、of the workplace priced no more than 2 million rupiah(US$131)(for each employee)are also not taxable.Gifts for religious holidays and other eventsGifts in the form of food,drinks,or meals for religious holidays,such as Eid-al Fitr,Christmas,Chinese New Year,Nyepi,and Waisak are not taxable.There is
228、no limit on this value.Gifts for non-religious events,however,must not exceed 3 million rupiah(US$196)per person in one fiscal year.Beyond this amount would be a tax liability.47AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Health,security,and safety benefitsUniforms,medication/vaccines,and saf
229、ety equipment are not taxable,and there is no limit in terms of the value.For healthcare,the benefits-in-kind must cover emergencies,occupational accidents,follow-up treatments,and occupational diseases.There is also no limit on the value.Vehicle facilitiesVehicle facilities from an employer are not
230、 taxable if the employee does not have capital investment in the employer and has a maximum gross monthly income of no more than 100 million rupiah(US$6,599).Work equipmentEquipment needed to support the employees duties,such as laptops,computers,phones,and internet connections,are not taxable.Sport
231、s facilitiesSports facilities must be received or earned by employees and are limited to 1.5 million rupiah(US$98)per year,per employee.This facility excludes golf,horse racing,motorized boat racing,gliding,and automotive sporting activities.Communal and non-communal living facilitiesCommunal living
232、 facilities,such as dormitories,lodges,or barracks,are non-taxable.Non-communal living facilities,such as apartments and houses,are also non-taxable but have a limit of 2 million rupiah(US$131)per employee,per month.Employers contribution to employee pension fundsThe employers contribution to the em
233、ployees pension fund is not taxable.How are benefits-in-kind calculated?If the benefit-in-kind was received in the 2024 financial year,then the employer is exempted from withholding the income tax,and the employee is exempted as an income tax object.For the 2025 financial year(January June),the empl
234、oyer is exempted from withholding the income tax.For the employee,benefits-in-kind must be calculated,paid,and reported by employees in their 2022 annual income tax return.Our experienced team of tax accountants can help on a wide spectrum of tax service areas across all major industries in Indonesi
235、a.Contact us at .RELATED SERVICES48AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Indonesias DTA networkIndonesia has signed over 71 double tax avoidance(DTA)agreements with various countries,which eliminate instances of double taxation from cross-border activities.The withholding tax rate on di
236、vidends 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.The withholding tax rates of the applicable tax treaties.Countries wit
237、h Signed DTAs with IndonesiaA-BC-JK-OP-ST-ZAlgeria*CambodiaKorea(North)PakistanTaiwanArmeniaCanadaKorea(South)Papua New GuineaTajikistanAustraliaChinaKuwaitPhilippinesThailandAustriaCroatiaLaosPolandTunisiaBangladeshCzech RepublicLuxembourgPortugalTurkeyBelarusDenmark*MalaysiaQatarUkraineBelgiumEgyp
238、tMexicoRomaniaUnited Arab EmiratesBruneiFinlandMongoliaRussiaUnited KingdomBulgariaFranceMoroccoSerbiaUnited States of AmericaGermanyNetherlandsSeychellesUzbekistanHong KongNew ZealandSingaporeVenezuelaHungaryNorwaySlovakiaVietnamIndiaSouth AfricaZimbabweIranSpainItalySri LankaJapanSudanJordanSurina
239、meSwedenSwitzerlandSyriaSource:PwC*Treaties with Cambodia,Malaysia,and Zimbabwe are ratified but not yet effective,pending the exchange of ratification documents.49AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024DividendsPortfolioSubstancial HoldingsInterestRoyaltiesBranch Profit Tax1.Algeria15%1
240、5%15/0%15%10%2.Armenia15%10%10/0%10%10%3.Australia15%15%10/0%15/10%15%4.Austria15%10%10/0%10%12%5.Bangladesh15%10%10/0%10%10%6.Belarus10%10%10/0%10%10%7.Belgium15%10%10/0%10%10%8.Brunei15%15%15/0%15%10%9.Bulgaria15%15%10/0%10%10?10.Cambodia10%10%10/0%10%10%11.Canada15%10%10/0%10%15%12.China10%10%10/
241、0%10%10%13.Croatia10%10%10/0%10%10%14.Czech Republic15%10%12.5/0%12.5%12.5%15.Denmark20%10%10/0%15%15%16.Egypt15%15%15/0%15%15%17.Finland15%10%10/0%15/10%10%18.France15%10%15/10/0%10%10%19.Germany15%10%10/0%15/10%10%20.Hong Kong10%5%10/0%5%5%21.Hungary15%15%15/0%15%20%22.India10%10%10/0%10%15%23.Ira
242、n7%7%10/0%12%7%24.Italy15%10%10/0%15/10%12%25.Japan15%10%10/0%10%10%26.Jordan10%10%10/0%10%20%27.Korea(North)10%10%10/0%10%10%28.Korea(South)15%10%10/0%15%10%29.Kuwait10%10%5/0%20%10/0%30.Laos15%10%10/0%10%10%50AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024DividendsPortfolioSubstancial Holdings
243、InterestRoyaltiesBranch Profit Tax31.Luxembourg15%10%10/0%12.5%10%32.Malaysia10%10%10/0%10%12.5%33.Mexico10%10%10/0%10%10%34.Mongolia10%10%10/0%10%10%35.Morocco10%10%10/0%10%10%36.Netherlands10/15%5%10/5/0%10%10%37.New Zealand15%15%10/0%15%20%38.Norway15%15%10/0%15/10%15%39.Pakistan15%10%15/0%15%10%
244、40.Papua New Guinea15%15%10/0%10%15%41.Philippines20%15%15/10/0%15%20%42.Poland15%10%10/0%15%10%43.Portugal10%10%10/0%10%10%44.Portugal10%10%10/0%10%10%45.Romania15%12.5%12.5%15/12.5%12.%46.Russia15%15%15/0%15%12.5%47.Serbia15%15%10/0%15%15%48.Seychelles10%10%10/0%10%20%49.Singapore15%10%10/0%8/10%1
245、0%50.Slovakia10%10%10/0%15/10%10%51.South Afrida15%10%10/0%10%10%52.Spain15%10%10/0%10%10%53.Sri Lanka15%15%15/0%15%20%54.Sudan10%10%15/0%10%10%55.Suriname15%15%15/0%15%15%56.Sweden15%10%10/0%15/10%15%57.Switzerland15%10%10/0%10%10%58.Syria10%10%10/0%20/15%10%59.Taiwan10%10%10/0%10%5%51AN INTRODUCTI
246、ON TO DOING BUSINESS IN INDONESIA 2024DividendsPortfolioSubstancial HoldingsInterestRoyaltiesBranch Profit Tax60.Tajikistan10%10%10/0%10%10%61.Thailand20/15%20/15%15/0%15%20%62.Tunisia12%12%12/0%15%12%63.Turkey15%10%10/0%10%10%64.Ukraine15%10%10/0%10%10%65.United Arab Emirates10%10%7/0%5%5%66.United
247、 Kingdom15%10%10/0%15/10%10%67.United States of America15%10%10/0%10%10%68.Uzbekistan10%10%10/0%10%10%69.Venezuela15%10%10/0%20%10%70.Vietnam15%15%15/0%15%10%71.Zimbabwe20%10%10/0%15%10%Multilateral Instrument Indonesia signed the Multilateral Instrument(MLI)on June 7,2017,and ratified it on Novembe
248、r 13,2019.On April 28,2020,Indonesia notified the OECD,the depositary of the MLI,confirmingthe completion of internal procedures.The MLI came into force on August 1,2020.As of November 27,2023,Indonesia has designated 60 tax treaties to be covered by the Convention,contingent upon whether those juri
249、sdictions have also included Indonesia in their notifications.US FACTAIndonesia has agreed in principle to sign Inter-Governmental Agreement(IGA)1 for compliance with FATCA.52AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Carbon taxA Carbon Tax is set to be levied on carbon emissions,aimed at ad
250、dressing their detrimental environmental impact.The tax will primarily target companies and individuals involved in purchasing carbon-containing goods or engaging in activities that lead to carbon emissions over a specified period.The initial regulation for implementing the Carbon Tax,outlining the“
251、cap and trade”mechanism for Coal-Fired Power Plants(per Minister of Energy and Mineral Resources Regulation No.16/2022),was issued at the end of 2022.The first reporting of carbon emissions and associated Carbon Tax obligations,if applicable,must be filed by April 30,2024,with any due taxes paid bef
252、orehand.To facilitate carbon trading,particularly for emission offsetting,the Government of Indonesia launched the Indonesian Carbon Exchange(IDXCarbon)on September 26,2023.The minimum rate of the Carbon Tax will correspond to the carbon price in the domestic market per kilogram of CO2 equivalent(CO
253、2e),with a floor rate of IDR 30 per kilogram of CO2e.The tax becomes due upon the purchase of carbon-containing goods,at the end of the calendar year when emissions occur,or at other specified times.53AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Human Resources and Payroll454AN INTRODUCTION TO
254、 DOING BUSINESS IN INDONESIA 2024Human 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 2020 on Job Creation and revoked by Government Regulation in Lieu of Law No.2 of 2022 on Job Creation;Law No.21
255、 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 recognizes three types of fixed-term contracts(FTC):FTC based on the completion of work;FTC based on the period of time;and F
256、TC 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 cannot be for prolonged periods(5 years maximum in total).Failing to adhere to these rules will result in the employee
257、deemed to be on a permanent employment contract.Indonesias Fixed-Term Contract SystemFTC based on completion of workFTC based on periodFTC related to non-permanent workType of work Temporary work;or One-time work Work that can be completed in short time;Seasonal work;or Work related to new products
258、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 include provisions on the expected period for work completion.(including extension).Maximum 20 days per month.If the emplo
259、yee works for 21 days per month or more for three consecutive months,then they will be considered permanent workers.55AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Compensation for FTC workersPrior to the Omnibus Law,any party terminating the FTC was required to pay the other party compensation
260、 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 changed with GR 35/2021,which obligates the employer to pay compensation to the employee,even if the employee terminates the FTC prematurely.The em
261、ployers 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 it calculated?Compensation is calculated using the following formula:Contract periodCompensation amountMore than one month but le
262、ss 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 compensation for the initial contract must be paid when the FTC expires.For any ongoing FTCs,the compensation payment will be calculated
263、 from November 2,2020,the date from which the Omnibus Law came into effect.Further,foreign workers are not entitled to the aforementioned compensation.56AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Working hoursNormal working hours in Indonesia is 40 hours per week,which can be divided into ei
264、ght 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 the following characteristics:Undertake work that can be completed in less than 35 hours per week;Can implement flexible working ho
265、urs;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 per week,which does not apply to public holidays.GR 35/2021 requires that collective labor agreements,company regulations,or employm
266、ent 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 payment.The overtime payment is based on the employees monthly wage.Every hour,the calculation is applied,which is 1/173 times the mont
267、hly 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 provisions on employees that are exempt from overtime pay eligibility.These are:Employees that hold certain positions with responsibili
268、ties 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 salaries.OutsourcingThe new regulation makes it clear for employers to include the provisions of transfer of rights protection in the con
269、tract 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 government.RELATED READINGASEAN Talent and HR Compensation BenchmarkingASEAN Briefing Magazine August,2021In this issue of th
270、e 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 explore hiring costs in the bloc before finally focusing on the industrialization plans of select ASEAN members.AVAILABLE HERE
271、57AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Termination of employmentGR35/2021 sets the procedures to unilaterally terminate employment.The employer must first notify the employee in writing,setting out the reasons for termination,and the termination payments and entitlements at least 14 bu
272、siness 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,the employee objects to the termination,they must provide,in writing,the reasons for this within seven business days from rec
273、eiving 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 matter can be brought to the local employment office for mediation,and if this fails,to the Industrial Relations Court.Prior to
274、 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 negotiations.The employer would then be able to obtain an approval for the termination from the labor courts and the employee
275、 was entitled to up to six months salary.Termination paymentsTerminated employees are entitled to termination payments and the amount varies depending on the length of employment of the employee.Termination payments are comprised of severance payments,long service pay,and compensation of rights.Ther
276、e 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 incurred such as for relocation.Long service pay refers to a type of compensation given to employees based on the
277、 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.Reg 35/2021 provides changes to calculating termination pay for certain cases,such as merger or consolidation of the company
278、resulting in the termination of the employee,or closure of the company due to mounting losses,among others.In such cases,the severance pay is not as high as mentioned in the previous tables.58AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Severance Payment in IndonesiaCompleted years of serviceS
279、everance 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 less than 55 months wageMore than 5 years but less than 66 months wageMore than 6 years but less
280、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 wageMore than 6 years but less than 93 months wageMore than 9 years but less than 124 months wageMo
281、re 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 years10 months wage59AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Termination Payment Formu
282、laReason for terminationSeverance payment(as per previous tables)Long service payment(as per previous tables)Compensation of rights(as per previoustables)Separation payLong-term illness or disability resulting in the worker unable to work for 12 moths2x1x1xNoEmployee deathRetirement1.75x1x1xNo Merge
283、r,consolidation,separation of company and which the employee is not willing to continue with 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 paym
284、ent 1x1x1xNoForce majeure but does not result in the company closing down0.75x1x1xNo Acquisition 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
285、Employer is involved in debt payment proceedings as a result of its losses0.5x1x1xNo employees 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
286、 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 detention by the authorities,but does not create losses for the company1xYesNoRelevant visa categories for foreign workersThere are a variety of vis
287、as foreign visitors can apply for depending on their purpose of visit.60AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Termination Payment FormulaReason for terminationSeverance payment(as per previous tables)Long service payment(as per previous tables)Compensation of rights(as per previoustable
288、s)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 with their employment or the employer will no longer accept the
289、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 Acquisition resulting in changes of employment for the employee;Clo
290、sure 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 employees allegations against the employer not proven;Employees vol
291、untary 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
292、detention by the authorities,but does not create losses for the company1xYesNoTermination Payment FormulaReason for terminationSeverance payment(as per previous tables)Long service payment(as per previous tables)Compensation of rights(as per previoustables)Separation payLong-term illness or disabili
293、ty 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 employee;to prevent losses;Acquisitions;Emplo
294、yees 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 the company due to force majeure;Comp
295、any 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 termination;Employees absence without
296、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 detention by the authorities,but does not cre
297、ate losses for the company1xYesNo61AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Business 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 c
298、onferences,or undertaking market research.This visa must 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
299、 year.The visa,however,has a 60-day limit upon arrival,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 applicat
300、ion requirements for the business visa is as follows:A 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 immigratio
301、n office in Jakarta on behalf of the applicant;The process usually takes five working days during which time 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 applicant
302、s own company.One passport-sized photograph(white background).A copy of the applicants round trip,electronic airline ticket.Pay the US$50 fee.A bank statement proving the applicant has at least US$1,500.Working visasA work visa(IMTA)can only be applied by the Indonesian company that will hire the fo
303、reign worker.The company must prove to the Ministry of Manpower(MOM)that the foreign applicant is required to fulfil certain positions.62AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Foreign employees in Indonesia are not allowed to obtain work in the following sectors:Human resource management
304、;Legal;Health and safety;Quality control;and Supply chain management.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 provi
305、des in detail the requirements for businesses to fulfill in 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 em
306、ployment the foreign employee will undertake in Indonesia.The 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 Reg 8/2021.RPTKA CategoriesRPTKA typeValidityTemporary work(production quality control,flming
307、 work,installation of machines,etc.)Valid for up to six months and cannot be extendedEmployment for more 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 p
308、ossibility for extensionEmployment in special economic zones(SEZ)The SEZ RPTKA for directors or commissioners can be granted for a period as needed by the employerValid for fve years with possibility for extension;or63AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024What is the process of hiring f
309、oreign 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 Ministry of Manpower.The application is addressed to the Director of Foreign Manpower Utilization Management(Direktur Pengendalian Penggunaan Tenaga
310、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 Guidance and Expansion of Work Opportunity(Direktur Jenderal Pembinaan Penempatan Tenaga Kerja dan Perluasan Kesempatan Kerja).Who can apply?Acc
311、ording to MOM Reg 8/2021,employers that can employ foreign workers include:Government institutions,international bodies,and foreign state representatives;Foreign trade representatives,foreign news agencies conducting activities in Indonesia,and foreign representative offices;Foreign private companie
312、s conducting business in Indonesia;Legal entities such as private limited companies established in Indonesia;Social,religious,or cultural institutions;Entertainment management entities;and Other business entities allowed to employ foreign workers.RPTKA assessmentOnce submitted,the MOM will conduct a
313、 feasibility study to see if the employer and prospective employee meet all the requirements.Employers are required to submit the following information:Identity of the employer;Reasons for utilizing a foreign worker;The position of the foreign worker within the companys organization structure;Number
314、 of foreign workers being employed;Contract length of the foreign employee;Working location of the foreign employee;Proof of mandatory employment reporting by the employer;and Statement letter affirming the following:The designation of the Indonesian employee(s)assigned as a co-worker to the foreign
315、 employee;The Indonesian employee(s)will receive training or education from the foreign employee in accordance with the position and qualifications of the foreign employee;and Ensure the foreign worker returns to their home country once their work contract expires.Future plans to absorb Indonesian w
316、orkers.The results of this assessment will be issued in no more than two working days.64AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Personal information submissionThe employer can submit the personal information and documents of the foreign worker after the RPTKA assessment or during the subm
317、ission of the RPTKA documents.The personal information will be verified by the MOM within two working days.RPTKA approval and paymentIf the documents and information 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
318、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 made 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 vis
319、a and stay permits.Payment of the DKP-TKA is waived for foreign state representatives,international bodies,religious institutions,social institutions,and certain positions in the education sector.Annual reporting obligationsEmployers must submit an annual report to the MOM that covers the scope of t
320、he foreign workers employment,the education or training facilitated to Indonesian co-workers,and the types of technology transfer implemented.RPTKA exemptionsThere are RPTKA exemptions for foreign workers that are the members of the board of directors,members of the board of commissioners,diplomatic
321、 or consular staff,or are hired by the local employer in connection to emergency activities,vocational activities,or in connection to production activities of an Indonesian-based tech startup.Specifically,for tech-based startups and vocational training activities,the RPTKA exemption lasts for no mor
322、e 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 period of employment of the foreign worker,as stated in the foreign worker employment statement letter,which is issued in place of an RPTKA app
323、roval.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 VITAS into a limited stay permit Kartu Izin Tinggal Terbatas(KITAS).65AN INTRODUCTION TO DOING BUSINESS IN INDONESIA 2024Additional requireme
324、nts 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).After the VITAS is secured,their immigration status changes to a limited stay permit(ITAS),which requires an official stamp from an immigration o
325、ffice.Once the ITAS is secured,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
326、the embassy or consulate of 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(ITA
327、S)was valid for a maximum of 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 th
328、e country in total for 10 years.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
329、local immigration office in 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
330、 workers would need to have held a KITAS for four consecutive years,work in the same company,and have 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).66AN INTRODUCTION TO DOING BUSINESS I
331、N INDONESIA 2024Conversion 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.O
332、btaining a KITAP means the foreigner is no longer required to make the annual trip to the immigration office,as in the case of KITAS/ITAS holders,and will incur no more costly visa extensions.Introduction of the second home categoryThe government has now allowed foreigners who treat Indonesia as a s
333、econd home to be eligible to 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.Previously,this visa type could be extended for a further 30 days once it expired.