Indonesia has grown in popularity as a place for business establishment due to its dynamic economy and advantageous location. Bali and Jakarta are two of Indonesia’s most desirable destinations. Whichever you choose—Bali’s artistic atmosphere or Jakarta’s vibrant business scene—each has special benefits. The following article will guide you through the fundamental procedures to starting a company in Bali and Jakarta, emphasizing important considerations, legal requirements, and best practices.
Legal Requirements for Starting a Company
In short, there are five main steps before you can start your company in Bali or Jakarta:
1. Choose the Right Business Structure
There are various business structures available in Indonesia, each with certain criteria:
2. Registering Your Business
Registering a business in Indonesia involves several steps that require interaction with various government agencies, particularly the Directorate General of Legal Administrative Affairs (Ditjen AHU) and the Online Single Submission (OSS) system. The process includes reserving your business name, obtaining the Deed of Establishment, and securing an Indonesian Business Identification Number (NIB)
3. Securing Licenses and Permits
Specific permits may be required depending on the nature of your business and its location. For example, a tech firm in Jakarta might require licenses from the Ministry of Communication and Information Technology, whereas enterprises related to tourism in Bali need permissions from the local tourism office.
4. Tax Registration
Register your company with the tax office to obtain a Taxpayer Identification Number (NPWP). Indonesia has a progressive corporate tax rate, and understanding your corporate tax obligations in Indonesia is crucial to avoid legal complications.
5. Setting Up Operations
Indonesia offers a large pool of skilled workers, but hiring the right talent requires a good understanding of local labor laws, compensation expectations, and cultural nuances. Employment in Indonesia is regulated by several laws, including:
- Law No. 13 of 2003 on Manpower: Governs general labor practices, including rights and obligations of employers and employees.
- Law No. 11 of 2020 on Job Creation (Omnibus Law): Introduced reforms in various sectors, including employment, and amended several aspects of the Manpower Law.
- Government Regulation No. 34 of 2021: This regulation specifically addresses the employment of foreign workers. It outlines the requirements for obtaining work permits, the types of positions that foreign workers can occupy, and the obligations of employers who hire foreign workers.
- Government Regulation No. 35 of 2021: Provides detailed regulations on employment agreements, wages, and termination.
- Law No. 6 of 2011 on Immigration: Covers regulations regarding foreign workers and their work permits (KITAS).
- Minister of Manpower Regulation No. 5 of 2023: Governs fixed-term employment agreements (PKWT) and permanent employment agreements (PKWTT).
The Alternative: Partnering with an Employer of Record Provider
Starting a company locally provides greater control over operations and a stronger brand presence in Indonesia. It allows businesses to directly manage their workforce, build local relationships, and establish a more permanent presence in the market. However, this approach comes with significant costs and administrative burdens. Setting up a local subsidiary involves navigating complex legal, tax, and HR requirements, which can take several months and require substantial investment.
In addition to the initial setup costs, maintaining a local entity requires ongoing compliance with Indonesian regulations, including filing taxes, managing payroll, and adhering to labor laws. For starting businesses with limited resources or those looking to test the market before making a long-term commitment, this level of investment may be prohibitive.
Partnering with an Employer of Record (EOR) offers a more streamlined and cost-effective alternative. An EOR acts as the legal employer for the company’s workforce in Indonesia, handling all employment-related tasks, including payroll, benefits, and compliance. This allows businesses to hire local talent quickly and efficiently, without the need to establish a local entity.
The EOR assumes responsibility for ensuring compliance with Indonesian labor laws and managing all administrative tasks, freeing up the company to focus on its core business activities. This approach is particularly advantageous for businesses that require flexibility, as it allows them to scale their operations up or down based on market conditions without the long-term commitment of a local entity.