Indonesia may not be as big as China in terms of scale and population, but it pretty much is in every other sense of the word, thanks to its limitless opportunities for businesses — large and small alike.
Here in the first ‘episode’ of the Southeast Asia analyzing series, we take a look at Indonesia and why you should consider this vibrant market for e-Commerce exports and sourcing products.
Legal considerations in Indonesia
Foreign and domestic investment alike within Indonesia’s border is administered by the Investment Coordinating Board (BKPM). BKPM regulates the Company Law and the Foreign Investment Law.
Investors must apply for approval from BKPM. BKPM does not issue licences for investments in banking, financial institutions, insurance, and oil & gas. These are issued by industry specific regulating bodies.
Import licences and permits to employ non-Indonesian workers are issued by the Ministry of Manpower. You should take advice on your legal obligations which can vary depending on your business.
Standards and technical regulations in Indonesia
Indonesia requires most products to be registered through governmental authorities and undergo technical testing before they can enter Indonesian market.
Persistence and a reliable local partner, someone who preferably has a network of legal presence in place, makes big difference in helping with import authorisation procedures.
Some mandatory certifications for product registration at national level include:
- SNI (Indonesian National Standard) certification for toys, tyres, cement, single inorganic fertiliser, bottled drinking water, helmets, low-pressure regulators for liquefied petroleum gas (LPG) steel tubes
- Ministry of Health certification for medical related products
Intellectual property rights (IPR) in Indonesia
The Directorate General of Intellectual Property Rights of the Ministry of Law and Human Rights is responsible for administering IPR in Indonesia.
Indonesia is a World Trade Organization (WTO) member and has comprehensive intellectual property protection regulation. However, enforcement can be extremely difficult.
You should register your IP, a process which can take up to 3 years. The EU ASEAN IPR helpdesk offers tools and advice to help you manage your intellectual property in Indonesia.
Tax and customs considerations in Indonesia
Sales tax in Indonesia
VAT and GST taxes are called Pertambahan Pajak Nilai (PPN). PPN is a 10% point-of-sale tax.
PPnBM (Pajak Pertambahan Nilai dan Pajak Penjualan atas Barang Mewah) is a sales tax on luxury goods. It is levied in addition to PPN and is imposed on luxury goods which are both manufactured in and imported into Indonesia.
Rates range from 10 to 50%. Some items can be taxed at 75%.
Corporate tax in Indonesia
A foreign company with a permanent establishment in Indonesia will have to tag along with the same tax obligations as a resident taxpayer.
Foreign companies without a permanent establishment will settle tax liabilities through withholding of the tax by the Indonesian party paying the income.
Corporate income is taxed at 25%.
Income tax in Indonesia
Taxpayers are obliged to make a prepayment of their annual tax obligation by a withholding of 2.5% (7.5% if the company does not possess an import permit) of cost, insurance and freight (CIF) value of imports.
Customs in Indonesia
Import duty is payable at the rates from 0% to 150% on the customs value of imported goods.
Customs value is calculated on the CIF level. It is possible to apply for an exemption, deferment or restitution of import duties where the import meets criteria, such as:
- imports used in production of exports
- capital goods, spares and raw materials by manufacturers and certain other sectors
- equipment and materials imported for use in a foreign aid funded project
Documentation in Indonesia
Correct paperwork is crucial. Check with your importer or agent on the documentation required when exporting products to Indonesia. Different products will require different documents due to rules set by government authorities.
You will need a commercial invoice which must be signed by the manufacturer and contain the:
- name and address of the shipper
- place and date of the shipment
- name and address of the consignee
- number and kind of packages
- content and weight of each package
- tariff number, marks and numbers
A pro-forma invoice is not compulsory, but will be needed by importers for quoting price.
Business behaviour in Indonesia
The official language is Bahasa Indonesia. English is widely spoken by young people, but interpretation may be required for business meetings, particularly outside Jakarta and other major cities.
During meetings you should:
- exchange business cards right after introductions presenting with both hands or with the right. After exchanging, keep cards on the table, not put them away
- not offer anything with your left hand, nor receive anything with it
- not start drinking immediately when offered a drink until formally invited to do so by the host
- not to cross your legs when sitting as showing the soles of your feet is considered highly discourteous in Indonesia
- not stand with your hands on your hips or with your arms folded as this is regarded as aggressive and rude
Email, contrary to common practice, is treated as an optional form of communication and rarely gets responses.
After a meeting, send a formal letter setting out what you discussed. Company literature will be well received. Then follow this up with a phone call to confirm the letter has been received. Do not expect progress until your next face to face meeting.
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