Lenient tax regime, cheap rent, minimal competition, and a stable customer flow - this list of advantages increasingly attracts investors to Indonesia, and to Bali in particular.
Those who have already appreciated the unique combination of opportunities here - from the rapidly developing digital economy and thriving manufacturing sector to the strategic location at the heart of Southeast Asia - are eager to start a business on this paradise island.
Focusing only on Bali, its infrastructure is developing at such a pace that it is starting to outstrip the rapidly growing needs of both tourists and entrepreneurs - international airport, metro construction, various support systems for foreign investors, and more.
The local immigration office regularly reports an increasing number of visitors from various corners of the world - from Australia to China, France, and the USA. Every year after the pandemic, the island breaks its own records for tourist numbers. And this, of course, becomes one of the most important criteria for those choosing a place to offer services or sell goods.
But if the reasons are clear and the desire to start a business on the island exists, what to do next? What pitfalls should be considered? Which field is best to choose? How to act correctly to pay fewer taxes? And is it even possible for a foreigner to legally provide services on the island, like being a photographer or an actor?
These and other questions were asked by BaliLive to a representative from the visa agency Legal Indonesia.
BaliLive: Under what conditions can a foreigner start a business in Indonesia?
Legal Indonesia: Currently, Indonesia is the largest economy in Asia, with resources that are attractive to investors of all levels. The local government understands this and, of course, supports foreigners who want to conduct legal business in the country.
The most popular and safe type of business license for a foreign investor is Perseroan Terbatas Penanaman Modal Asing (PT PMA). It suits projects of any size, allowing for legal business operations. The owner of this license can also open a bank account, obtain health insurance, and get an investor KITAS, allowing them to reside in Indonesia permanently.
Among the necessary conditions for opening such a company are a minimum capital of 10 billion IDR or more, at least two shareholders, a company registration address, and at least one Indonesian citizen in the company's directory.
It is important to note that Indonesian law regulates the maximum allowable share of foreign capital in a PT PMA company. This amount depends on the enterprise's line of business. Some companies may have 100% foreign capital, some no more than 10%. All restrictions are outlined in the Negative Investment List (DNI).
The cost of opening a company is 20 million IDR, and an investor KITAS for two years is 16 million.
BL: What if you want to start a business but don't have 10 billion rupiahs?
Legal Indonesia: According to civil law, yes, PT PMA companies must contribute their share capital within 60 days after company registration, but in practice, this requirement is not regulated. Consequently, the share capital requirement is not mandatory in practice.
BL: Are there restrictions on the types of activities that a company with foreign capital can undertake in Indonesia?
Legal Indonesia: Indonesia has a classification of activities, called KBLI. So, from this list, you need to choose an activity code related to what you plan to do. You can even choose several, but we don't recommend this because you will have to fulfill investment obligations of 10 billion IDR for each one. If you really need to choose several directions, we recommend sticking to at least two.
The list of activities available and unavailable to foreigners is constantly changing, so it's better to check at the time of company opening. I'll say upfront that popular fields such as beauty salons or cafes have been reserved for local entrepreneurs for several years. Foreign investors are also gradually being restricted in retail trade, as PMA is more intended for larger, wholesale businesses.
There are many prohibitions and restrictions in the financial sector. For example, clients often inquire about opening exchange offices, but this activity is only available for companies with 100% local founders.
BL: What to do if a type of activity is unavailable to a foreigner but that's the business they intend to start?
Legal Indonesia: There are two options here: either choose a related activity and operate acknowledging the risks, or open the company under local founders' names. The second option also has risks, but if everything is done with the help and under the control of professionals, they can be minimized.
BL: Is there a mechanism to protect against the hypothetical seizure of the company if, for example, it is opened under a local founder's name?
Legal Indonesia: Many companies often offer various schemes, from beneficiary or investment agreements to simple loan agreements. In practice, we've seen many cases where the contract did not matter, so it's crucial to factually protect your assets. Our specialists can advise on how to do this.
BL: How long does it take to open a company? Is a simple visa on arrival enough for this?
Legal Indonesia: The PT PMA registration process consists of several stages. First, you need to correctly choose the business classification to obtain the maximum ownership percentage, then the entrepreneur must decide on the office location. After that, obtaining a tax number NPWP (Nomor Pokok Wajib Pajаk) and a business registration number NIB (Nomor Induk Berusaha) occurs, followed by the issuance of commercial licenses.
In principle, it is possible to complete all these stages within two weeks, but it's important to understand that some projects require additional documents and permits, so we warn our clients that the process may extend up to two months.
Usually, our clients manage with a visa on arrival. Especially since it can always be extended for another 30 days if, for example, you didn't manage to open a bank account in the company within the first 30 days. Such instances occur, as timelines for accounts often depend on the bank.
BL Speaking of bank accounts, how can you open one without KITAS?
Legal Indonesia: Indeed, most banks now require the KITAS of a director to open a company account, although this requirement isn't entirely lawful. The company, on the contrary, should act as a sponsor to obtain its director's investor visa.
The correct procedure is this: first, the company is opened, then the company account is opened in the bank (currently possible without KITAS only in OCBC) and only after this is the KITAS processed. Unfortunately, obtaining it earlier, without a company account statement, is not possible.
BL: Can I simply obtain KITAS this way through a company and not conduct any activity?
Legal Indonesia: KITAS are strictly purpose-driven visas. If you don't plan to conduct activities, it's better to get a tourist visa or a digital nomad KITAS.
BL: If I don't need a physical office, can I register a virtual one?
Legal Indonesia: Yes, currently in Indonesia, you can register a company with a virtual office, but not everywhere. For instance, in Jakarta, there is a legal framework supporting the legality of virtual offices, but in Bali, there isn't yet.
BL: Is it true that the tax regime in Indonesia is very favorable for businesses?
Legal Indonesia: Indeed, Indonesia is quite attractive in terms of taxes. A starting business pays only 0.5% of the turnover. In this regime, it can operate either for the first three years or until the turnover reaches 4.8 billion IDR. After this threshold, the company is obliged to pay 11% VAT (12% next year), plus a 22% yearly tax on net profit.
Thus, in the first three years, the tax burden is minimal. It's possible to further ease it for companies that have surpassed the three-year threshold, but caution is needed along with careful preparation of the tax base to write off as many expenses as possible. I would advise against abusing business fragmentation. Perhaps Indonesia hasn't focused on companies with foreign founders, but the situation could change abruptly at any time.
Officially, tax incentives of 30-50% are provided for very large enterprises, so this is relevant, rather, for the industrial sector, where turnover amounts are entirely different.
BL: If an entrepreneur has a small business, can they handle accounting by themselves?
Legal Indonesia: There are many risks with this approach. The most basic and obvious ones are incorrect tax calculations and untimely submission of reports. All this can result in unforeseen expenses, which could be avoided by consulting a professional.
However, there's a nuance - it's important to avoid collaborating with unlicensed specialists. To submit company reports, an accountant must have the appropriate permit, only with it can they sign submitted reports and represent the company's interests in the event of an audit.
Our specialists have repeatedly traveled to other regions of Indonesia to represent company interests, so it's better to entrust reporting to qualified personnel right away.
BL: Is there any equivalent to self-employment on the island? So you don't have to open a business or company but just work for yourself as a photographer or videographer?
Legal Indonesia: Unfortunately, you cannot get a KITAS with a work permit for the position of a photographer/videographer. You can open a company in this activity area, but only local staff should work in it.
For example, you can open a photo studio. As the company director, you can give instructions to the staff, but you cannot participate in shoots, receive payment, or consult clients.
Another alternative is the C14 and D14 visas now available for those coming to film movies. If you obtain the necessary permits from the government authorities, you can try applying for such a visa.
BL: Probably the second most popular request after photographers is for retreat organization. How can this be done legally in Bali?
Legal Indonesia: Most often, a company is opened under the activity code for event organization for such a request. This code is quite extensive and allows for the conduct of various events. But it's important to note that if you want to personally host these events and not just invest in their organization, obtaining a work KITAS is required.
BL: What should be considered when buying property in Bali? Which documents should be checked?
Legal Indonesia: First and foremost, you need to verify the land documents - conduct a full check of the land certificate for any liens, court claims, etc. A land notary can do this, and we collaborate with one.
As for the building itself, it must be constructed with the necessary permits. Among the documents, there should be either an IMB (the singular document under old regulation), an SLF (certificate of functional eligibility), and a PBG (construction permission). The PBG defines the approved building project and is valid for the entire lifespan. The SLF is periodically updated and determines the building's potential uses.
For instance, land can be of general purpose, meaning you can build almost any building on it, including villas. There may also be land with other designations, where a villa would be illegally constructed. Such an object is unlikely to have construction permission. Therefore, the priority is to check the land certificate and the IMB (SLF, PBG).
The next step is to check the contract. You must ensure that the person you are negotiating with for the rental has the necessary authority. We've repeatedly encountered situations in practice where the land was rented out by a distant relative of the deceased owner, who wasn't even mentioned in the inheritance, and the heirs haven't even claimed the inheritance yet.
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