Indonesia Key Industries, Incorporating, Employment, Payroll & Tax, and Immigration

Indonesia Key Industries

Indonesia has a large domestic market. Consequently, private consumption and its political stability are factors that maintain the Indonesia’s economy.

Infrastructure Industry Capabilities

• There is a demand for infrastructure such as roads, ports, rails, water and power plants.
• In addition,  there are great opportunities for Public-Private-Partnership (“PPP”) and Business-to-Business (B2B) projects

E-commerce Industry Capabilities

• The Negative Investment List revision made the industry more open to foreign investments that allow full ownership with investments of more than IDR 100 billion. Nevertheless, if the investments fall below IDR 100 billion, foreign investors are limited to a minority stake where they are only allowed to own 49% of shares.
• Tech-savvy population in Indonesia provides opportunities in e-market, e-fulfilment and e-services fields
• Likewise, increasing use of mobile phones in Indonesia over other digital devices provides opportunities for a mobile-first strategy

Incorporating in Indonesia

 Types of Entities

• The Representative Office for Foreign Construction Company (BUJKA) license allows the delivery of construction service in Indonesia.
• Representative Office for Trading (K3PA) is an agent for the selling, manufacturing, and buying activities agent for the parent company
• Representative Office (KPPA) is for a foreign company exploring business opportunities in Indonesia and not generating any income from local activities.
• Limited Liability Company with Foreign Direct Investment (PT PMA) is for foreign owned companies conducting direct investments.
• Local Limited Liability Company (PT) is a locally owned company.

 Registering a Local Limited Liability Company (PT) 

1. Obtain the standard form of the company deed and clearance for the company name electronically from the Ministry of Law and Human Rights (MOHR).
2.  Next, apply to the Ministry of Law and Human Rights for approval of the deed of establishment and obtain a taxpayer registration number and a Value Added Tax collector number from the local Tax Office.
3. The article of association has to undergo legalisation by the MOHR.

 Registering a Limited Liability Company with Foreign Direct Investment (PT PMA) 

1. Firstly, establish and sign the Notarial Deed of Establishment that is made upon the issue of the Principal Permit by the BKPM – an Indonesia Investment Service Agency.
2. After which, obtain the Ministry of Law and Human Rights’ decree that indicates approval on the company establishment.
3. After submitting the domicile information and article of association to the Head of Sub District in the area of the company’s location, the Company Domicile Letter will be issued.
4. Next, the company has to obtain a Tax-Payer Registration Number and submit the Principle License to the BKPM.
5. The article of association has to undergo legalisation by the MOHR.

Employment Regulations

Employment

Employment in Indonesia is governed by the Labour Law – Law No. 13 on Manpower of 2003. Work agreements can be made verbally or in writing. Employing a non-permanent employee has to be made in writing in the Indonesian language with Latin alphabets. Otherwise, the employee will be regarded as a permanent employee by law. Additionally, if a work agreement for a non-permanent employee is made orally, a letter of appointment for the worker has to be issued. A written contract must include key employment terms including employee and job details that are signed by both parties, where each will keep a copy of the written agreement. Furthermore, the terms in the agreement must not be against the enterprise’s rules and regulations, collective work agreement and valid statutory legislation such as the minimum wage requirements and leave entitlements. Another key point to realize, if there is a difference in the interpretation between the written work agreements in the Indonesian language and a foreign language, the agreement written in the Indonesian language shall supersede the latter.

Termination

According to the law, workers can voluntarily resign. Employment contracts are considered to have come to an end when:

• The employee has passed away
• The contract expires
• Court ruling or decision of the industrial relationship dispute settlement ends the contract
• Certain situation or incident as prescribed in the contract, enterprise’s rules and regulations, or enterprise’s collective work agreements effectively result in the termination of the employment

Payroll and Tax Regulations

Social Security Scheme

Workers Social Security (BPJS Ketenagakerjaan or BPJS-TK) is mandatory for every employee in Indonesia. In addition, there is a mandatory work accident insurance and death/life insurance contributed by the employer. Moreover, both employer and employee have to contribute to the old age and pension fund. Particularly, the employee’s portion would be deducted from the employee’s salary. The BPJS Kesehatan or BPJS-KS covers the Health Insurance.

Indonesia Tax 

Corporate Income Tax

If the domicile, place of incorporation or effective place of management is in Indonesia, the company is treated as a resident of Indonesia. Similarly, a foreign company with business activities through a permanent establishment in Indonesia also has the same tax obligations as resident taxpayers. Corporate income tax is at a flat rate of 25%. Public companies that satisfy and maintain all the following conditions for at least 183 days in a tax year can be granted with a 5% tax cut where the tax rate will be reduced to 20%. The conditions are:

• To have at least 40% of company paid-in shares listed in the Indonesian Stock Exchange (IDX) for trading
• The public has to consist of at least 300 individuals, each holding less than 5% of the paid-in shares
• Small enterprises with an annual turnover of Rp 50 billion and below are entitled to a 50% discount of the standard tax rate which is imposed proportionally on taxable income on the gross revenue up to Rp 4.8 billion

Individual Income Tax

Who constitutes as Individual resident taxpayers? They are individuals who reside in Indonesia, are present in Indonesia for 183 days and more in any 12-month period, or are in Indonesia during a tax year and intend to reside in Indonesia. To further illustrate, Individual Tax Residents’ chargeable income is subjected to income tax at the following rates: Individual Income Tax Rates

Taxable Income	Rate (%)	Tax Rp. ($)
Up to Rp 50,000,000	5%	2,500,000
Above Rp 50,000,000 and up to Rp 250,000,000	15%	30,000,000
Above Rp 250,000,000 and up to Rp 500,000,000	25%	62,500,000
Above Rp 500,000,000	30%	30% of the relevant amount

If the severance payment is paid within two years, the tax rates below will apply. Severance Payment Tax Rates (If paid within two years)

Taxable Income	Rate (%)	Tax Rp. ($)
Up to Rp 50,000,000	0%	$0
Above Rp 50,000,000 and up to Rp 100,000,000	5%	2,500,000
Above Rp 100,000,000 and up to Rp 500,000,000	15%	60,000,000
Above Rp 500,000,000	25%	25% of the relevant amount

If the lump-sum pension payments from a government-approved old age or pension fund are paid within two years, the tax rates below will apply. Old age or Pension Fund (If paid within two years)

Taxable Income	Rate (%)	Tax Rp. ($)
Up to Rp 50,000,000	0%	$0
Above Rp 50,000,000	5%	5% of the relevant amount

If the payment for the severance payment, old age and pension fund is made in the third year onwards, the above Individual Income Tax Rates will apply. Non-resident Individuals are subjected to withholding tax at a rate of 20% on Indonesia-sourced income, where the rates vary according to the relevant tax treaty provisions.

Other Taxes

• Value Added Tax (VAT) is an indirect tax imposed on taxable goods and services at a general rate of 10%.
• Customs duties are imposed on items imported into Indonesia, generally on an ad valorem basis. Customs value is calculated on Cost, Insurance and Freight level (CIF).
• Excise duties are levied on specific products to control its distribution and consumption such as alcoholic beverages and tobacco products.
• The Land and Building Tax is chargeable on all land and buildings, unless exempted.
• Other miscellaneous regional and local taxes include entertainment, advertisement, motor vehicle, street lighting, hotel and restaurant tax, as well as tax on the use of underground and surface water.

Immigration

Work Passes and Permits

Work Permit (IMTA)  Who is it for? For expert foreign workers Requirements The applicant has to have an educational background related to the position going to be assumed in Indonesia Applicant have to provide documents proving at least five years of work experience in a relevant position The company has to prove that local workers do not have the foreign workers’ skills Once the foreign workers apply for the IMTA, both the IMTA and the Stay Permit (KITAS) will be granted as a package unless the foreign worker is not going to be residing in Indonesia. Brief overview of application steps Obtain the Indonesian Ministry of Manpower’s approval for the Foreign Worker Placement Plan (RPTKA) to use foreign manpower Gain notification from the Ministry of Manpower on the period the foreign worker can stay in Indonesia – where the fee payment varies with the period of stay Once the IMTA is granted, the foreign worker can legally work in Indonesia. The Limited Stay Permit (VITAS) can be issued when there is approval from the Indonesia immigration authorities. The Indonesia embassy in the respective country can also issue the VITAS. Upon entering Indonesia with the VITAS, the foreign worker has to record his/her biometric data with the immigration office to convert the VITAS to the Limited Stay Permit Card (KITAS) Finally, the foreign worker has to undergo civil registration as documents such as the family card and a temporary residential card are required for living in Indonesia