Employer Of Record in Indonesia

Indonesia Country Facts

Indonesia is an archipelago situated on the equator. It is well known for its diverse multicultural islands and is the largest island country in the world spanning 1.9 million kilometers with more than 17,000 islands. It is also the most populous Muslim majority country in the world.

Indonesia declared independence in 1945 and they have their own currency, the Indonesian rupiah (Rp). About 16 million people visit Indonesia every year, a country with the world’s biggest young population who love social media and are friendly and welcoming. Indonesia has some of the most active volcanoes in the world and the major cities are Jakarta, Surabaya, Bandung, Bekasi, and Medan.

The Economy

Indonesia has vast natural resources that are still untapped and a developed service and technology industry. The agricultural sector employs 32% of the workforce and the service sector employs 47%. Besides this, Indonesia also benefits from a strong tourist industry. The main exports are coal, cars, footwear, chemicals, textiles, natural gas, and petroleum. It is a strong exporter of fish, cotton, coconut oil, and palm oil. Despite this unemployment and poverty are still a concern.

Small and Medium Businesses

Small and Medium Businesses (SMEs) account for 98.75% of all companies, 63% of business investments and 97% of employment. SMEs hold the key to the future development of the country. There are great opportunities to help grow small businesses into larger productive entities, one such program helps agricultural farmers use digital technology to develop their business.

Starting a Business

Any person from any nationality may start a business in Indonesia, and to do so takes 2-3 months. Investors have the choice of creating a limited liability company with a joint Indonesian partner or to create a limited liability company fully owned by the investor. A domicile letter is needed to show proof of an office lease agreement. Registration will also include connecting with the Ministry of Manpower, applying for healthcare insurance, social security, VAT collection, and getting a tax registration number. As you set up it will be important to get familiar with Indonesia’s Positive Investment List.

Some areas open to 100% foreign owned companies are pharmaceutical products, canned fruits and vegetables, digital businesses, and purification and storage of water.

Payroll

The employee contributes 2% to social security and the employer contributes 3.7%. If a company has less than 10 employees, then it is not required to contribute to social security.

Tax advantages

To improve the ease of doing business, Indonesia has a tax holiday of 100% for the Corporate Income tax from 5 to 20 years depending on the amount invested. Some of the sectors benefiting from the tax holiday are: pharmaceuticals, robotic machinery, motor vehicles, train and ship components, economic infrastructure, digital economy, and more.

Indonesia also offers accelerated fiscal depreciation and amortization deductions. Indonesia has developed Online Single Submission (OSS) to apply for business licenses and tax incentives.

Renewable Energy

Renewable energies make up 11.2% of its domestic power generation and the main renewable energies used are hydro and geothermal power plants. Currently, the country relies on the consumption of oil with 41%, natural gas with 24%, and coal with 29%. Indonesia is one of the fastest growing consumers of energy, the country plans to reach 23% by 2025.

Business Culture

Indonesians value cooperation and conformity.

• Be on Time
  Punctuality is important, so if you are late, make a call to let the host know but is it not unusual for meetings to start and finish late.
• Make Connections
  To make progress in business, you will need to connect with high-ranking business and political officials.
• Avoid Conflict
  Indonesians often communicate indirectly because they do not value conflict. The slow development of meaningful business relationships is the norm.
  • Meeting by Rank
  Because they value hierarchies, Indonesians often enter the meeting room according to rank. People typically stand when the highest-ranking person enters the room.

Food Culture

Rice is the staple food. Indonesians often cook fried rice, fried noodles, barbecued meats and spicy fish stew which they like to cook hot and spicy.

Since there are a lot of tropical fruits, Indonesians make a lot of fruit salads which are eaten fresh. They are also famous for using many spices such as turmeric, cinnamon, lemon grass, and coriander. A famous dish found in West Sumatra is “Asem Padeh”, which is a sour, spicy fish stew.

Population

Indonesia is the 4th most populous country in the world, with a population of 270 million, so it represents a huge opportunity for foreign investments. Of this there are 1,300 ethnic groups in Indonesia. The national motto is “unity in diversity” in the national language of Indonesian, but many locals have their own language as well, and some learn English as a third language.

The urban population accounts for 55.3% of the total population. Tha population values dance which is varied due to the different ethnic groups. There are also many shadow puppet theaters that are a popular way to share cultural norms. Indonesians are masters of martial arts and have developed an umbrella of techniques called Pencak Silat.

Geography

Indonesia has a massive number of islands and about 6000 of them are inhabited. The islands span 3,200 miles. Half of Indonesia is covered by rainforest because of Indonesia’s tropical climate.

The coastal areas are always nice and hot and span 34,000 miles and are located along sea lanes connecting East Asia, South Asia, and Oceania. The tectonic plate called “Sunda Plate” supports the main islands of Sumatra, Java, Kalimantan and Mandura. These larger islands are mountainous and slope to the coasts.

• Pekanbaru, Sumatra
  This is one of the best cities for investment and has a lot of banks and tourism. Some current major businesses here include petroleum, oil, pulp, wood-sawmill, rubber-processing, as well as CPOs industries. Shopping centers are another strength in this area, due to its high-income population.
• Yogyakarta
  This city houses one of the best universities in Indonesia and also has a lot of tourism. Food and beverage, retail, automotive, textile, pottery, handicraft, furniture, fashion, jewelry (especially silver), and leather are popular business ventures here. This is also a perfect place for agriculture pursuits.
• Makassar, South Sulawesi
  The current mayor is inviting foreign investors to be involved in transportation, energy, maritime, fishery, trading, tourism, healthcare services, property and infrastructure. The economic growth here is incredibly high.
• Semarang, Central Java
  Industrial areas are being developed here and there is much growth in retail and trading sectors. This is the number one city in Central Java that hosts many foreign investments. The demographic here allows for labor intensive companies such as apparel, working with machinery and textiles.

General Highlights

What you need to know about employing personal in Indonesia:

Laws and Agencies that regulate labor relationships

Key Tax and Labor Authorities

Labor Contracts

Annual Taxable Income

Residents are taxed on a worldwide income, unless there are double taxation treaties. The Omnibus Law has added provisions to the Income Tax Law stipulating the foreigners who have these treaties can be taxed only on source income from Indonesia. This is only available for the first four years. Non-residents are subject to general withholding tax at 20% in respect of their Indonesian-sourced income.

Corporate Tax Rates

In general a flat rate of 25% applied to the net taxable income if the company is situated in Indonesia.

Public Holidays

Termination

There is no required notice for employers when they let an employee go. Employees however may resign with 30 days notice.

An employee can be let go for the following reasons:

• Employee resigns at her own will
• Grave Misconduct
• Severe Chronic illness for more than 12 months
• Disability due to work related accident
• 5 days of missing work

When an employee is let go they are owed compensation for relocation expenses, annual leave they did not take, and medical and housing allowance. Different severance pay amounts are provided depending on why the employee was terminated.

The standard pay is 1 month of wages if the employee has worked there for less than a year and an additional month for every year of service up to 9 months of salary. There is also a Long Service pay which is 2 months of salary after the first 3 years of service, plus 1 month for every 3 years for a maximum of 10 months for 24 years of service.