16 February 2016 – Indonesia has been ranked the second most complex place for multinationals to stay compliant with corporate regulation and legislation during 2015, according to TMF Group’s Global Benchmark Complexity Index. Indonesia has occupied a position in the Index’s top 10 most complex countries for three years running, and has risen seven places to second, despite a more pro-business approach by the government.
Five other countries in the Asia Pacific region are represented in the top 20 most complex, making the region the second most difficult place for business compliance after Latin America which has five countries in the top 10, and eight in the top 20. China (5th), Thailand (9th), Japan (12th), Korea (14th) and Malaysia (15th) are the other APAC countries represented at the top of the rankings.
The far-reaching annual study by TMF Group, a leading global provider of high value business services to clients operating and investing internationally, ranked 95 jurisdictions across Europe, the Middle East, Africa, Asia-Pacific and the Americas according to how complex they are to do business in from a regulatory and compliance perspective. View full report.
According to experts at TMF Group, Indonesia’s rise up the rankings has not come as a surprise. Whilst in recent years the government has made significant progress in improving Indonesia’s business environment, such as reducing corporation tax, simplifying its licencing processes and amending laws to give foreign companies greater protection, the country’s legal system still lags behind its regional peers and suffers from a high level of dis-jointed government bureaucracy. As a result, it is expected that Indonesia will continue to feature prominently in future complexity indices.
A particular development that has negatively impacted on doing business in the country was the government’s decision in 2015 to reduce the permit to stay for foreigners from 12 to six months.
Vinod Kumar, Managing Director of TMF Group in Indonesia explains: “This may seem a relatively minor change by one government department, but it has caused significant disruption for foreign-owned businesses, as it forces all staff below executive board level, together with their respective families, to leave and then re-enter the country to renew their permits, a process which can take up to seven days. This not only impacts day-to-day operations of multinationals operating here, but also places pressure on employees’ families, for example having to take their children out of school whilst renewing their permits.”
In addition, starting a business in Indonesia, such as a limited liability company, remains cumbersome, taking on average around 60 days, compared to just 12 in OECD countries, involving five major filings with various government ministries such as the BKPM (Indonesia’s Investment Coordinating Board), often in the local language, and costing four times as much as in neighbouring Thailand. Paying taxes is also more time-consuming, requiring on average 51 payments per year compared to the OECD average of 13.
“Despite the complexity and relatively high cost of doing business in Indonesia, the country is the biggest economy in Southeast Asia and remains a popular destination for foreign direct investment. We did see a dip in FDI levels early in 2015, but this was reversed by Q4 thanks to a number of stimulus packages announced by President Jokowi’s revamped economic team, including tax holidays for a range of industrial investors,” commented Mr. Kumar.
“However, whilst Indonesia has made much progress in recent years, there are still many challenges to overcome if the country is to remain an attractive investment destination and chief among these is reducing the amount of red tape for multinational businesses,” he added.
- Argentina (1st), Indonesia (2nd) and Colombia (3rd) are ranked as the most complex
- Ireland (95th), British Virgin Islands (94th) and Latvia (93rd) are the least complex
- Three European countries fall into the top 20 most complex destinations for doing business in, namely Hungary (13th), Poland (17th) and Switzerland (19th).
- Also in the top 10 were the United Arab Emirates (4th) Mexico (6th), Bolivia (7th), Lebanon (8th) and Brazil (10th)
For further information, please contact:
Justin Griffiths, Harriet O’Reilly or Mazar Masud
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About TMF Group:
TMF Group is a leading global provider of high value business services to clients operating and investing globally. It focuses on providing highly specialised and business-critical financial, legal and human resource administrative services that enable clients to operate their corporate structures, finance vehicles and investment funds in different geographical locations. TMF Group has operations in more than 80 countries across the Americas, Asia Pacific, Europe and the Middle East.