Top 10 challenges of doing business in Indonesia

Disclaimer: This article was accurate at the time of publishing. To obtain the most up-to-date information, please get in touch with our local experts.

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Ambitious and fast rising, future economic expansion is expected to include more inclusive growth as nominal per-capita GDP is expected to quadruple by 2020, according to a Standard Chartered report. Economically strong, politically stable and reform minded, Indonesia is an emerging global powerhouse in Asia, and one that is worth monitoring regardless of the industry.

However, despite its strong economic performance, Indonesia faces challenges that 
stifle private-sector development. For businesses looking to take advantage of its high growth levels and ambitious economic future, having local help can prove to be a real asset.

Starting a Business
The World Bank and International Finance Corporation (IFC) rank Indonesia in 166th place in the world for ease of doing business, underlining the rigorous processes involved in starting up. Compared to the OECD average of five, it takes nine procedures to establish a corporate entity in Indonesia, taking an average of 47 days to complete. Businesses must liaise with the State Treasury, the Ministry of Law and Human Rights and the Ministry of Manpower, as well as completing several registrations.

Dealing with Construction Permits
Construction permits take an average of 158 days to acquire and involve 13 procedures. The Zoning Department must be consulted with and several certificates should be acquired before registering with the land and building tax office and the regional office of the ministry of industry and trade.

Getting Electricity
There is an enormous cost associated with getting electricity, far higher than the OECD average. The main cost is in obtaining a certificate of Guaranteed Electrical Installation (JIL) and Certificate of Operation Worthiness (SLO) from the Indonesian Electrical Contractors Association (AKLI), although external works and final connection can also be a costly endeavour.

Registering Property
It takes 22 days to register a property and six procedures, which includes getting a land certificate examination and paying tax on the acquisition. Once again, the cost of registering property is far higher than the OECD norm.  

Getting Credit 
The World Bank and IFC rank Indonesia in 129th place in the world for ease of getting credit, although there is a lot of work being done to restore its reputation. Research conducted by the government found that strengthening legal rights of creditors by improving the asset-based lending system and promoting a real property registration system will improve the credit environment.

Protecting Investors 
Investor protection is relatively strong in Indonesia, ranking in the top 50 in the world. The government continues to recognise and uphold property rights of foreign and domestic investors, and there have been no overt expropriatory actions forced on investors in recent years. The 2007 Investment Law cemented this approach by opening major sectors of the economy to foreign investment.

Paying Taxes
There are a massive 51 tax payments to be made each year taking 259 hours of company time to deal with on average. Corporate income tax of 25% takes 75 hours to process, and social security contributions and VAT add another 184 hours to the total.

Trading Across Borders
Indonesia is largely reliant on global trade, making the cost of importing and exporting goods relatively low. It costs far less to trade across borders than in the rest of East Asia and Pacific, although it can take a long time to get containers cleared for transportation.  

Enforcing Contracts and Resolving Insolvency
It takes 498 days to enforce a contract and incurs a sizeable cost. The same can be said of insolvency cases, where the average time is 5.5 years and the recovery rate is a lowly 14.2 cents on the dollar, compared to the OECD average of 70.6 cents. 

A lack of transparency and corporate governance means that there is widespread corruption
and organised crime in Indonesia. Industrial disputes are also commonly stated by businesses as being a difficulty, and it is recommended to do extensive due diligence on all contracts.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Indonesia or just want to streamline your Indonesian operations, talk to us.