The investment in Indonesia presents a wealth of opportunities for investors. Its abundant resources, youthful population, and strategic location support the growth. Nevertheless, potential investors should be mindful of the distinctive challenges associated with investing in Indonesia.
Economic landscape in Indonesia
Finance Minister Sri Mulyani Indrawati has expressed confidence in Indonesia’s economic resilience. The ministry forecasts an economic growth rate of 5.2% in 2024. She noted that domestic inflation is expected to remain stable, influenced by the upcoming 2024 general elections’ impact on public and government spending.
The implementation of housing sector policies since the fourth quarter of 2023 is anticipated to drive growth in the coming year. Additionally, she emphasized utilizing the 2024 State Budget to mitigate external challenges and facilitate inclusive and sustainable economic transformation.
Despite global economic projections indicating a slowdown, Indonesia’s economy performed positively in 2023, with a year-on-year growth of 5.04% in the fourth quarter and 5.05% for the entire year, driven by robust demand, particularly in consumption and investment.
Regulation on how to invest in Indonesia
Investment in Indonesia requires following regulations set by the BKPM, the leading authority for foreign investment. The 2020 Omnibus Law aimed to simplify the process.
The minimum investment to start a foreign company is IDR 10 billion (around USD 722,000). You can choose to set up a Limited Liability Company (PT PMA) for full ownership or a Representative Office (RO) for market research (no revenue generation).
Read more: Investing in Indonesia: Promising sectors in 2024
Importance of investment for economic growth
Investing in Indonesia plays a crucial role in fostering economic growth and prosperity. Capital serves as the foundation for generating economic growth and investment in Indonesia. when investment projects are viable in the market and meet people’s needs.
The benefits of investment contribute to an improved quality of life, driving economic growth. Additionally, gross domestic product (GDP) serves as a measure of total economic output.
GDP is crucial for the monetary value of all goods and services produced within an economy over a specific period while also factoring in inflation adjustments and deducting intermediate inputs.
Interest rates serve as the mechanism for directing capital into suitable investments. From an economic standpoint, the right investments yield the most significant social benefit.
Capital is a finite resource and must be utilized judiciously to maximize its benefits. Interest rates act as a control mechanism to ensure capital is allocated efficiently, generating the highest possible benefit.
How can economic growth enhance community life?
Why is economic growth necessary? While there’s no natural law dictating constant economic growth, there are compelling reasons for an economy to expand its output.
When the economy performs well, it usually leads to greater individual wealth, which helps to sustain or improve overall prosperity.
A high level of evenly distributed prosperity often brings about various societal benefits, such as reduced poverty and crime, lower rates of violence and disease, improved education, and a higher standard of living.
The priority investment sectors in Indonesia
Investment development in Indonesia has witnessed positive growth in recent years, driven by factors like macroeconomic stability, structural reforms, and government policies supporting investment.
Investors can play a pivotal role in Indonesia’s economic development by targeting priority sectors with high growth potential and fostering sustainable economic growth. Key sectors for investment in Indonesia:
Infrastructure
Investment opportunities abound in Indonesia’s infrastructure sector, including projects on constructing roads, airports, ports, and transportation networks. These initiatives aim to enhance connectivity and mobility across the country.
Energy sector
The energy sector presents significant investment potential in Indonesia. With a growing population and economy, the demand for energy continues to rise. Investing in renewable energy and efficiency ensures a sustainable and environmentally friendly supply. Indonesia boasts substantial renewable energy potential, particularly in geothermal and solar energy.
Manufacturing sector
Indonesia’s manufacturing industry offers attractive investment prospects, driven by a large population and robust consumer growth. Manufacturing can boost economic value addition, create employment opportunities, and spur growth in ancillary sectors like distribution and logistics. Key investment areas include automotive, textiles, and footwear manufacturing.
Tourism
The tourism sector offers investment opportunities centered around priority development and branding initiatives for Indonesian destinations such as Lake Toba, Mandalika, Labuan Bajo, and Borobudur.
Information and communications technology (ICT)
Indonesia’s increasingly connected and digitally savvy population presents promising investment prospects in the ICT sector. Opportunities include developing applications, e-commerce platforms, and digital services to capitalize on the country’s digital transformation. ICT investments can improve operational efficiency and broaden market reach across various industries.
Reasons why Investing in Indonesia is promising
Indonesia presents a promising investment landscape for several reasons. The country’s growing economy, large population, and strategic location in Southeast Asia make it an attractive destination for investors.
Growing economy
Indonesia boasts the biggest economy in Southeast Asia, with projected continued growth. This stable and growing market presents a fantastic opportunity for businesses to tap into a thriving consumer base.
Large and young population
A significant young population offers a vast pool of potential customers and workforce. This is an essential advantage for businesses seeking to build a strong local workforce.
Strategic location
Situated between Asia and Australia, Indonesia is a prime location for regional operations. This strategic positioning allows businesses to access quickly and service markets across both continents.
Government incentives
The government offers incentives like tax breaks and special economic zones to attract foreign investors, creating a more favorable business environment.
Guide on how to invest in Indonesia
Starting your first investment in Indonesia can be a complex process. However, we have prepared a roadmap to help you get started right away.
| No | Steps | Descriptions |
| 1 | Market research | Research the business sector and market potential. |
| 2 | Choose a business structure | Consider your investment goals and consult a professional to determine the best entity type (PT PMA or RO). |
| 3 | Licenses and permits | The BKPM and other government agencies may require various licenses and permits. Up-to-date information on this can be found on the BKPM website. |
| 4 | Open a corporate bank account | Once licensed, open a corporate bank account in Indonesia. |
| 5 | Start operations | Upon completing the steps above, you can begin your business operations. |
Challenges in investing in Indonesia
Despite progress, challenges persist in boosting Indonesian investment, including inadequate infrastructure, bureaucratic complexities, skills shortages, and regulatory ambiguity.
Collaboration among the government, private sector, and academic institutions is crucial to creating a favorable and sustainable investment climate.
With steadfast commitment and intersectoral cooperation, Indonesia’s investment prospects are poised for continued growth, contributing to the country’s economic development.
Indonesia must press on with economic reforms and enhance the investment environment to attract more investment and achieve inclusive and sustainable growth. Improving investment conditions in Indonesia can enhance the country’s global economic competitiveness.
Start investing in Indonesia with InCorp
If you’re looking for investment opportunities in Indonesia, InCorp Indonesia offers invaluable assistance with company registration and business license services.
Our expertise ensures a seamless process. We handle the intricate regulatory and legal aspects, allowing you to concentrate on nurturing your business and fostering its growth.
Get in touch with us.
What you'll get
A prompt response to your inquiry
Knowledge for doing business from local experts
Ongoing support for your business
Disclaimer
The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.
We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials. We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.
Daris Salam
COO Indonesia at InCorp Indonesia
With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Frequently Asked Questions
- Import facilities
Investors in Indonesia, particularly in manufacturing, may benefit from import tax exemptions for capital goods and raw materials through the Master List Facility. The imported goods must meet specific criteria, such as not being produced locally or not meeting industry demand despite local production. - Tax holiday
The government offers CIT reductions of 50% or 100% for 5–20 years for listed pioneer industries, based on investment value. After this period, a CIT reduction of 25% or 50% applies for two fiscal years. Non-listed sectors can also apply by meeting criteria demonstrating pioneer industry status. - Tax allowance
For companies in certain designated areas or regions, the government may provide the following tax concessions:
Net income reduction up to 30% of the amount invested, prorated at 5% annually for six years, on condition that the assets invested are retained for the same duration.
Accelerated depreciation and/or amortisation deductions
An extension of tax losses carried forward for a maximum of ten years
A 10% (or lower if treaty relief is available) withholding tax rate on dividends paid to non-residents
The applicant eligible has to meet high-level-criteria for the above tax facilities:
High investment value or for export purposes
High manpower absorption
High level of local content - Investment allowance
The government offers a reduction in net income of up to 60% of the investment, distributed at 5% annually over six years of commercial production, contingent upon the retention of invested assets for the same duration. To qualify, applicants must meet business line eligibility criteria and employ a minimum of 300 Indonesian workers in the project. - Super deduction
This facility could be granted to certain businesses, such as:
60% reduction in net income of the amount of tangible fixed assets invested for labor-intensive industries, distributed throughout a certain time frame.
Up to 200% reduction in the gross income of the amount spent for human resources development in certain competency activities.
Up to 300% reduction in gross income of the amount spent for certain R&D activities in Indonesia. - Conduct a general shareholder meeting to approve the liquidation and the liquidator’s nomination
- Notify the Ministry of Law and Human Rights as well as the creditors of the liquidation and the distribution plan for the assets by newspaper notice
- All business licenses and tax numbers should be canceled or revoked; the tax office will conduct a tax audit to revoke the tax number
- Make sure creditors are paid and that any liquidation funds are distributed to shareholders (if any)
- Conduct a general meeting of shareholders to approve the liquidator’s discharge and acquittal
- Notify the Ministry of Law and Human Rights of the liquidation’s outcome. After receiving the notification, the Ministry of Law and Human Rights will deregister the company’s status as a legal entity and remove its name from the Company Registry
- Release the liquidation’s outcome in a newspaper
A newly established PMA company in Indonesia is typically provided with import facilities, tax holidays, tax allowances, or investment allowances.
Pioneer industries are industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy.
The deadline for an individual tax return is 31 March. A corporate tax return must be lodged within four months after the end of the calendar year or taxable year. More information can be found here: 21 Must-Know Facts about Annual Tax Return in Indonesia.
A foreign-owned company (PT PMA) in Indonesia is a popular choice among foreigners to set up a business. Foreign investors must check Indonesia’s Positive Investment List to see which businesses are open to foreign direct investment.
The procedures for (voluntarily) liquidation typically involve the following steps:
Completing the liquidation process can take around two years.
