Essential Investment Gateway into Indonesia (EIGI)

56 Pages·2016·3.56 MB·English

Essential Investment Gateway
into Indonesia (EIGI)
English
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Contents
A. Introduction to Indonesia 5
1. General overview
2. Demography
3. Investment climate
4. Industry overview and opportunities
5. Regional snapshot
B. Identifying Your Investment Stage 14
Five stages to organization evolution
C. Establishment of Company: Getting Started 15
1. General investment policy
2. Forms of entity
3. Investment procedures
4. Mergers and acquisitions
5. Regulation of business
D. Taxation in Indonesia 23
1. Tax incentives
2. Tax administration
3. Business taxation
4. Taxes on individuals
5. Indirect taxes
6. Withholding taxes
E. Audit and Compliance 45
1. Accounting period
2. Currency
3. Language, Accounting Basis and Standards
4. Audit requirements
5. Independence
F. Labour Environment 47
1. Employee rights and remuneration
2. Wages and benefits
3. Termination of employment
4. Labour-management relations
5. Employment of foreigners
About Deloitte 50
Contacts 52
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Foreword
The current Indonesian government recognizes the fact that it is very important
to generate new investments to sustain the growth of the Indonesian economy.
As a founding member of the Association of South-East Asian Nations (ASEAN),
Indonesia is committed to ASEAN’s aim of liberalizing trade and investment.
Several measures, including instituting a one-stop service for permitting to
facilitate greater investment, have been taken to make sure investment continues
to come. Plans, programs, and legislation to encourage partnerships with local
and international investors have also been planned and prepared. To promote
investments, Government of Indonesia also releases several Economic Policy
Packages or known as Paket Kebijakan Ekonomi.
As a part of G20 agenda of liberalizing trade, Indonesia will be one of the strongest
allies in Southeast Asia region. Indonesia is actively involves in G20 with the aim
to promote international growth and financial stability. Representing emerging
countries, Indonesia sees itself as a “big brother” at the G20.
In support of the government’s efforts, and to have quick and clear answers for
everyone contemplating investing in Indonesia, I am very proud of the collaborative
work of Deloitte Indonesia’s dedicated team of experts in putting together this
publication, “Essential Investment Gateway into Indonesia (EIGI)”.
This publication was written based on our personal experiences when meeting
prospective investors and in listening to and answering their usual questions,
which do not relate only to “how” but also to “why”.
I trust that this publication will also give a broader insight to every prospective
investor, and that it will be a prime tool for them to explore the numerous
opportunities that await them the moment they start doing business in Indonesia.

Claudia Lauw Lie Hoeng
Deloitte Indonesia Country Leader
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A. Introduction into Indonesia
Republic of Indonesia
(constitutional democracy with an executive presidency)
Nationality: Indonesian (40.1% Javanese, 15.5% Sundanese, 3.7% Malay, 3.6% Batak
3% Madurese, 2.9% Betawi and 31.2% other ethnic groups)
Language: Bahasa Indonesia, English (business, professional), and local dialects
Currency: Indonesian rupiah (IDR).
Total Area: 1,904,569 sq km (15th largest)
Land: 1,811,569 sq km
Water: 93,000 sq km
Population: 258,316,051 est. July 2016 (4th largest)
Samarinda
Kalimantan Corridor
Medan Center of production and processing
Sumatra Corridor of mining and energy resources
Production and processing
Makassar
center of agricultural
products and principal Sulawesi Corridor
mining and energy Center of production and processing of
resources agricultural, plantation, fishery products
and nickel mining
Sorong
Jakarta; Capital city Merauke
Government and
Business Center Surabaya; 2nd Largest city Papua Corridor
Major Industrial Center Center of
Java Corridor and Port food, fishery,
Support center for national energy, and
Industry and service Bali-Nusa Tenggara Corridor national mining
Tourism gateway and main
development
national food/agricultural
support
Major Islands: Sumatera, Java, Kalimantan (Borneo), Sulawesi (Celebes), and Papua
Minor Islands: Maluku, Lesser Sunda Island (Nusa Tenggara)
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1. General overview
Indonesia ranks the fourth most populous country in the world with real GDP
growth 5.2% in the second quarter of 2016, a stronger performance for the last
five years. Rise in global commodity prices and higher private investment largely
contributed to the economic growth. Investment activity was experiencing a
slowdown in 2015, as government’s infrastructure initiative has taken longer to
take course. However, it is forecasted to increase by 5.2% on average per year over
the next five years as construction of infrastructure and its supporting accelerates
faster. More incentives and deregulations are also issued by government to attract
both domestic and foreign investment.
With Indonesia average inflation reached 3.6% in 2016, down from 6.4% in 2015
and is expected to be maintained at an annual average of 4.4% in 2016-2020.
Economic growth
Indicator 2015 2016 2017 2018 2019 2020
GDP Growth 4.8 5.2 5.3 5.1 4.7 4.8
(%, y-o-y)
Private Consumption 4.8 5.2 5.3 5.4 5.1 5.2
(%, y-o-y)
Government Consumption 4.9 5.0 5.2 5.6 5.3 5.2
(%, y-o-y)
Investment 5.1 5.3 5.5 5.5 4.6 5.0
%, y-o-y)
Exports -1.9 -2.2 2.1 2.2 1.6 1.8
(%, y-o-y)
Imports 5.8 -2.1 2.5 3.1 2.5 2.4
(%, y-o-y)
Inflation 6.4 3.6 4.1 5.5 4.6 4.4
(%, y-o-y)
USD exchange rate 13,795 13,146 13,145 12,950 14,013 14,000
(end period)
Table: Government Macroeconomic Assumptions
Government aims to bolster growth by launching 13 Economic Policy Packages,
such as recovering assets held offshore via tax amnesty programme with a total
target of IDR 165 trillion (around USD 12.7 billion).
Indonesia’s GDP in 2015 is estimated to have reached USD 861.8 billion and GDP
(PPP) per capita is estimated at around USD 11,111. Based on the long-term
national development plan (RPJPN), Indonesia plans to achieve per capita income
equivalent to a middle income country by 2025. The highest contributor to GDP is
the manufacturing industries sector, followed by the agriculture, livestock, forestry
& fisheries sector and the trade, hotel and restaurant sector. Private consumption
remains the main economic driver.
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2. Demography
Indonesia consists of 34 provinces; 17,508 islands, with more than 255 million
people, making Indonesia the fourth largest country in the world in terms of
population. The demographic advantages of the 255 million people are:
• Over 60% of the population is between 20 and 65, with a low dependency ratio
and a dynamic workforce with high literacy
• Around 52% of the population lives in urban areas
• Indonesia’s population comprises more than 39% of
the total population of 10 Southeast Asian countries
The working population is projected to grow at 0.7%,
compared to 0.5% CAGR for the total population, from
2012 to 2017. Indonesia also has a large consumer
base with fast-growing spending power. The middle
class is rising in Indonesia. Around 7 million people
are expected to join the middle class per year.
Consumer expenditure has grown at a 13.8% CAGR
from 2000-2012 and is expected to continue at an
11.5% rate in 2012-2017.
3. Investment climate
A large part of Indonesia’s economic success is a result of the growing middle class
and stable economic growth. Indonesia is one of the MINT economies (Mexico,
Indonesia, Nigeria and Turkey), namely those that are the most attractive to long-
term investors due to their favourable demographic profiles.
Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to be less
than 26% by the end of 2013 – the lowest among ASEAN countries, aside from
Singapore, which has no government debt. As a result, the country continues
to receive good reviews. The ratings reflect Indonesia’s resilience to the global
financial crisis, improving government and external credit-metrics, and an ability to
manage domestic political challenges to the reform agenda.
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Rating Agency Rate Outlook
Fitch Rating BBB- Stable
Mood’s Baa3 Stable
Standard and Poor’s BB+ Stable
Source: Indonesia Investment Coordinating Board (BKPM), 2016
FDI Realization 2015 FDI Realization 2015
by Location by Country of Origin
20% 20%
20% 20%
42%
42%
8%8% 10%
10%
58%
58% 4%
9%
9% 4%3%
34%%
12% 4%
9% 12%
9%
WeWset sJat vJaava EaEsat sKta Kliamlimanatnantan Singapore Japan
Banten DKI Jakarta SingaSpoourteh KoreaJapanHong Kong
Banten DKI Jakarta
East Java Others SoutNh eKtohreeralandsHongO Kthoenrgs
East Java Others
Netherlands Others
FDI Realization 2015 by Sector
Agriculture, hunting, forestry, and fishery
10% Mining and quarrying
3%
4% Manufacturing
40% Electricity, gas, and water supply
11%
Construction
Wholesale and retail trade, restaurants,
8% and hotels
Transportation, warehousing, and
1%
communications
8%
14% Real estate and business services
Community, social, and personal services
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4. Industry overview and opportunities
Indonesia has a well-balanced economy, in which all major sectors play an
important role. Agriculture historically has been the dominant sector in terms of
both employment and output. The country has a vast range of mineral resources,
which have been exploited over the past four decades, enabling the mining sector
to make an important contribution to Indonesia’s balance of payments.
Indonesia has a well-diversified trading economy. Oil and gas is the country’s
largest export category, followed by coal (and other mining products), palm oil,
agricultural products, electrical machinery and equipment, and fish. Indonesia’s
government plans to increase production of core commodities as seen below.
However, due to the recent drop in commodities prices, Indonesia has to realign
its trade strategy, focusing more on value added industries (manufacturing and
smelting) and infrastructure development. In addition, Indonesia’s government
plans to increase the production of core commodities for domestic consumption
and to reduce heavy reliance on imports.
Government sees large potential in e-commerce industry to connect multi
industries with local and international market. Jokowi also appointed Alibaba
Group as an adviser to develop the digital economy market which create an open
access to micro, small and medium-sized enterprises (“SME”) to enter global value
chain.
According to The Investment Strategic Planning for the period of 2015-2019,
Indonesian Government has laid new focus on several business sectors as follows:

35 GW power
Infrastructure 24 Seaports
generation
Corn
Agriculture Food estate Cattle
plantation
Food and
Labor-intensive Textile Furniture Toys
beverages
Chemical and
Import-substitution Iron and steel Component
pharmaceutical
CPO and Wood
Electronics derivative products, pulp Automotive
Industry
products and paper
Export-oriented
Fish and
Rubber
Machinery derivative Shrimp
products
products
Downstream industry
Cacao Sugar Smelter
of natural resources
Fishery Maritime
Maritime Ship building Cold storage
industry technology
Meetings,
incentives,
15 new
Strategic tourism conferences,
Tourism, SEZ and Industrial Park 8+11 SEZs industrial
areas and
parks
exhibitions
(MICE)
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Infrastructure Sector
The newly elected government plans to improve archipelago connectivity and
promotes balanced growth between the western and eastern parts of Indonesia.
The government has introduced a “sea toll road” concept to connect Indonesia’s
archipelago through seaports in the main corridor between western and eastern
islands to reduce high logistics costs. In addition, the government plans to build
more roads, toll roads, airports, and railways, not only focusing on Java but also in
Sumatra, Kalimantan, Sulawesi, and Papua.
Additional infrastructure development is also influenced by China’s new round
of reform and overseas expansion. The centrepiece is the One Belt and One
Road initiatives (OBOR) which include both foreign policy and domestic economic
strategy. Originally billed as a network of regional infrastructure projects, the
scope has continued to expand and will now include enhanced policy coordination
across the Asian continent, which path crosses Indonesia. High-speed railway from
Jakarta-Bandung marks China’s first milestone project and is expected to expand
more lanes as it gains permits from the Transportation Ministry.
Sea toll concept -the world maritime
axis:
Main Sea Corridors • Develop 24 new strategic ports
• Add vessels (pioneer cargo,
transport vessel, pioneer crossing
vessel)
• Develop 60 crossing ports
• Develop 15 new airports
• Develop air cargo facilities in 10
airport through PPP
• Increase number of pioneer
airplanes by 20 units
2015 -2019
Power Road
National state • Develop 42 GW • 2,650 km new roads
USD 192.7 billion 40.1% Electricity Power Plant • 1,000 km of new Toll Road
Infrastructure (7GW + 35,000MW • Rehabilitate 46,770 km
Funding Regional state program) existing road
needed USD 47.4 billion 9.9%
UbSiDlli o4n80 USD 9S2O.7E billion 19.3% NSS•uue2mlwa, w1ara5teei9slrw iak:a,m yK aitnrlaitmecrka-sun rtibanan Jn aa vnad, U••rbD(DBaeenRvv Teetrll)aoo inppns BM2p9oua rssct :siRt iReaspaipdi dT ransit
Private sector 30.7% railways Transit (MRT) in 6
USD 147.2 billion • 1,099 km urban railways metropolis and 17 large
cities
Source: Ministry of Transportation RI, May 2016
5. Regional snapshot
For those who are targeting appropriate location to invest in or expand current
business scope, we selected top 10 provinces and presented as regional snapshot,
with regional GDP on a yearly basis and several indicators in foreign investment
field.
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