Indonesia, with its flourishing population, presents an extensive and promising business landscape. As per the real-time data from World Population Review in February 2023, Indonesia stands as the world’s fourth most populous country. This sizable population creates vast opportunities for business ventures.
Despite the substantial population, Indonesia still requires more entrepreneurs. However, in recent years, the country has witnessed remarkable economic growth, making it an ideal destination to embark on a business journey.
Let’s explore the advantages that make Indonesia an appealing hub for business:
Affordable Labor Costs
One of the primary factors that entice investors to establish businesses in Indonesia is the cost-effectiveness of labor. Developing countries often possess abundant labor forces with comparatively lower wage rates.
The expense of hiring employees for similar roles is considerably lower than in developed nations. The availability of cost-effective labor allures foreign investors, allowing them to expand their businesses while keeping costs at a minimum.
Indonesia provides ample opportunities and advantages for trading companies. Over time, numerous promising trade agreements have been inked in Indonesia. Notable examples include the economic partnership agreement with Japan in 2008 and the preferential trade agreement with Pakistan in 2012.
More recently, Indonesia has actively participated in significant trade treaties such as the Regional Comprehensive Economic Partnership (RCEP) and the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). The RCEP involves ten ASEAN countries, along with China, South Korea, Japan, Australia, and New Zealand, further enhancing the value proposition of doing business in Indonesia.
Incentives for Investment
Indonesia offers attractive incentives to encourage investment in businesses. Investment incentives refer to government policies aimed at promoting the establishment of new businesses or supporting existing ones to expand into untapped markets or regions.
In 2021, the government reduced the corporate tax rate from 25% to 22% as part of these investment incentives. This lowered tax rate incentivizes businesses to strive for higher profits, making Indonesia an even more appealing prospect for foreign investors.
Additionally, zero-rated value-added tax (VAT) is permitted, and Indonesia has 13 special economic zones that provide fiscal and non-fiscal incentives to businesses.
Abundance of Natural Resources
Indonesia’s allure as a business destination is further enhanced by its rich natural resources. Raw materials play a vital role in the production process, and while developed countries often face limitations in this aspect, developing countries possess vast reserves of untapped raw materials.
Consequently, many developed countries invest their capital in developing nations to eliminate the need for expensive and time-consuming raw material imports.
According to the World Bank’s 2020 report, Indonesia ranked 73rd out of 190 economies in terms of ease of doing business. The government extends full support to foreign investors, implementing various initiatives to streamline processes.
Corporate registration now takes just two weeks, and as of May 2019, the submission of the Company Domicile (SKDP) is no longer required. The introduction of the Online Single Submission (OSS) system has made obtaining a Business Identification Number (NIB) easier than ever. Foreign investors can also benefit from waived government fees for work permits (DPKK).
Royalties from Technology Transfer
Another advantage of conducting business in Indonesia is the potential for royalties earned through technology transfer. Foreign investments often result in the transfer of advanced technology from developed countries to developing ones. This technology transfer process benefits both parties.
Developed countries gain wider exposure for their technological advancements, simultaneously increasing their financial gains. Developing countries, on the other hand, accelerate their own progress by embracing technological transformations.
Indonesia offers numerous advantages for foreign investors seeking to establish businesses. Whether you choose to set up a PT company, PMA company registration, or set up a representative office, there are abundant opportunities to explore. For more detailed information, please visit our page on company registration Indonesia.