Interview with iadvisors Robin Chia and Angeline Suparto, Part 2

In the second part of our interview with iadvisors Mr Robin Chia of Robin Chia & Co. and Miss Angeline Suparto of Angeline Suparto & Co., Mr Robin Chia provides some tips regarding the problems businesses might face when setting up a business in Indonesia, while Ms. Angeline Suparto shares on some of the ways the Indonesian government is attracting foreign investments.

What are some considerations when setting up a business in Indonesia?

Robin Chia: One of the main difficulties investors face in setting up a business in Indonesia is the time-consuming and complicated application procedures. It is the length of time it takes to set-up a PMA company and sometimes a simple name search can take weeks and is therefore important to employ professional help to make sure that everything is done correctly from the start.

The larger costs of setting up a business in addition to the cost of investments include rental costs and sometimes the contracts require rental payments to be paid in advance. For hiring cost, it is cheaper than in Singapore and employment is usually on a contract basis. However, staff retrenchment costs are high for permanent staff employed by a company. Also if employing expatriates with families, the housing accommodation and international school fees for children are also high. You may also want to consider engaging a driver as there is no effective public transportation in Indonesia.

Indonesia, like many other developing countries, aside from presenting attractive opportunities also presents a variety of potential risks to Singapore investors. These risks range from political and economic turmoil, a history of civil unrest, religious conflict and the threat posed by Islamic extremist groups, socio-economic issues and the resulting effect of increased unemployment.

It is important for Singapore companies to have a thorough understanding of the social and cultural environment in order to successfully undertake business in Indonesia. They need to understand the way the Indonesians think and operate their businesses, which may be fundamentally different from people doing business in Singapore.

Is the government pro-active in attracting Foreign Direct Investments (FDIs)?

Angeline Suparto: Yes. In order to attract FDIs, the Indonesian government has provided for, among other initiatives, under the Investment Law,

• equal treatment between domestic and foreign investors;
• one-stop integrated service;
• free repatriation of funds and dividends, and no exchange control;
• grant of longer land title tenures;
• Free Trade Zones. Eg. Batam, Bintan and Karimun.
• simplified services and/or permission to investment companies to obtain:
   o Land titles
   o Immigration service facilities
   o Import permission facilities
• protection against non-nationalization.
• dispute resolution by international arbitration
• guarantee of business certainty and security of investments from the central government and regional governments

The Indonesian government has also introduced measures to provide legal certainty, transparency and clear lines of responsibility, to attract FDIs into Indonesia.

In addition, the Investment Coordinating Board (BKPM) has been tasked to attract FDIs to invest in Indonesia. BKPM organises regular investment seminars outside of Indonesia.

The government has also provided the grant of the following fiscal facilities to foreign investors (subject to certain conditions):

• income tax through a reduction of net income to a specified extent of the total investments made within a definite period.
• exemptions or relief on import duty of production capital goods, machines, or equipment not yet produced in Indonesia.
• exemptions or relief on import duty of production raw materials or components for a definite period of time and with specified requirements.
• exemptions or deferment of VAT.
• accelerated depreciation or amortization.
• relief on Land and Buildings Tax, particularly for specified business sectors in specified regions, areas or zones.
The above are views represented by Angeline Suparto and Robin Chia.

If you need expert market advice on doing business in Indonesia, do post Ms. Angeline Suparto, Mr. Robin Chia or any of our iadvisors your questions.