With its booming population, Indonesia presents a vast and promising business landscape. According to the real-time data from World Population Review in February 2023, Indonesia ranks fourth as the most populated country globally. The sheer size of its population translates into significant business opportunities waiting to be explored.
Despite the large population, Indonesia still requires a higher number of entrepreneurs. However, in recent years, the country has experienced significant economic growth, making it an ideal destination to kickstart a business venture.
Let’s delve into the advantages that make Indonesia an attractive hub for business:
- Low Labor Costs
One of the primary reasons that captivate investors to set up businesses in Indonesia is the affordable labor costs. Developing countries often boast large labor forces with comparatively lower wage rates.
The cost of hiring employees for similar job roles is much lower compared to developed nations. The availability of low-cost labor attracts foreign investors, enabling them to grow their businesses while keeping expenses at a minimum.
- Trade Agreements
Indonesia offers abundant opportunities and advantages for trading companies. Over the years, several promising trade agreements have been signed in Indonesia. Noteworthy examples include the economic partnership agreement with Japan in 2008 and the preferential trade agreement with Pakistan in 2012.
More recently, Indonesia has been involved 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, adding further value to doing business in Indonesia.
- Investment Incentives
Indonesia offers attractive investment incentives to businesses. Investment incentives are government policies put in place to encourage the formation of new businesses or support the expansion of existing ones into untapped markets or regions.
In 2021, the government reduced the corporate tax rate from 25% to 22% as part of these investment incentives. The lower tax rate incentivizes businesses to strive for higher profits, making Indonesia a more enticing prospect for foreign investors.
Additionally, zero-rated value-added tax (VAT) is permitted, and there are 13 special economic zones in Indonesia that offer fiscal and non-fiscal incentives to businesses.
- Abundance of Raw Materials
Indonesia’s profitability as a business destination is further enhanced by its abundance of natural resources. Raw materials play a crucial role in the production process, and while developed countries often face limitations in this regard, developing countries possess vast untapped reserves of raw materials.
Hence, many developed countries invest their business capital in developing nations to eliminate the need for costly and time-consuming raw material imports.
- Business-Friendly Environment
According to the World Bank’s 2020 report, Indonesia ranked 73rd out of 190 economies in terms of ease of doing business. The government provides full support to foreign investors, implementing various initiatives to streamline the process.
The corporate registration process in Indonesia 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 establishing a Business Identification Number (NIB) easier than ever. Foreign investors can also benefit from waived work permit government fees (DPKK).
- Royalties from Technology Transfer
Another advantage of doing business in Indonesia is the potential royalties earned through technology transfer. Foreign investments often lead to the transfer of advanced technology from developed countries to developing ones. This technology transfer process benefits both parties.
Developed countries gain broader exposure for their technological advancements and simultaneously increase their financial gains. Developing countries, on the other hand, accelerate their own development by receiving the technological transformation.
Indonesia offers numerous advantages for foreign investors looking to establish a business. Whether you choose to do company registration Indonesia, set up a PMA company, PT company, or a representative office in Indonesia, there are ample opportunities to explore. For more detailed information, please visit our page about company registration Indonesia.
