Writer Kerli Pär­na­puu de­bunks the most com­mon myths sur­round­ing for­eign busi­ness own­er­ship in In­done­sia.

Indonesia Expat - - Meet The Expat - BY KERLI PÄR­NA­PUU

Com­mon Myths about Do­ing Busi­ness in In­done­sia

In­done­sia is a land of great po­ten­tial. Rich in cul­ture and re­sources, the world’s largest ar­chi­pel­ago of­fers a wide ar­ray of op­por­tu­ni­ties for lifestyle busi­ness as well as the cor­po­rate be­he­moths that have vested in­ter­est and are flock­ing to the na­tion to grab mar­ket share. Yet, for the in­di­vid­ual in­vestor and en­tre­pre­neur who has lived or con­sid­ered building a small busi­ness here in In­done­sia there are plenty of tall tales and myths ac­com­pa­ny­ing such en­ter­prises that need to be dis­pelled.

Some claims are so in­grained that even those who have lived in In­done­sia for a length of time have trouble dif­fer­en­ti­at­ing be­tween what is true and false. The ru­mours shared through the ex­pat com­mu­nity are not usu­ally spread with bad in­ten­tions, but per­haps are based on mis­guided and out­dated in­for­ma­tion. Many of these myths can be (and are) eas­ily de­bunked below.

The Lo­cal Share­holder Myth

One of the most com­mon mis­con­cep­tions about do­ing busi­ness in In­done­sia is that a lo­cal share­holder is re­quired for start­ing a com­pany. In real­ity, many busi­ness lines are open to full for­eign own­er­ship.

For­eign investors are al­lowed to set up 100 per­cent for­eign- owned trad­ing and real es­tate com­pa­nies in In­done­sia. In the hos­pi­tal­ity in­dus­try, that means ho­tels with three or more stars clas­si­fi­ca­tion can be fully con­trolled by a for­eign busi­ness en­tity. How­ever, it’s the lesser rated ho­tels that re­quire per­cent­age own­er­ship with a cap at 67 per­cent for for­eign hold­ings and the re­main­ing stakes held by

In­done­sian share­hold­ers.

For­eign share­hold­ing de­pends on your busi­ness clas­si­fi­ca­tion. The doc­u­ment reg­u­lat­ing re­stricted in­dus­tries is the Neg­a­tive In­vest­ment List or Daf­tar

Ne­gatif In­ves­tasi (DNI), and it is re­vised ev­ery three years. The pur­pose of the DNI is to pro­tect lo­cal com­pa­nies, es­pe­cially smaller and as­pir­ing busi­nesses, from for­eign com­pe­ti­tion.

Busi­ness through Part­ner­ships

An­other com­mon mis­con­cep­tion in In­done­sia is that part­ner­ships, specif­i­cally mar­i­tal part­ner­ships, al­low busi­ness in In­done­sia to be more con­ducive. Whether these part­ner­ships are purely to se­cure res­i­dence per­mits, com­pany reg­is­tra­tion or sim­ply for fur­ther insight into the In­done­sian busi­ness cul­ture; it’s all spec­u­la­tive. And, although In­done­sians do have a smaller cap­i­tal re­quire­ment when start­ing a com­pany, as­set control is a huge is­sue – es­pe­cially if the ex­pat part­ner in question doesn’t legally hold any.

From the lo­cal per­spec­tive, it is of­ten­times wiser to turn to a pro­fes­sional con­sul­tant or lawyer as reg­u­la­tions in In­done­sia can change overnight and the in­for­ma­tion from a “trusted” ad­vi­sor might be­come out­dated or sim­ply un­true. And, there are al­ter­na­tives to part­ner­ships for all other issues such as visas and com­pany es­tab­lish­ment,.

In­deed, building a com­pany under a lo­cal spouse’s name might seem like a good idea, but it car­ries high risks. Un­se­cured nom­i­nee agree­ments con­sti­tute one of the di­ci­est ways of start­ing a busi­ness any­where. As a for­eigner in In­done­sia, you would not have any le­gal claims to your busi­ness should the mar­riage go south.

There are non-fi­nan­cial ways to con­trib­ute since paid up cap­i­tal can be in the form of money or other as­sets. A per­sonal nom­i­nee is only based on good will whereas pro­fes­sion­ally pledged share­hold­ing agree­ments keep your as­sets safe.

The Question of Mar­riage

In In­done­sia, re­li­gion plays a sig­nif­i­cant role. For­eign­ers who wish to marry an In­done­sian part­ner of­ten think they are re­quired to con­vert to their fu­ture spouse’s re­li­gion, but there are ways around this statute. Most for­eign­ers who change their faith do it be­cause it is the wish of their spouse or their spouse’s fam­ily and they do it by choice, and per­haps a bit of obli­ga­tion. Wed­dings con­ducted abroad are cur­rently rec­og­nized in In­done­sia. It takes a lit­tle bit of time and pa­per­work, but your mar­riage can be ac­knowl­edged by the In­done­sian gov­ern­ment. How­ever, dual cit­i­zen­ship is not rec­og­nized in In­done­sia so any move to change cit­i­zen­ship must be scru­ti­nized with a fine-toothed comb.

Land and Prop­erty Own­er­ship

The Ba­sic Agrar­ian Law No. 5 Year 1960 dic­tates that for­eign­ers are not al­lowed to own free­hold land in In­done­sia. The same law stip­u­lates that for­eign­ers can only ob­tain land under the fol­low­ing rights: Hak

Guna Ban­gu­nan – Right to Build, Hak Guna Usaha –

Right to Cul­ti­vate, and Hak Pakai – Right to Use.

It is com­mon prac­tice among for­eign investors to buy land or real es­tate us­ing a lo­cal nom­i­nee, but this is a high risk ma­noeu­vre that would waive any le­gal pro­tec­tion over your in­vest­ment. Hu­man re­la­tions have a ten­dency to change and there is no guar­an­tee that your nom­i­nee won’t take over your land or prop­erty. The safest op­tion to in­vest in prop­erty in In­done­sia is through a for­eign- owned com­pany, which would al­low le­gal own­er­ship of the prop­erty.


Con­duct­ing busi­ness in In­done­sia may seem ar­du­ous. Most busi­nesses that strug­gle in In­done­sia strug­gle for the same rea­son any­where in the world – lack of de­mand, high com­pe­ti­tion or poor man­age­ment.

The real is­sue here is red tape, so be pre­pared to in­vest a lot of time into your busi­ness ven­ture.

Seek ad­vice from ex­pe­ri­enced peo­ple who have a proven track record in the rel­e­vant in­dus­try and try to ig­nore hearsay and hor­ror sto­ries. Investors en­ter­ing In­done­sia face en­try bar­ri­ers, but these ob­sta­cles are some of the rea­sons why the com­pe­ti­tion is rel­a­tively low. Op­por­tu­ni­ties abound, and play­ing it wisely can pro­vide some lu­cra­tive re­wards.

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