Starting a business in Bali

Christian Eiermann interviewed Ingo Müller from Saba Advisors about the possibilities of starting a business in Bali. In this article you will find out what is and isn’t allowed to do as a foreigner in Indonesia when it comes to making business. If you are considering to start a business in Bali or wondering what is actually allowed to do and what is not, then keep reading… 

What types of legal entities are there?

There a partnerships known as CV or Commanditaire Vennootschap. These can only be owned and operated by Indonesian individuals.

Besides, there are limited liability companies known as perseoran terbatas or PT. Any PT with foreigners as investors and shareholders must be specifically approved by and reported to the foreign investment board (Badan Koordinasi Penanaman Modal or ‘BKPM’).

Whether a certain field of business is open for a PT PMA to engage in and at to which extent foreign shareholding is permitted, is regulated under the so called negative investment list (DNI or daftar negatif investasi), which is regularly reviewed by the Indonesian government.

As an example: Under the current DNI (2017), restaurant business or 3-star hotel operation is 100% open to foreign shareholding. Retail business, however, is generally restricted and not permitted under a PT PMA company.

It should also be noted that the formation of a PT PMA company is subject to a mandatory minimum (paid-up) capital requirement of currently 2.5 billion IDR and an overall investment realisation over time of 10 billion IDR.

Whether a foreigner can be sponsored as employee depends on certain requirements such as capitalisation of the sponsoring PT, minimum ratio between foreign and Indonesian employees and also the intended work position. Foreign employment is generally limited to ‘expert positions’ (to be proven by diplomas) and certain job positions are completely restricted for foreigners (e.g., HR positions). Every work permit and VISA is generally specific and limited for the approved position and company and for the approved term (usually between 6 months to 1 year, extendable under certain conditions.)

What position can I hold in the company? What am I allowed /not allowed to do?

n a PT PMA (foreign investment company), foreigners can be shareholders and members of the board. The permitted activity and work of a foreigner will depend on the position of the foreigner (e.g., as shareholder, board member or employee). The permitted work will usually be determined by and expressly stated in the work permit (Izin Mempekerjakan Tenaga Kerka Asing or IMTA) and related VISA. Any activity or business engagement by a foreigner outside an approved work permit and VISA can result in violation of applicable labour or immigration laws.

What licenses do I need?

Generally, the type of licenses a business requires will be determined by the industry it engages in. There are numerous specific licenses for each industry with different government departments (national, provincial or regional) who have to issue permits for the specific business of a company.

Besides, every business entity has to obtain a business domicile registration (physical office, not virtual), tax ID (NPWP) and – since 2018 – a unique business identification number known as NIB (Nomor Induk Berusaha) from the Online Single Submission System known as OSS System.

How much does it cost to set up a company?

The total costs can vary widely depending on the type of business and necessary licences. The majority of costs are often incurred for processing the numerous business registrations, licenses and permits. Initial set up costs (incorporation deed, registration with BKPM) may vary between 3,000 to 5,000USD.

An additional cost would be incurred for work permit and relevant VISA applications.

How long does it take until I am allowed to operate?

Technically, a business should not start operating until a company is fully licensed. This process may take a few months up to a year. A foreigner should also not engage in any work activity until the proper work permit and VISA are issued by the competent immigration authority.

Can I own the business? I heard many people operate under the name of a local person. Is this legit and how does that work?

Given the overall restrictions on business and work activities conducted by foreigners, sometimes foreigners may consider setting up a business operation under the name of a local Indonesian partner (individual or legal entity) acting as the foreigner’s nominee. It should be noted that Indonesian law does not acknowledge and accept the concept of beneficial ownership of a business through nominees. Technically, only the person registered on the business documents (corporate deed, licences) is the legal owner of a business.

Is it safe to operate a business in Indonesia or can it easily be shut down by the government?

Provided a business operates in compliance with applicable laws and regulations, the risk of being shut down is relatively small.

What taxes do I have to pay and how high are they?

There are numerous tax regimes applicable in Indonesia which may also vary depending on the type of business a company engages in. An overview and summary can be found here –

http://taxsummaries.pwc.com/ID/Indonesia-Overview

“Are there any grey areas to exploit?”

It is strongly recommended for any successful investment and long-term business activity in Indonesia to strive for maximum compliance and to avoid ‘short cuts’.

Common business models in Bali

Can I do the following business in Bali and if yes what licenses / permits / company setup do I need?

In general, whether a certain business activity is open to foreign investment and to what extent and percentage foreigners can own shares in a company engaged in a certain business field is determined by the business definition (KBLI – Klasifikasi Baku Lapangan Usaha) and the negative investment list (DNI – Daftar Negatif Investasi). Both, KBLI and DNI are under regular review. If a certain business is not listed under the DNI, the business would generally be open to 100% foreign shareholding. However, the ultimate assessment and decision is up to foreign investment board (BKPM).

It also important to note that the formation of a foreign capital company (PMA company) is subject to minimum paid-up capital requirements of initially 2.5 billion IDR with an investment realisation requirement of 10 billion IDR.

What specific licenses are required (beside the general business registration and tax registration) depends on the specific business type and is further subject to national, provincial and regional laws and regulations.

As example, here are some business lines:

Photography

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74201 PHOTOGRAPHIC ACTIVITIES

This group includes photography activities, both for individuals or business interests, such as photography for passports, schools, weddings and others; photography for commercial purposes, publications, fashion, real estate or tourism; photography from the air (aerial photography or aerial photography) and video recording for events such as weddings, meetings and others. Another activity is processing and printing the results of the shoot, including washing, printing and enlarging the negative film or cine-film taken by the client; film washing laboratory and photo printing; one hour photo shop (not part of the camera shop); mounting slides and doubling and restoring or changing slightly transparency in relation to photography. It also includes photo journalist activities and microfilm making from documents. Film production for cinema and video and its distribution are included in group 591. This KBLI is not regulated in the DNI.

Tattoo studio

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74909 OTHER PROFESSIONAL, SCIENTIFIC AND TECHNICAL ACTIVITIES 

This group includes other professional, scientific and technical activities that are not classified elsewhere, such as agricultural science consulting services (agronomists), environmental consultations, other technical consultations and activities of consultants other than architect, engineering and management consultants. It also includes the removal of valuable objects from the sinking vessel. This group also includes activities carried out by agents or representatives on behalf of individuals who are usually involved in making moving images, theatre production or other entertainment or sports attractions and placement of books, games (plays, music, etc.), art, photography and others, with publishers, producers and others. This KBLI (Tattoo Studio) is not regulated in the DNI. (However, as the scope of business of a tattoo studio is usually limited to direct services for customers on a rather small scale, it appears doubtful that this type of business would be approved for foreign direct investment.)

Photo model

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As this work and service and performance is typically provided by an individual and as foreigners individually are generally not permitted to engage in any provision of services directly, we would deem this a non-permitted activity. The exception might be if a photo model is invited by an Indonesian agency (sponsor) for specific performances under a specific work permit and Visa.

Villa rental

55194 VILLA

This group includes the business of providing lodging services to the general public which are private houses specifically rented to tourists along with their facilities and managed by the owners themselves. 100% open for foreign investment.

Sometimes, villas are rented out under a license known as Pondok Wisata. It is important to note that a Pondok Wisata licenses must be held and operated under the name of an Indonesian individual only (not company).

Coworking space

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68110 REAL ESTATE THAT OWNED PRIVATELY OR RENTED

This group includes the business of buying, selling, leasing and operating real estate both privately owned and rented, such as apartment buildings, residential buildings and non-residential buildings (such as exhibition venues, private storage facilities, malls, shopping centers and others) and provision houses and flats or apartments with or without furniture to be used permanently, either monthly or yearly. Including land sales activities, the development of buildings to be operated on their own (for leasing spaces in the building), the distribution of real estate into plots of land without developing land and operating residential areas for movable houses. 100% open for foreign investment.

Bakery

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10710 INDUSTRIAL BREAD AND CAKE PRODUCTS

This group includes businesses making various kinds of bread and cakes, such as the bread and cadet bread industry; cake, pie, tart industry; biscuit industry and other dry bread products; industry of preserving pastries and cakes; the industry of snack products (cookies, crackers, pastries) whether sweet or salty; tortillas industry; and frozen bakery products, such as pancakes, waffles and cadet bread. This KBLI is not regulated in the DNI.

Wedding planner

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82302 EVENT ORGANIZER

This group includes event organizer activities that organize a series of events, starting from the process of making concepts, planning, preparation, execution to a series of events completed in order to help clients realize the expected goals through a series of events held. Event organizer (EO) services are the organization of an event based on work guidelines and the concept of the event and manage it professionally. EO activities included in this group are EO weddings, birthday parties and similar events. This KBLI is not regulated in the DNI.

Spa

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96122 SPA ACTIVITY (SANTE PAR AQUA)

This group includes care services businesses that provide services with a combination of water therapy, aroma massage therapy, spices, healthy eating / drinking services, and physical activity with a purpose balance the body and soul while maintaining national culture and traditions. Maximum 51% is open for foreign investment.

Yoga retreat

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85410 SPORT AND RECREATION EDUCATION SERVICES

This group includes the provision of teaching in sports activities for a group of individuals, such as in camps and schools. This group also includes camping sports teaching overnight. Excludes academic schools, colleges and universities. Teaching can be carried out in various forms, such as educational training facilities, educational institutions, workplaces or homes and through correspondence, television, the internet or by other means. The teaching carried out in this group is formally arranged. Activities include sports teaching (baseball, basketball, cricket, soccer, etc.), sports teaching in camping activities, cheerleading teaching, gymnastics teaching, riding teaching, both academic or school, swimming teaching, instructors, teachers, professional sports coaches , war art teaching, card game teaching (like bridge), yoga teaching. This KBLI is not regulated in the DNI.

Export

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For exporting several items and goods in wholesale, most likely are opened for foreign investment (e.g. wholes cars, spare parts, electronics, furniture etc). Several types of whole business are open for 100% foreign investment. It should be checked for any specific commercial item.

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We hope this article helped you to get a better understanding of starting a business in Bali. If you still have questions or ideas please leave a comment below

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