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Investment Window Into Indonesia (IWI)

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Investment Window Into Indonesia (IWI) 1 Investment Window into Indonesia (IWI) Welcome to Indonesia A. Introduction into Indonesia 2 1.General overview 3 2.Demography 4 3. Investment climate 6 4. Industry overview and opportunities 8 5.Regional snapshot 9 B. Identifying your investment Stage 12 C. Establishment of company:getting started 13 1.General investment policy 13 2.Forms of entity 14 3.Investment Procedures 16 4.Mergers and acquisitions 16 D. Taxation in Indonesia 18 1. Tax incentives 18 2. Tax administration 19 3. Business taxation 20 4. Taxes on individuals 32 5. Indirect taxes 34 6. Withholding taxes 37 E. Audit and compliance 38 1. Accounting period 38 2. Currency 38 3. Language, accounting basis and standards 38 4. Audit Requirements 38 5. Independence 39 F. Labour environment 40 1. Employee rights and remuneration 40 2. Wages and benefits 40 3. Termination of employment 41 4. Labour-management relations 41 5. Employment of foreigners 41 About Deloitte 42 Contacts 44 Investment Window into Indonesia (IWI) | Foreword Foreword Selamat datang di Indonesia! Since the silk road era, Indonesia have thrived to be one of the most prominent trading countries. Indonesia also strategically lies within two oceans (Pacific Ocean and Indian Ocean) and two continents (Asia and Australia) to make this nation rich for its natural resources. The current Indonesian government recognizes the fact that it is essen- tial to efficiently utilize our natural resources by generating new invest- Claudia Lauw Lie Hoeng ments. Several measures have been taken to ensure investment con- Deloitte Indonesia Country tinues to come. Business licensing applications between ministries are Leader being expedited, synchronized, and integrated into an Electronic Single Submission System (OSS). In addition, Indonesian government releases Economic Reform Packages or known as Paket Kebijakan Ekonomi and infrastructure development also being pushed to attract investors. With increasing access and exposure to information, technologies became another focus area for investors. In tandem with Financial Services Authority (OJK), Government captures this importance and encourages financial technology to emerge in the market. Our effort to push for investments also evident during the recent 18th Asian Games since it were held at 1962 Asian Games in Jakarta. As the hosting country, we showed how conducive environment Indonesia was for promoting attainable investment growth. In support of the government’s efforts, and to have quick and clear answers for everyone contemplating investing in Indonesia, I am very pleased to present the newly redesigned collaborative work of Deloitte Indonesia’s dedicated team of experts, “Investment Window into Indo- nesia (IWI)”. I trust that this publication will also give a broader and impactful insight to every prospective investor, and that it will be a prime tool for them to explore numerous opportunities that await them the moment they start doing business in Indonesia. 1 1 Investment Window into Indonesia (IWI) | A. Introduction into Indonesia 1.General overview The real GDP growth 5.1% in 2017 as With Indonesia average inflation A diverse archipelago nation of more a whole, although in the last quarter reached 3.7% in 2017, down from than 300 ethnic groups, Indonesia con- of 2017 it increase to 5.2%, but edged 3.5% in 2016 and is expected to be tinues to be one of the largest econo- down to 5.1% in the first quarter of maintained at an annual average of my in Southeast Asia. Indonesia ranks 2018. Within the 5 years (2018-2022), 4.0% in 2018-2022. Due to rising trade the fourth most populous country country’s growth contribution from tensions between nations and elec- in the world, the world’s 10th largest private investment (infrastructure and tions in 2019, the Rupiah will remain economy in terms of purchasing power manufacturing) will take time to have a volatile against the US Dollar. It will parity, and a member of the G-20. significant impact on the economy. The return to modest trend in 2020-2022 economy will be supported by private as global economic fundamentals consumption, which is forecasted to gradually recover. increase by 5.2% on average per year over the next five years. Economic growth Indicator 2017a 2018f 2019f 2020f 2021f 2022f GDP Growth (%, y-o-y) 5.1 5.2 4.9 4.9 5.0 5.1 Private Consumption(%, y-o-y) 5.0 5.1 5.4 4.8 5.6 5.3 Government Consumption(%, y-o-y) 1.9 4.0 3.7 4.0 4.2 4.0 Gross Fixed Investment(%, y-o-y) 6.1 6.2 5.5 5.0 5.7 5.8 Exports(%, y-o-y) 9.1 10.1 10.3 4.1 5.9 6.5 Imports(%, y-o-y) 8.0 13.6 12.1 3.8 7.6 7.1 Inflation(%, y-o-y) 3.7 4.2 4.5 2.5 5.7 3.2 USD exchange rate(end period) 13,548 14,894 14,305 14,300 13,750 13,550 aActual fForecast Source: EIU To strengthen the country’s invest- Indonesia’s nominal GDP have risen ment climate and economic growth, by 8.8% from USD933 billion in 2016 the government continues to an- to USD1,015 billion in 2017, while nounce policy reforms, more incen- GDP (PPP) per capita have risen by tives, and deregulations intended to 5.1%. Based on the 20-year long-term attract both domestic and foreign national development plan (RPJPN) investments. The most notable eco- spanning from 2005 to 2025, Indone- nomic reforms are 16 Economic Policy sia plans to achieve per capita income Packages; 2 new packages released in equivalent to a middle income country 2017 with main focus on reducing lo- by 2025. The highest contributor to gistics dwelling time from an average GDP is the manufacturing industries of 2.9 days to 2 days’ time and accel- sector or around 22% from total GDP. erating business license permit into a single submission system. 3 Investment Window into Indonesia (IWI) | A. Introduction into Indonesia Top 10 Real GDP Growth Among G-20 Countries Projected by IMF India China Indonesia Turkey The IMF projects Indonesia will be at the top 3 fastest economic growths among rgentina G-20 countries South Korea Mexico 2022 ustralia 2018 South frica 2017 Saudi rabia 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Source: International Monetary Fund; World Economic Outlook, October 2017 FDI Realization 2017 by location FDI Realization 2017 by Country of Origin 16% West ava 26% Singapore 51% 4% East Kalimantan 41% apan South Korea 9% Banten Hong Kong DKI akarta etherlands East ava 15% thers 14% thers 5% 5% 7% 6% Source: BPS Source: BPS 2.Demography • Over 60% of the population is be- Indonesia consists1% of 34 provinces;Agriculture, hunting,tween forestry, 20 and and fishery 65, with a low depen- Mining and uarrying 16,056 islands, with77%% more than 261 dency ratio and a dynamic workforce 13% 6% Manufacturing million people, making Indonesia the with high literacy 9% Electricity, gas and water supply fourth largest country in the worldConstruction in 4% • Around 52% of the population lives terms of population. The demographicWholesale and retail trade, restaurants and hotels 41% 5% in urban areas advantages of the 260 million Transportation, warehousing, and communications Real estate and business services people are: 14% • Indonesia’s population comprises Community, social, and personal services more than 39% of the total popula- tion of 10 Southeast Asian countries 4 16% West ava 26% Singapore 51% 4% East Kalimantan 41% apan South Korea 9% Banten Hong Kong DKI akarta etherlands East ava 15% Investment Window into Indonesia (IWI) | A. Introduction into Indonesia thers 14% thers 5% 5% 7% 6% FDI Realization 2017 by Sector According to the Trading Economics, Indonesia’s labour force participation 1% Agriculture, hunting, forestry, and fishery Mining and uarrying rate grew from 68.1% in 2016 to 69.0% 77%% 13% 6% Manufacturing in 2017. It is estimated to increase to 9% Electricity, gas and water supply 69.2% in 2018. Indonesia also has a Construction 4% large consumer base with fast-growing Wholesale and retail trade, restaurants and hotels 41% 5% spending power. The middle class is Transportation, warehousing, and communications rising in Indonesia. Around 7 million 14% Real estate and business services Community, social, and personal services people are expected to join the middle class per year. Consumer expendi- Source: BPS ture has grown at a 13.8% CAGR from 2000-2012 and is expected to contin- ue at an 11.5% rate in 2012-2017. Indonesia Population by Age and Gender Groups 1.94 75+ 2.73 70-74 2.21 1.87 65-69 3.08 2.95 60-64 4.4 4.47 55-59 5.97 5.93 50-54 7.33 7.27 45-49 8.49 8.54 40-44 9.41 9.48 35-39 10.09 9.98 30-34 10.27 10.24 25-29 10.45 10.57 20-24 10.7 11.01 15-19 10.85 11.37 10-14 11.07 11.64 5-9 11.59 12.14 0-4 11.68 12.17 10 5 0 5 10 15 million people Male Female Source: 2018 © Datebooks, Katadata Indonesia 5 Investment Window into Indonesia (IWI) | A. Introduction into Indonesia 3. Investment climate Indonesia’s debt to GDP ratio has after Standard & Poor (S&P) has lifted A large part of Indonesia’s economic steadily declined from 83% in 2001 to its rating on the country’s debt on May success is a result of the growing mid- be less than 26% by the end of 2013 2017 and keep the rating as stable dle class and stable economic growth.
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