Indonesia is situated in a strategic location, making it potential for business expansion.
Economic growth and rapid development attract foreign entity to enter the Indonesian market. However, expanding business to a country with a different workplace culture and market may pose significant challenges.
Establishing a company in Indonesia requires significant financial and administrative commitments. The process is costly and time-consuming, which may cast doubt for a few investors.
Challenges of Establishing a Foreign Entity in Indonesia
The potential growth for foreign entities in Indonesia is undeniable, however, they need to understand all the legal challenges to ensure a smooth process. These are some of the challenges of establishing a foreign company in Indonesia.
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High Initial Capital Requirements
As of June 2021, the initial capital requirement for a foreign company in Indonesia is 10 billion Rupiah, excluding values in land or building. Some business classifications may have higher capital requirements due to the nature of the activities.
Aside from this cost, the company should also prepare for other costs, such as maintenance fees of the business, hiring costs, and a lot more. Without proper financial planning, establishing a company in Indonesia can be daunting.
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Complex Registration Process
One of the main issues in establishing a foreign entity in Indonesia is the complex and time-consuming registration process.
There are various permits and approvals that the company must have from various government authorities before they can start their business operations.
These registration documents include Investment Registration, a Taxpayer Identification Number, a Business Identification Number, and various other requirements depending on the business type.
The process to fulfil all these requirements can take months to complete, and the regulations may vary by region, which further complicates the process.
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Ongoing Compliance Obligations
Another challenge is the extent of the ongoing compliance obligation that must be fulfilled. Most companies are aware of the necessary permits required to establish a foreign business in Indonesia. However, it can be extremely difficult to keep pace with the constant regulation change.
To make sure that the company fulfills the compliance obligation properly, they need to keep up with the changes to tax laws, payroll administrations, employment law changes, bank regulations, and many more.
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Time and Cost
The whole process of establishing a foreign company in Indonesia is costly and time-consuming. Aside from the budget that you need to prepare for permits, taxes, and other expenses, you will need to prepare other fees to speed up the process.
Additionally, the whole process can take months to complete, which can be overwhelming for most investors.
Advantages of Using an Employer of Record (EOR) in Indonesia
Employer of Record (EOR) service is a great solution for challenges in establishing a foreign entity in Indonesia. These are the benefits of using these services:
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Cost Efficiency
Setting up a business, especially a foreign business, can be costly in Indonesia. You will have to prepare for a lot of unexpected costs, including office space, registration fees, visas, and a lot more.
This creates a burden because the company will have to provide high overhead costs in addition to preparing the capital requirements.
Using EOR services, you don’t need to pay these overhead costs upfront. Therefore, you can focus on more important aspects of your business, such as product development, marketing, and customer service, ensuring a smooth business process.
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Rapid Market Entry
The regular registry process for foreign entity establishing business in Indonesia can take months and involve a lot of authorities and organisations. This may hinder your business operation as you will not be able to start doing business before all legal paperwork is completed.
Using EOR service will help businesses enter the market faster as they can prepare all the necessary documents quicker, and they know exactly how to process your registration.
You will not need to wait for months just to properly establish and set up your business. This eases the burden of the company so that they can start their business as soon as possible.
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Regulatory Compliance
Each country has different regulatory compliance and keeping up with them is daunting, especially if you are not from the country.
EOR service will take away this burden from the business as they will ensure the business complies with all the regulations and law requirements.
EOR has a deep understanding of the country’s laws and regulations. Therefore, they will be able to monitor your business compliance smoothly and you can focus on business operations and expansion.
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Administrative Simplification
When you are expanding your business to a foreign country, you will face a new problem in administration, one of which is multi-currency payroll. There are 3 risks that businesses may face with this multi-currency payroll, they are transaction risk, translation risk, and economic risk.
Hiring an EOR who understands how foreign entity business and local regulation work will help you mitigate these risks.
Expand to Indonesia with Abhitech’s EOR
To ensure a smooth expansion to Indonesia, an EOR service such as Abhitech is a great solution. Abhitech is experienced in foreign company administration and compliance with a great understanding of Indonesian labour laws.
We provide various services including legal compliance and tax fulfillment, employee onboarding, as well as payroll and administrative management.
Complying with the laws and regulations as a foreign entity will help your business expand smoothly to Indonesia. Additionally, it also eliminates the possibility of missteps in business registration and compliance, which further saves the company from possible penalties.
As a country with a huge population and rapid economic growth, Indonesia poses a great potential for investors seeking to expand their business.
While various challenges exist that may hinder the establishment of these foreign entities, an EOR service such as Abhitech will help mitigate all the possible risks and ensure the company is well established by following all the regulations and law requirements.
If you are an investor looking to establish a foreign entity in Indonesia, make sure to visit Abhitech’s website to understand what the requirements are that you need to prepare. Explore our blogs for more insights, or contact us directly to learn how our EOR services can help your business thrive in Indonesia!
