Business is booming in Indonesia – its 252 million inhabitants make it the biggest country by population in south east Asia and the fourth largest in the world, it’s currently the 16th largest economy in the world and is forecast to become the seventh largest by 2030, and maybe even the fifth largest within the next two decades.
If you’re looking to tap into the potential of this massive market, here’s everything you need to know about exporting to Indonesia…
It takes time, effort and no little resource to do business in Indonesia, and it could take years before you see any sort of decent return on your investment, even if you’ve been regularly visiting to cement solid business relationships.
So it’s worth getting to know the pros and cons of the market before you invest both time and capital in doing business in Indonesia.
What are the pros and cons of exporting to Indonesia?
Benefits for UK businesses exporting to Indonesia include:
- growing middle class
- strong domestic consumption
- largest economy in south east Asia
Strengths of the Indonesian market include:
- population increasing by 4.5 million a year
- high proportion of working age people
- abundance of natural resources
- political stability following transition to democracy in 1998
It’s not without its challenges though and you should be mindful of the following…
- complex bureaucracy
- uncertain and unpredictable legal and regulatory environment
- lack of transparency
- high logistics costs
- poor infrastructure
- business culture where companies will rarely respond to emails
- strong business case less important than being a trusted partner
If you’re going to be exporting to Indonesia, it’s worth noting that the UK’s main exports to Indonesia are:
- machinery and transport equipment
- chemical and related products
- manufactured goods
- crude materials.
But there is a demand from a growing middle class market for the following:
- modern retail and consumer goods
- education and professional qualifications
- Information and Communications Technology (ICT)
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How does tax work in Indonesia?
A double taxation agreement exists between the UK and Indonesia, so tax isn’t paid twice – once in each country – on exported goods and services.
The main tax rates include:
- Corporate Tax – set at a rate of 25% for both domestic and international businesses. Companies resident to Indonesia must withhold tax at a rate of 20% from payments to foreign companies.
- Income tax – ranges from 5% to 30%, depending upon income. Non-residents are taxed at a flat rate of 20%.
- Capital Gains Tax – Nonresidents are taxed at a flat rate of 20%, which may come down to 10% under the terms of the double-taxation arrangement. Rental income of nonresidents is taxed at 20%.
- Valued Added Tax (VAT) – VAT is combined with Goods and Services tax and known locally as Pertambahan Pajak Nilai (PPN), which is charged at 10% at point of sale. Additionally, PPnBM (Pajak Pertambahan Nilai dan Pajak Penjualan atas Barang Mewah) is a sales tax on luxury goods, charged on top of PPN, usually at rates of between 10% and 50%, but sometimes as high as 75%. Something to consider if luxury goods are your stock in trade.
How will I be affected by customs in Indonesia?
You could be affected quite badly, as import duty is payable at rates of between 0% and 150% on the customs value of imported goods.
Customs value is calculated on the Cost, Insurance and Freight (CIF) level, but you may be granted an exemption, deferment or restitution of import duties, if any of the following apply:
- imports used in production of exports
- capital goods, spares and raw materials by manufacturers and certain other sectors
- equipment and materials imported for use in a foreign aid funded project.