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This publication is available at https://www.gov.uk/government/publications/exporting-to-indonesia/exporting-to-indonesia
1. Indonesia export overview
Indonesia is a country of big numbers and big opportunity. With 252 million inhabitants it’s the world’s fourth most populous country and the largest in south east Asia. Indonesia has 18,307 islands, over 742 different languages and a middle class larger than the population of Malaysia or Australia.
Contact a Department for International Trade (DIT) Indonesia export adviser for a free consultation if you are interested in exporting to Indonesia.
Currently the 16th largest economy in the world, it is projected to be the seventh largest economy in the world by 2030.
Doing business in Indonesia takes patience and perseverance. Companies should be prepared to invest time and resources in regular visits over a period of months, sometimes years, before seeing returns.
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
2. Challenges doing business in Indonesia
Foreign companies must be prepared to encounter challenges when doing business in Indonesia. It is the 101st easiest place to do business in the world according to the World Bank.
Businesses should be prepared for:
- 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
Indonesia offers a lot of opportunities for British companies in a wide range of sectors. However, companies looking for a ‘quick win’ would be advised to look elsewhere.
The rewards of doing business in Indonesia can be considerable. However it can take time to develop the necessary relationships before any financial returns materialise. Companies should recognise this and plan their business entry strategy accordingly.
3. Growth potential
3.1 Economic growth
Indonesia has the largest economy in south east Asia with nearly half of the region’s Gross Domestic Product (GDP). It is the only G20 member from south east Asia. It’s predicted to be in the top 7 largest economies in the world by 2030.
Indonesia’s economy has grown at a steady 5.8% for over the last 10 years. This is a more stable rate than any of the Brazil, Russia, India and China (BRIC) countries or Organisation for Economic Co-operation and Development (OECD) countries.
Domestic consumption makes up 55.8% of Indonesia’s GDP. This helped to protect Indonesia from the global economic crisis.
Indonesia is the:
- world’s largest producer and exporter of crude palm oil
- second largest exporter of coal
- second largest producer of cocoa and tin
- fourth largest exporter of natural gas
Indonesia also has abundant resources such as nickel, gold, coffee and other forest and marine resources.
3.2 Free Trade Agreements (FTAs)
Indonesia is a member of the Association of Southeast Asian Nations (ASEAN).
The ASEAN Free Trade Area (FTA) is part of the Asian Economic Community (AEC) agreement among 10 ASEAN countries which allows free movement of goods and services with 0% tax. The country of origin must be one of the ASEAN countries
The AEC will benefit British companies operating in the region. The AEC agenda helps promote reform and raise economic growth in the region.
Improved trade facilitation, regulatory reform and financial development will benefit all domestic and foreign firms. British firms producing and shipping goods within the region can also benefit from intra-ASEAN tariff reduction. There will be some areas where the AEC gives other ASEAN countries better market access than UK firms have, but these are likely to be fairly limited.
Through ASEAN Indonesia has trade agreements with a number of countries.
3.3 Growing middle class
Indonesia’s economic growth is driven by a middle class of 74 million – more than the entire population of Canada. This has been projected to double by 2020.
Indonesian consumers are:
- young, with 60% under 30 years of age
- IT savvy
- interested in new international brands
International surveys show that Indonesians are trusting consumers, highly receptive to advertising and keen to try new things. Indonesia has 72 million internet users, forecasted to be 102 million by 2016. It is the world’s third largest Facebook market and fifth largest Twitter market.
Demand from the new middle class is increasing for:
- modern retail and consumer goods
- education and professional qualifications
- Information and Communications Technology (ICT)
3.4 Strategic location
60% of global growth is expected to come from Asia by 2025. Indonesia is part of ASEAN which has a free trade zone. It is also strategically placed to do business with Indonesia, China, Japan and Australia.
4. UK and Indonesia trade
UK exports of goods to Indonesia totalled £467 million in 2014.
The UK’s main exports to Indonesia are:
- machinery and transport equipment
- chemical and related products
- manufactured goods
- crude materials
An unknown amount of the UK’s exports to Indonesia go via Singapore.
The UK is the seventh biggest investor, after Singapore, Japan, US, South Korea, Netherlands, and British Virgin Islands in Indonesia.
Major British investors include BP, Jardine Matheson, Unilever, Shell, Standard Chartered Bank, HSBC, Premier Oil, BAT, Prudential, Rolls Royce, GlaxoSmithKline and Astra Zeneca.
There is also a strong and growing UK retail presence including Marks & Spencer, Next, Debenhams, Top Shop, Ted Baker and Mothercare.
5. Opportunities for UK businesses in Indonesia
Department for International Trade (DIT) provides free international export sales leads from its worldwide network. Search for export opportunities.
5.1 Infrastructure and transportation
The Indonesian Government plans to spend £276 billion to deliver major infrastructure plans in transportation sector. £84.6 billion of this will be through Public Private Partnerships (PPP).
Opportunities for the UK are in:
- pre-feasibility studies
- technical advisory
- architectural design
- financial and legal advisory
- project management
- operation and maintenance
The major infrastructure projects in Indonesia:
- Soekarno-Hatta Intenational Airport Rail Link (SHIARL)
- Soekarno-Hatta International Airport terminal exspansion
- Jakarta Mass Rapid Transit
- Bandung Light Rail Transit
- Surabaya Mass Rapid Transit
- terminal and runway expansion in Indonesian
- Kertajati (West Java) Airport
- Kulonprogo (Jogjakarta) Airport
Contact Senior Trade and Investment Manager firstname.lastname@example.org for more information on infrastructure opportunities.
5.2 Financial services
Indonesia is home to 120 commercial banks. Less than 50% of the population has access to finance and the banking industry is only growing at 10% annually.
IT spending in the finance sector is expected to grow and focus on adoption of financial technology (fintech).
Indonesia has the world’s largest Muslim population making up 12.9% of the world’s total. Sharia finance was only 4.9% of Indonesia’s £278 billion total banking assets in 2014 despite nearly 90% of the 250 million population adhering to Islam. This is low compared to Malaysia where Islamic banks held a 21% of total market share of £398 billion assets in 2014 despite only 61% of the 61 million population being Muslim.
Opportunities for UK firms include:
- sukuk bond issuance
- Islamic finance legal advice
- Islamic finance best practice and capacity building through training courses and degrees
- core banking system upgrades
- credit risk management solutions
- deposit/loan and microfinance software and hardware
- training for the human resources
Contact Senior Trade and Investment Manager email@example.com for more information on financial services opportunities.
5.3 Oil and gas
The oil and gas industry remains strategic to the economic development of Indonesia. The country has abundant energy resources with available reserves amounting to:
- 3.6 billion barrels of oil
- 104.4 trillion cubic feet (tcf) of proven natural gas reserves
It is estimated that around USD 1.7 billion will be spent on the development of deepwater exploration and production in Indonesia in coming years. There will be significant opportunities for:
- drilling and completion
- control lines
Other opportunities exist in:
- Enhanced Oil Recovery (EOR) technology to increase oil production
- supply of subsea equipment and services
- Liquefied Natural Gas (LNG) receiving terminals and regas facilities
- education and training
- coalbed methane (CBM) and potentially shale gas
Contact Senior Trade and Investment Manager firstname.lastname@example.org for more information on oil and gas opportunities.
5.4 Power generation
New power plants and electricity infrastructure development is urgently needed due to:
- government aim to provide electricity access to 91% of Indonesia’s population by 2019; only 75% currently have access
- 6 to 7% economic growth projection expected to increase demand
- electricity demand growing at around 7% to 9% per annum
As a result Indonesia has a plan to increase power generation by 35,000 MW within the next 5 years (2015 to 2019). PLN, a state-owned power utility company, which currently provides 85% of electricity capacity will build power plants to produce an extra 10,000 MW. The rest will come from Independent Power Producers (IPP).
The government allows foreign investors to have 95% ownership of power plant projects, built under PPP, during the project concession period.
Opportunities in power include need for:
- construction of new power plants (mostly coal-fired plants)
- development of transmission and distribution network
- substation equipment
- refurbishment and upgrade of state-owned generating plants
- asset management
Contact Senior Trade and Investment Manager email@example.com for more information on power generation opportunities.
5.5 Renewable energy
The government has set a target to increase use of renewable energy from 6% at present to at least 23% in 2025. There are Feed-In Tariff (FIT) schemes to encourage the growth of renewable energy projects. They are available for biomass, biogas and municipal waste.
Indonesia has 40% of the world’s known geothermal resources.
There are opportunities for projects in:
The government is also funding multi-million dollar water and waste management projects, mainly through PPP.
Contact Senior Trade and Investment Manager firstname.lastname@example.org for more information on renewable energy, waste and water opportunities.
The Indonesian school system is the third largest education system in the Asia region and the fourth largest in the world. It comprises over 50 million students and 2.6 million teachers in more than 250,000 schools.
Education is central to the Indonesian government’s development agenda and spending has increased significantly in the years since the economic crisis.
Two ministries are responsible for managing the education system. 84% of schools are under the Ministry of National Education and the rest under the Ministry of Religious Affairs.
Private schools play an important role making up:
- 7% of primary schools
- 56% of junior secondary
- 67% of senior secondary
The sector is developing due to:
- government reform program designed to lift educational standards
- growing middle class with more money to spend on education
There are opportunities for UK institutions to establish a presence in the market and also in:
- vocational training
- private English language training
- corporate training
- teacher recruitment
- teacher training
Contact Senior Trade and Investment Manager email@example.com for more information on education opportunities.
5.7 Advanced engineering and marine
Significant investment is needed in education and vocational training, as well as industrial equipment due to:
- capacity and capability constraints of Indonesian manufacturing sector
- growth in number of foreign companies setting up manufacturing and assembly operations under Java Integrated Industrial and Port Estate initiative
Indonesia aims to become a global maritime axis taking advantage of its location along some of the world’s busiest sea lanes. The Batam-Bintan-Karimun Free Trade Zone (FTZ) is being developed into a shipbuilding centre.
- shipyards and shipbuilding
- maritime, aerospace, automotive
- manufacture of machinery, components and parts
- assembly of components and parts
- industrial and packaging machinery
- health and safety equipment
Contact Deputy Director of Trade and Investment firstname.lastname@example.org for more information on advanced engineering and marine opportunities.
5.8 Consumer and retail
The retail sector is huge and continues to grow faster than the overall economy as a result of:
- rising incomes
- increasing population
- changes in middle class lifestyle
Increasing numbers of global brands are entering the market for the first time or expanding by adding retail stores or brand portfolios.
There are promising opportunities for UK brand to establish a presence in the market. Opportunities exist in:
- fashion for clothing, footwear, accessories, sportswear
- baby products
- personal care including personal hygiene and cosmetics
Contact Trade and Investment Manager Debby.Tobing@mobile.trade.gov.uk for more information on consumer and retail opportunities.
5.9 ICT and creative industries
Indonesia is emerging as a major market for ICT. Indonesia is the fourth largest mobile market in the world and in world’s top 10 3G markets.
Indonesia has established a creative economy agency to support its creative industries and strengthen economic development.
There are opportunities in:
- digital content for gaming and mobile applications
- media content for film and animation
- digitisation of television broadcasting
- advertising technology and content
Contact Trade and Investment Manager Debby.Tobing@mobile.trade.gov.uk for more information on ICT and creative industries opportunities.
5.10 Defence and security
Indonesia intends to increase its defence budget from the current 0.8% of GDP to 1.5% of GDP by 2019. Militarily, the plan is to achieve its goal of a Minimum Essential Force by 2024. This involves substantial increases in capability for all 3 services of the Tentara Nasional Indonesia (TNI) including:
- fighter jets and surveillance aircraft
- main and medium battle tanks
- offshore patrol vessels and submarines
The Indonesian government is focused on building a self-sufficient local defence industry. Regulations and offset policy are aimed at ensuring:
- local purchase where possible
- foreign companies partner with Indonesian companies (especially the major State Owned Enterprises: PT PAL, PT Pindad and PT Dirgantara Indonesia) if local purchase not possible
- technology transfer is included for non-local purchase
Current local capability means that sophisticated equipment is still bought overseas and this is where opportunities lie for UK companies.
Indonesia’s maritime vision for the Navy and newly formed coastguard (Bakamia) involves maritime surveillance and security to prevent incursions on sovereignty such as illegal fishing.
The Indonesian Police has a particular focus on cyber security and counter-terrorism.
Contact Export Control Organisation (ECO) to check your goods you are meeting legal requirements for export.
Contact Trade and Investment Manager tom.o’email@example.com for more information on defence and security opportunities.
6. Start-up considerations
There are various ways to operate a business in Indonesia including:
- setting up a joint venture company
- establishing a representative office
- appointing an agent, distributor or importer
6.1 Joint venture
The ‘Penanaman Modal Asing’ (PMA) is the corporate entity required for foreign investors under the terms of the foreign investment law. It takes the form of ‘Perseroan Terbatas’ (PT), a limited liability company, with the joint ventures as shareholders. PMA companies:
- may be either publicly listed on the stock exchange or privately owned
- must have 2 parties holding shares either a legal entity or an individual
The foreign investor’s shareholding percentage must meet requirements under the Indonesia Investment Coordinating Board’s Negative Investment List (DNI).
6.2 Representative office
Foreign companies may open and maintain a representative office and the representative may be foreign or local. Such offices:
- are not permitted to carry out any profit making business activities
- can undertake sales promotion, market research and assistance to local agents and distributors
You should appoint third party advisers to assist with documentation as dealing with government ministries can be challenging. Lack of transparency can make the process last longer than expected.
The third party advisor needs to be reliable, experienced and most importantly have close connections with the relevant authorities.
Contact the Department for International Trade (DIT) Indonesia for information about third party advisors.
6.3 Agent, distributor or importer
A foreign company will usually appoint one or more agents or distributors. They can keep track of market regulations, which can change at short notice.
You should spend time taking local advice and assessing a range of potential agents before making a choice. Beware of agents promoting similar or identical products.
Department for International Trade (DIT) Indonesia can help you identify and meet potential agents and distributors.
7. Legal considerations
Foreign and domestic investment is administered by the Investment Coordinating Board (BKPM). BKPM regulates the Company Law and the Foreign Investment Law.
Investors must apply for approval from BKPM. BKPM does not issue licenses for investments in banking, financial institutions, insurance, and oil and gas. These are issued by industry specific regulating bodies.
Import licenses and permits to employ non-Indonesian workers are issued by the Ministry of Manpower. You should take advice on your legal obligations which can vary depending on your business.
Contact the Department for International Trade (DIT) team in Indonesia to help find tax and legal advisers before entering into agreements.
7.1 Intellectual property rights (IPR)
The Directorate General of Intellectual Property Rights of the Ministry of Law and Human Rights is responsible for administering IPR in Indonesia.
Indonesia is a World Trade Organization (WTO) member and has comprehensive intellectual property protection regulation. However enforcement can be extremely difficult.
You should register your intellectual property, a process which can take 2 to 3 years. The EU ASEAN IPR helpdesk offers tools and advice to help you manage your intellectual property in Indonesia.
8. Tax and customs considerations
Indonesia and the UK have signed a Double Taxation Agreement.
The regulatory environment is complex and subject to change. You should consult the Department for International Trade (DIT) Indonesia for assistance.
8.1 Sales tax
Value Added Tax (VAT) and Goods and Services Tax (GST) are applied to most goods and services in Indonesia. Imports are subject to VAT and GST. VAT and GST taxes are called Pertambahan Pajak Nilai (PPN). PPN is a 10% point-of-sale tax.
PPnBM (Pajak Pertambahan Nilai dan Pajak Penjualan atas Barang Mewah) is a sales tax on luxury goods. It is levied in addition to PPN and is imposed on luxury goods which are both manufactured in and imported into Indonesia. Rates range from 10 to 50%. Some items can be taxed at 75%.
8.2 Corporate tax
A foreign company with a permanent establishment in Indonesia will have to the same tax obligations as a resident taxpayer.
Foreign companies without a permanent establishment will settle tax liabilities through withholding of the tax by the Indonesian party paying the income.
Corporate income is taxed at 25%.
8.3 Income tax
Taxpayers are obliged to make a prepayment of their annual tax obligation by a withholding of 2.5% (7.5% if the company does not possess an import permit) of cost, insurance and freight (CIF) value of imports.
Import duty is payable at the rates from 0% to 150% on the customs value of imported goods.
Customs value is calculated on the CIF level. It is possible to apply for an exemption, deferment or restitution of import duties where the import meets criteria, such as:
- 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
You can find more about import tariffs in the Market Access Database.
Correct paperwork is crucial. Check with your importer or agent on the documentation required when exporting products to Indonesia. Different products will require different documents due to rules set by the government authority.
You will need a commercial invoice which must be signed by the manufacturer and contain the:
- name and address of the shipper
- place and date of the shipment
- name and address of the consignee
- number and kind of packages
- content and weight of each package
- tariff number, marks and numbers
A pro-forma invoice is not compulsory, but will be needed by importers for quoting price.
9. Business behaviour
The official language is Bahasa Indonesia. English is widely spoken by young people, but interpretation may be required for business meetings, particularly outside Jakarta and other major cities in Indonesia.
During meetings you should:
- exchange business cards immediately after introductions presenting with both hands or with the right
- not offer anything with your left hand, nor receive anything with your left hand
- keep cards on the table, not put them away immediately
- not start drinking when offered a drink until formally invited to do so by the host
- not to cross your legs when sitting as showing the soles of your feet is considered highly discourteous in Indonesia
- not stand with your hands on your hips or with your arms folded as this is regarded as aggressive and rude
Email is treated as an optional form of communication and rarely gets responses.
After a meeting send a formal letter setting out what you discussed. Company literature will be well received. Then follow this up with a phone call to confirm the letter has been received. Do not expect progress until your next face to face meeting.
10. Entry requirements
You need a visa to enter Indonesia.
British citizens visiting Indonesia are able to buy a 30 day visa upon arrival by following the ‘Visa on Arrival’ sign. Visas of this kind can be extended once for a maximum of 30 days by applying to immigration offices within Indonesia.
10.1 Travel advice
If you’re travelling to Indonesia for business, check the Foreign and Commonwealth Office (FCO) travel advice page beforehand.
Contact the Department for International Trade (DIT) team in Indonesia for more information and advice on opportunities for doing business in Indonesia.