As the fourth most populous country in the world, supported by good political and economic stability, Indonesias large

domestic market offers awide

range of investment opportunities for foreign and domestic investors.
The Indonesia economy accelarated by 5.18% in the second quarter of 2016 as compared to a downwardly revised 4.91 percent growth in the March
quarter and above market consensus of a 5 percent expansion. It was the strongest growth rate since the fourth quarter 2013, driven by a faster
increase in private consumption and government spending while investment eased and exports fell at a slower pace. GDP Annual Growth Rate in
Indonesia averaged 5.35 percent from 2000 until 2016.
Indonesia is diverse and is amoing the most culturally rich countries on Earth. Add to this its enermous mineral, marine, and natural resources and it
is evident that it ranks as a major economic force in the region. Following the economic and financial crisis that hit the country in 1997, Indonesia
government recognised the important role of foreign investment to play in reconstruction of the Indonesia's economy. During following years,
successive governments enacted legal and regulatory reforms design to make Indonesia a competitive destination for foreign direct investment.

Setting Up a Business
There are variuous ways for an investor to set up presence in Indonesia, depending on the investors's type of business.
1. Limited Liability Company
Viewed from the source of funds, there is two types of limited liability company (PT) in Indonesia, local and foreign (PMA) limited liability
company. There must be two parties of shareholder in a PT. A limited liability company must have a board directors and board commisioner, at
least one director and one comissioner. The director servesas management of company and responsible in company operation, while
commisioner supervises and provides advice to the director.

PMA
The common type of presence for a foreign investor who wants to invest and engage in business in Indonesia is by establishing an Indonesian
incorporated limited liability company, commonly known as a PMA company. There must be at least two parties of shareholder in a PMA company.
The shareholder can be a legal entity or an individual. The foreign investors shareholding percentage must meet the requirement.
2. Representative Office (RO)
Foreign companies are permitted to establish a representative of ce in Indonesia. However, unlike a PMA company, a representative of ce has
more restrictions on its activities. In tax perspective RO is categorized as permanent establishment (BUT).

As representative office can only perform marketing or prmotion activites, market research, and review business opportunities in Indonesia.
Representative of ces are available for foreign companies engaged in certain sectors which include trading, services, oil and gas mining and
banking. An exception applies to representative offices of foreign companies engaged in construction services. This type of representative office is
allowed to deliver construction services in Indonesia under a joint operation with a local construction company.
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3. Branch
A branch office is generally not allowed, except for banking sector.

4. Partnership
A partnership is an arrangement in which two or more individuals share the profits and liabilities of a business venture.

Taxation in Indonesia
Tax system
Taxation in Indonesia adopts self assessment method, where every taxpayer has rights to calculate their own income tax based on tax regulation.
There are separate laws covering income tax, value added tax (VAT) and sales tax on luxury goods, other tax laws include the law on the taxing of
land and building and stamp duty.
Income tax
Under the prevailing Indonesian tax law, there are two subject of taxpayer : individual and corporation. Income tax is applied to individual and
corporation on increase in economic wealth. A company is treated as a resident of Indonesia for tax purposes by virtue of having its establishment or
its place of management in Indonesia. A foreign company carrying out business activities through a permanent establishment (PE) in Indonesia will
generally have to assume the same tax obligations as a resident taxpayer.
Tax rate and period
Normally, Corporate Income tax rate is 25% of taxable income applies for corporate taxpayer. But since July 2013, Directorate General of Taxes
(DGT) issued new regulation for taxpayer who has gross revenue not more than IDR 4.8 Billion. The tax rate for taxpayer in this category is 1% from
gross revenue. The normal tax period is January to December. If corporate taxpayers would like to use a different tax period, e.g. July to June, they
would have to obtain an approval from the DGT and then maintain the approved tax period consistently.
For individual taxpayer, DGT applies progressive tax rate, are as follows:
5%
: IDR 0,- up to IDR 50 million
15% : IDR 50 million - up to IDR 250 million
25% : IDR 250 million - up to IDR 500 million
30% : > IDR 500 million
The above rate is only for an individual who resides in Indonesia for more than 183 days within 12 months period or and an individual who within a
particular year is present in Indonesia and intends to reside in Indonesia.

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Withholding Taxes
The rates of withholding tax is vary depend on the nature of income source. The maximum withholding tax rate for domestic taxpayer is up to 15%.
While, withholding tax rate for employee is same as individual taxpayer. Payments to overseas on certain sources of income may be liable to
withholding tax of 20%. However, a reduced WHT rate maybe applicable where a tax treaty is applied.
Tax Administration
Tax liabilities for a particular period or year must be paid to the State Treasury through a designated tax-payment and then accounted for at the tax
office through the filling of the relevant tax returns.
The monthly income tax liabilites must be paid every 10th or 15th day of the following month. For VAT, the payment must be settled before the VAT
return is filed. VAT return filing is done on a monthly basis by the end of the following month.
Late tax payments incur penalties at 2% per month while for late reporting, the penalties are IDR 100,000 per month for monthly tax reporting and
IDR 1,000,000 for corporate tax return.
Value Added Tax (VAT) and Luxury goods Sales Tax (LST)
VAT is applicable on deliveries (sales) of good and services within Indonesia at a rate of 10%. VAT on export of foods is zero rated while the import is
subject to VAT at a rate 10%. VAT from their customers or clients can be recognised as input VAT. An excess of VAT input maybe carried forward. The
penalties for late reporting IDR 500,000 per month.
Some goods are subject to LST upon import or delivery by the manufacturer to another party at rates ranging from 10% to 200%.

Audit and Accountancy

Business are required to maintain accounting records properly. In Indonesia, the financial statements must be prepared according to Indonesian
Financial Accounting Standards (SAK is the local acronym), which are adopted from International Financial Repoting Standards (IFRS).
Accounting period
Generally, business entities use the 1 January to 31 December as their accounting period.
Bookkeeping currency
Accounting books and financial statements are prepared using the company's functional currency. Most business entities are using Indonesian
Rupiah as their functional currency. However, there a number of companies are using functional currency other than Rupiah.
For tax purpose, the prevailing tax regulation only allows a company to use US Dollar currency. The company should obtain approval from the tax
authority before use US Dollar currency in their bookkeeping.

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Bookkeeping languange
By law, all accounting books records and financial statements should be prepared in Indonesian language. A company is allowed to use othe
languanges only after get an approval from the Minister of Finance.
Accounting Standards
There are three accounting standards as company's guidance to prepare its financial statement:
1. Financial Accounting Standards (SAK is the local acronym), which are adopted from International Financial Repoting Standards (IFRS).
2. SAK for no Public Accountability (SAK ETAP), which is simpler than the full SAK.
3. Islamic Accounting Standards (Syariah SAK).
Generally, only SAK and SAK ETAP frequently used. But for the listed company and entity that need public accountability, Financial Accounting
Standards (SAK) is mandatory.
Audited Financial Statements
The Minister of Trade requires the filling of the audited financial statements for every limited liability that meets the following criteria:
The entity is a listed company
The entity is utilising public funds
The entity has issued obligations or promisory note
The entity has total assets exceeding IDR 50 Billion.

Contacts
Fransiskus Johannes
Accounting and Business Advisory Partner
fransiskus.js@hirdikonsulindo.com
Address: WTC 5 Building, Level 3A, Wisma Metropolitan
Jl. Jendral Sudirman Kav. 29 - 31,
Jakarta, 12920
Tel: +62-21 2598 5213
Website: www.hirdikonsulindo.com

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