Understanding Indonesia's 2019 Economy for a Successful Company Formation

Understanding Indonesia’s 2019 Economy for a Successful Company Formation

Expansion of investments in public infrastructure, bilateral free trade agreements, competitive FDI incentives are some of the strategies implemented by the Indonesia government. Despite global headwinds, these methods were proven effective since the country’s economic growth rate is up by 5.18% in the Q4 of 2018.

However, this year may be quite a challenge for the country. With the ongoing US-China trade war and continued depreciation of the Rupiah, the economic growth may be modest for Indonesia in 2019.  US and China are Indonesia’s biggest trading partners. Every 1% economic decline of these two countries negatively affect Indonesia by 0.05% and 0.11% respectively [GBG Indonesia].

Fortunately, domestic demand should continue to drive the economy for the year. Additionally, private consumption supported by a strong labour market will help push the country’s economic growth. Moreover, the Bank Indonesia (BI) will implement policies focusing on Rupiah exchange rate stability. It will also continue to develop a payment system policy to efficient and secure cash and non-cash payments.

Amidst the global economic volatilities that affect Indonesia, the government is confident and determined to implement strategies to bolster the country’s growth.

So, what are the benefits of the new policies to investors who intend to venture in Indonesia’s business climate? Keep reading to understand how you can have an effective company formation in Indonesia.

Why Invest in Indonesia’s Economy?

Depreciation of the Rupiah may be viewed as a setback. But, for investors, it is an excellent opportunity since Indonesian stocks and securities are undervalued. In an economic perspective, this depreciation is a way to curb imports and increase export competitiveness.

In order to attract FDI and bolster Indonesia’s growth, the government is offering different incentives and policies that are beneficial to foreign companies. Here are some of the reasons as to why 2019 is a great time to invest in Indonesia:

New Tax Holiday Policy

Indonesian Tax Chief Robert Pakpahan said that the new tax holiday is more attractive for investors. 18 business sectors are now eligible for tax holidays compared to 17 industries in the previous scheme.  Moreover, the minimum investment was lowered to Rp 100 billion (USD 6.97million). Known as a “mini tax holiday” investors get a 50% CIT cut for 5 years.

This new scheme can now be availed by new and existing companies. For comparison, here’s the old and new tax holiday scheme of the Indonesia Government:

 

New Tax Holiday Policy

Source: Indonesia Investments

In addition, the government has also implemented a new tax holiday allowance for established companies:

Benefits Tax Holiday AllowanceSource: ASEAN Briefing

Easier Licensing System

To streamline business licensing processes, the Indonesian government implemented Government Regulation 24 of 2018 (GR 24/2018). This helps to reduce the lead time in completing investments and starting a business.

Now, what makes this an excellent opportunity for foreign investment companies is that it abolishes the requirement to obtain prior approvals from the Investment Coordinating Board. Their new Online Single Submission System (OSS System) is intended as an approval and audit system so foreign companies now only need to notify investment activities in one online portal.

Investing in the Creative Industry

Indonesia’s creative industry is one of the sectors that manifested consistent growth. It has a growth record of IDR 922.58 trillion (USD 64.7billion) or 7.44% of the country’s GDP. Expediting the development of this industry led to the establishment of  Indonesia’s Creative Economy Agency (BEKRAF).

As such, the agency introduced a framework for Investment Readiness Levels (IRL). This serves as a reference for investors who are planning to invest in the said industry.

Seek Experts before Forming a Company in Indonesia

With the trade war between the US and China and other external challenges, Indonesia’s growth and development are affected. Thus, before venturing into Indonesia, it is best to seek out experts in this area. These professionals will provide advice and guidance on how to have an efficient business registration.

Contact company formation experts to get a free consultation on what foreign entrepreneurs and investors need to know about Indonesia’s business environment.

 

References

Indonesia’s Economic Outlook Improves with Stability Maintained, Bi.go.id

Indonesia: What happened in 2018 and significant events in 2019, Linklaters.com

Indonesia’s Investment Outlook for 2019, Aseanbriefing.com

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