Realities of starting a business in Indonesia

Indonesia is becoming ever more popular with aspiring expat entrepreneurs for its lifestyle business opportunities as well as its investment possibilities.

Indonesia’s potential as a business hub is being taken up big-time by corporate giants, but there’s still plenty of room left for small start-ups and entrepreneurial ideas. As with many developing countries, bureaucratic necessities may be somewhat confusing, but in reality there are many more myths about establishing a business than there are actual problems.

Rumours and reports of difficulties circulate regularly amongst Indonesia’s expanding expat community but are rarely based on fact, with outdated or misguided information the usual culprit. One popular misconception is that every expat business start-up must have a local shareholder to be considered legitimate. In the real world, the majority of business sectors are fully open to expat ownership.

For example, foreigners are permitted to set up totally expat-owned real estate and trading companies, including in the tourism industry. Hotels with a three-star or more rating can be fully managed by foreigners, with only the lower end of the sector needing just 33 per cent of Indonesian shareholders. Usually, total foreign shareholding depends on the classification of the proposed business, with the list of restricted industries updated every three years to reflect changing circumstances. The list is there simply to protect smaller, often traditional businesses from foreign competition.

As regards partnerships, it’s true locals have a less onerous start-up capital requirement than do expats, but asset control does occasionally cause issues, especially if the expat partner isn’t allowed a say. Some use partnerships to secure residence permits or company registration, with consulting a local lawyer the best way to clarify any issues. Indonesian regulations do seem to change almost overnight, but secure, legal alternatives to partnerships do exist and can be used.

One thing best avoided at any cost is the insecurity of nominee agreements. This is one of the dodgiest ways to start a business anywhere in the world, especially when the nominee is your wife or hopefully long-term partner. Should the relationship fail, you’ll be left with no claim on any aspect of your business, especially its bank account.