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Summary of Essential Investment Gateway into Indonesia (EIGI)

Core Content

The Essential Investment Gateway into Indonesia (EIGI) is a publication by Deloitte Indonesia, aimed at providing investors with a comprehensive overview of the investment landscape in Indonesia. It covers key aspects such as the country's economic and demographic profile, investment climate, industry opportunities, and legal and regulatory frameworks for setting up and operating a business.

Main Points

1. Introduction to Indonesia

• Country Overview: Indonesia is the fourth most populous country in the world with a population of 258 million (as of July 2016). It is a constitutional democracy with an executive presidency.
• Demographics:
  • Over 60% of the population is aged between 20 and 65, indicating a dynamic and productive workforce.
  • Around 52% of the population resides in urban areas.
  • Indonesia's population constitutes over 39% of the total population of Southeast Asian countries.
• Economic Growth: Indonesia has shown stable economic growth, with a real GDP growth of 5.2% in 2016. The government aims to increase GDP by launching economic policy packages.
• Investment Climate:
  • Indonesia is considered a MINT economy (Mexico, Indonesia, Nigeria, Turkey), attractive to long-term investors.
  • The country has a low debt-to-GDP ratio (under 26% by 2013), and its credit ratings (BBB- by Fitch, Baa3 by Moody's, BB+ by S&P) are stable.
  • The government has implemented measures to attract both domestic and foreign investment, including one-stop services and tax incentives.
• Industry Overview and Opportunities:
  • The economy is well-balanced with major sectors including agriculture, manufacturing, and services.
  • The government is focusing on infrastructure development, including roads, ports, airports, and railways.
  • Priority sectors include e-commerce, tourism, and special economic zones (SEZs).

2. Investment Stages

• The publication outlines five stages of organizational evolution that businesses may go through, helping investors understand the progression of their ventures in the Indonesian market.

3. Company Establishment

• General Investment Policy: Indonesia has joined several free trade agreements, including the ASEAN-China and ASEAN-South Korea Free Trade Agreements, enhancing its trade and investment environment.
• Price Controls: Certain commodities and services are subject to administered pricing, such as petroleum, electricity, and rice.
• Intellectual Property: Indonesia recognizes patents, trademarks, copyrights, and industrial designs. Legal mechanisms for dispute resolution include commercial courts and arbitration.
• Banking and Financing:
  • The Banking Law allows for two types of traditional banks: general commercial banks and rural banks (BPRs).
  • Foreign investors can establish a Foreign Representative Office (RO) or a Foreign Investment Company (PT PMA).
  • The Investment Law guarantees equal treatment of foreign and domestic investors and ensures that foreign investments are not nationalized without compensation.
• Exchange Controls:
  • The rupiah (IDR) is freely convertible, but large transfers require approval from Bank Indonesia.
  • Specific reporting requirements apply to financial institutions and non-financial entities for foreign currency transactions.

4. Audit and Compliance

• Accounting Period: The accounting period is typically aligned with the fiscal year.
• Currency: Transactions must be conducted in IDR unless exempt.
• Language and Standards: Bahasa Indonesia is the official language, and accounting standards are aligned with international practices.
• Audit Requirements: Independent audits are required, and auditors must maintain independence to ensure compliance.

5. Labour Environment

• Employee Rights and Remuneration: Employees have rights to fair compensation and benefits, with a focus on labor-management relations.
• Wages and Benefits: Minimum wages vary by province, with Jakarta having the highest.
• Termination of Employment: There are regulations regarding the termination of employment contracts.
• Employment of Foreigners: Foreign workers are permitted, subject to certain conditions and quotas.

Key Information

• Economic Growth: Indonesia's GDP growth has remained stable, with an average of 5.2% in recent years.
• Tax Incentives: The government offers tax incentives to attract investment, including the tax amnesty program.
• Infrastructure Development: The government plans to develop 24 new strategic ports, 15 new airports, and 2,650 km of new roads.
• Investment Sectors: Priority sectors include infrastructure, agriculture, manufacturing, and digital economy.
• Legal Framework: The establishment of a company requires compliance with Company Law and Investment Law, with specific requirements for foreign investment.
• Exchange Controls: Large transfers of IDR require Bank Indonesia approval, and reporting is mandatory for financial institutions and non-financial entities.
• Minimum Wages: Minimum wages vary significantly across provinces, with Jakarta having the highest at USD 238.9 per month.

Conclusion

The EIGI serves as a guide for investors considering entering or expanding their operations in Indonesia. It highlights the country's economic potential, demographic advantages, and legal and regulatory environment, while also outlining the steps and considerations for establishing a business. The publication is a valuable resource for both domestic and international investors seeking clarity and support in their investment decisions.