Banking and Foreign Exchange System
Exchange rates are issued by the Central Bank on a daily basis for commercial banking purposes, however for tax purposes (in
calculating the Indonesian income tax liability on foreign currency income) the exchange rates are issued on a weekly basis by
the Indonesian Ministry of Finance. Foreign exchange controls do not exist currently in Indonesia however transfers of funds
exceeding USD 10,000 from and within Indonesia should be reported to the Central Bank.
Openness to Foreign Investment
Indonesia encourages private sector-led growth and foreign investment. Investors have reduced investment in the last few
years, with balance of payment statistics continuing to reveal net negative investment flows.
Foreign investment approvals in 2002 declined to USD 9.8 billion, from USD 15 billion and USD 16 billion for 2001 and 2000,
respectively. Investment approvals for Indonesian firms trended even more steeply downward, amounting in 2002 to only USD
2.8 billion, from USD 5.8 billion and USD 11 billion in 2001 and 2000, respectively.
Indonesia counts three categories for new investment, expansions, and changes in status, which inflate investment approval
figures. Changes in status occur when a foreign investor purchases a domestic company, either partially or wholly, in which
case the entire equity of the Indonesian firm is added to the investment approval totals. Recent privatisation sales greatly
increased the amounts in the change in status category and resulted in inflated investment figures for 2002.
Draft Investment Law
Indonesia’s cabinet has not yet approved a new investment law to replace the existing law of 1967. The draft law provides for
equal treatment of domestic and foreign investors, as well as a range of incentives, including tax holidays. It also creates a
‘one-stop shop’, concentrating investment approvals for all sectors within the Capital Investment Coordinating Board (BKPM).
Under Indonesia’s current investment law, the BKPM plays a key role in promoting foreign investment and approving many
project proposals, including investments in Bonded Zones (Kawasan Berikat) and Integrated Economic Zones (KAPET).
However, the Ministry of Industry and Trade and relevant technical government departments responsible for oil and gas,
banking and insurance industries also have investment approval powers, leading to confusion among potential investors.
Investors may also apply for investment approvals with Indonesian embassies abroad or provincial Regional Capital Investment
Coordinating Boards (Bipeds). Regional autonomy legislation also appears to permit each province, district and city to accept
and approve investment applications. Therefore, additional regulations are needed to clarify the situation.
Following the economic and financial crisis that hit the nation in 1997, the Indonesian government recognised the important role
that foreign investment needed to play in the reconstruction of the economy. During following years, successive governments
enacted legal regulatory reforms designed to facilitate the process of investing in Indonesia and thereby increase the country’s
competitiveness as a destination for foreign direct investment.
The Role of the BKPM
Foreign direct investment in the manufacturing, industrial or non-financial services sectors is licensed by BKPM. Investment in
the areas of banking, insurance, general mining, oil and natural exploration, production and related activities are licensed by
other regulatory bodies.
Here We Are |
![]() Indonesia – A Brief Profile |
It is also the world’s largest Islamic nation, where a constitutional freedom to practice other religions sees major groups of Christians, Buddhists, Hindus and other faiths existing side by side. There are approximately 336 distinct recognised cultures that share more than 250 spoken languages. The lingua franca, Bahasa Indonesia, was adopted only 77 years ago and is now widely used throughout this vast land, serving as a means of communication and as a unifying factor. Indonesia is diverse and is among the most culturally rich countries on Earth. Add to this its enormous 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, the Indonesian government recognised the important role that foreign investment needed to play in the reconstruction of the Indonesian economy. During following years, successive governments enacted legal and regulatory reforms designed to make Indonesia a competitive destination for foreign direct investment. Acceleration of Economic Growth and Trade The Central Statistic Agency (BPS) announced that Indonesia’s GDP grew 5.60% in 2005. Per capita income rose to IDR 12.45 million from IDR 10.64 million in 2004. BPS also announced that Indonesia’s exports grew by 19.53% compare to the previous year. Meanwhile, total imports increased by almost 24% in 2005 to USD 57.6 billion. Batam Free Trade Zone (FTZ) The government decided against a proposal to turn the entire Batam Islands area into a single FTZ. Instead, it will specify bonded zones into which businesses can import goods duty free. The government also noted that export businesses outside the bonded zones could still make use of bonded warehouses, as the status of the neighbouring Rempang and Galang Islands (the islands closest to Batam) has been decided by the government. The Batam Authority, which governs Batam and has overseen its rapid economic development, argued that the bonded zone scheme would confuse investors and lead to local government workload. However, local authorities claimed that bonded zones would enable them to better govern Batam as mandated under Indonesia’s decentralisation laws. Legal System The court system does not provide effective recourse for resolving commercial disputes. The judiciary is nominally independent under the law, however legal practitioners fear that irregular payments and other collusive practices often influence case preparation and the judicial ruling. The government recognises the need for judicial reform but has not yet taken any action. In several instances the local courts accepted jurisdiction over commercial disputes despite contractual arbitration clauses calling for adjudication in foreign venues. Indonesia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). So far only one American investment company has brought a case to the ICSID, which ruled in its favour. Indonesia’s Arbitration Law recognises the right of parties to apply any rules of arbitration that they may mutually agree upon and provides default procedural rules if no other rules have been designated. An Indonesian commercial arbitration board, BANI, is available if both parties agree. Companies have resorted to ad hoc arbitrations in Indonesia using the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, as well as others. Other companies in Indonesia have used International Criminal Court (ICC) arbitrations. On 12 August 1999, Indonesia’s Parliament passed Arbitration Law Number 30, endowing the District Court of Central Jakarta with the power to enforce international arbitration awards. Before passage of the new arbitration law in 1999, enforcement lay with the Supreme Court, which was slow to act on decisions. Since 1999, Indonesian courts have swiftly enforced international arbitration awards – some have been executed within a month of the request for enforcement. The new law greatly reduces instances where district courts fail to apply the law, and legal practitioners predict that the process should improve as more judges educate themselves about arbitration. Since 1981, when Indonesia joined the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York), fewer than two dozen foreign awards have registered with Indonesian courts (most of which have been enforced). The domestic and international press have widely publicised recent cases where those awards have not been enforced. Right to Private Ownership and Establishment Indonesia recognises the right to private ownership and establishment and relies on the private sector (albeit often heavily protected) as the principal engine of economic growth. At the same time State-owned Enterprises (SOEs) play a dominant role in many sectors, including oil and gas retail and distribution, electric power generation and transmission, civil aviation, banking, and fertiliser production and wholesale distribution. In the past three years Indonesia has promoted competition in some sectors and has decreased the privileges awarded to SOEs. The Parliament formed the State Ministry for SOEs in 1998; privatisation is an important part of its mandate but political opposition has effectively hindered such attempts. Some provincial governments have improved the management and transparency of provincially owned firms (BUMDs) in order to stem losses and prepare them for privatisation. It is also the world’s largest Islamic nation, where a constitutional freedom to practice other religions sees major groups of Christians, Buddhists, Hindus and other faiths existing side by side. There are approximately 336 distinct recognised cultures that share more than 250 spoken languages. The lingua franca, Bahasa Indonesia, was adopted only 77 years ago and is now widely used throughout this vast land, serving as a means of communication and as a unifying factor. Indonesia is diverse and is among the most culturally rich countries on Earth. Add to this its enormous 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, the Indonesian government recognised the important role that foreign investment needed to play in the reconstruction of the Indonesian economy. During following years, successive governments enacted legal and regulatory reforms designed to make Indonesia a competitive destination for foreign direct investment. Acceleration of Economic Growth and Trade The Central Statistic Agency (BPS) announced that Indonesia’s GDP grew 5.60% in 2005. Per capita income rose to IDR 12.45 million from IDR 10.64 million in 2004. BPS also announced that Indonesia’s exports grew by 19.53% compare to the previous year. Meanwhile, total imports increased by almost 24% in 2005 to USD 57.6 billion. Batam Free Trade Zone (FTZ) The government decided against a proposal to turn the entire Batam Islands area into a single FTZ. Instead, it will specify bonded zones into which businesses can import goods duty free. The government also noted that export businesses outside the bonded zones could still make use of bonded warehouses, as the status of the neighbouring Rempang and Galang Islands (the islands closest to Batam) has been decided by the government. The Batam Authority, which governs Batam and has overseen its rapid economic development, argued that the bonded zone scheme would confuse investors and lead to local government workload. However, local authorities claimed that bonded zones would enable them to better govern Batam as mandated under Indonesia’s decentralisation laws. Legal System The court system does not provide effective recourse for resolving commercial disputes. The judiciary is nominally independent under the law, however legal practitioners fear that irregular payments and other collusive practices often influence case preparation and the judicial ruling. The government recognises the need for judicial reform but has not yet taken any action. In several instances the local courts accepted jurisdiction over commercial disputes despite contractual arbitration clauses calling for adjudication in foreign venues. Indonesia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). So far only one American investment company has brought a case to the ICSID, which ruled in its favour. Indonesia’s Arbitration Law recognises the right of parties to apply any rules of arbitration that they may mutually agree upon and provides default procedural rules if no other rules have been designated. An Indonesian commercial arbitration board, BANI, is available if both parties agree. Companies have resorted to ad hoc arbitrations in Indonesia using the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, as well as others. Other companies in Indonesia have used International Criminal Court (ICC) arbitrations. On 12 August 1999, Indonesia’s Parliament passed Arbitration Law Number 30, endowing the District Court of Central Jakarta with the power to enforce international arbitration awards. Before passage of the new arbitration law in 1999, enforcement lay with the Supreme Court, which was slow to act on decisions. Since 1999, Indonesian courts have swiftly enforced international arbitration awards – some have been executed within a month of the request for enforcement. The new law greatly reduces instances where district courts fail to apply the law, and legal practitioners predict that the process should improve as more judges educate themselves about arbitration. Since 1981, when Indonesia joined the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York), fewer than two dozen foreign awards have registered with Indonesian courts (most of which have been enforced). The domestic and international press have widely publicised recent cases where those awards have not been enforced. Right to Private Ownership and Establishment Indonesia recognises the right to private ownership and establishment and relies on the private sector (albeit often heavily protected) as the principal engine of economic growth. At the same time State-owned Enterprises (SOEs) play a dominant role in many sectors, including oil and gas retail and distribution, electric power generation and transmission, civil aviation, banking, and fertiliser production and wholesale distribution. In the past three years Indonesia has promoted competition in some sectors and has decreased the privileges awarded to SOEs. The Parliament formed the State Ministry for SOEs in 1998; privatisation is an important part of its mandate but political opposition has effectively hindered such attempts. Some provincial governments have improved the management and transparency of provincially owned firms (BUMDs) in order to stem losses and prepare them for privatisation. It is also the world’s largest Islamic nation, where a constitutional freedom to practice other religions sees major groups of Christians, Buddhists, Hindus and other faiths existing side by side. There are approximately 336 distinct recognised cultures that share more than 250 spoken languages. The lingua franca, Bahasa Indonesia, was adopted only 77 years ago and is now widely used throughout this vast land, serving as a means of communication and as a unifying factor. Indonesia is diverse and is among the most culturally rich countries on Earth. Add to this its enormous 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, the Indonesian government recognised the important role that foreign investment needed to play in the reconstruction of the Indonesian economy. During following years, successive governments enacted legal and regulatory reforms designed to make Indonesia a competitive destination for foreign direct investment. Acceleration of Economic Growth and Trade The Central Statistic Agency (BPS) announced that Indonesia’s GDP grew 5.60% in 2005. Per capita income rose to IDR 12.45 million from IDR 10.64 million in 2004. BPS also announced that Indonesia’s exports grew by 19.53% compare to the previous year. Meanwhile, total imports increased by almost 24% in 2005 to USD 57.6 billion. Batam Free Trade Zone (FTZ) The government decided against a proposal to turn the entire Batam Islands area into a single FTZ. Instead, it will specify bonded zones into which businesses can import goods duty free. The government also noted that export businesses outside the bonded zones could still make use of bonded warehouses, as the status of the neighbouring Rempang and Galang Islands (the islands closest to Batam) has been decided by the government. The Batam Authority, which governs Batam and has overseen its rapid economic development, argued that the bonded zone scheme would confuse investors and lead to local government workload. However, local authorities claimed that bonded zoneswould enable them to better govern Batam as mandated under Indonesia’s decentralisation laws. Legal System The court system does not provide effective recourse for resolving commercial disputes. Thejudiciary is nominally independent under the law, however legal practitioners fear that irregular payments and other collusive practices often influence case preparation and the judicial ruling. The government recognises the need for judicial reform but has not yet taken any action. In several instances the local courts accepted jurisdiction over commercial disputes despite contractual arbitration clauses calling foradjudication in foreign venues. Indonesia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). So far only one American investment company has brought a case to the ICSID, which ruled in its favour. Indonesia’s Arbitration Law recognises the right of parties to apply any rules of arbitration that they may mutually agree upon and provides default procedural rules if no other rules have been designated. An Indonesian commercial arbitration board, BANI, is available if both parties agree. Companies have resorted to ad hoc arbitrations in Indonesia using the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, as well as others. Other companies in Indonesia have used International Criminal Court (ICC) arbitrations. On 12 August 1999, Indonesia’s Parliament passed Arbitration Law Number 30, endowing the District Court of Central Jakarta with the power to enforce international arbitration awards. Before passage of the new arbitration law in 1999, enforcement lay with the Supreme Court, which was slow to act on decisions. Since 1999, Indonesian courts have swiftly enforced international arbitration awards – some have been executed within a month of the request for enforcement. The new law greatly reduces instances where district courts fail to apply the law, and legal practitioners predict that the process should improve as more judges educate themselves about arbitration. Since 1981, when Indonesia joined the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York), fewer than two dozen foreign awards have registered with Indonesian courts (most of which have been enforced). The domestic and international press have widely publicised recent cases where those awards have not been enforced. Right to Private Ownership and Establishment Indonesia recognises the right to private ownership and establishment and relies on the private sector (albeit often heavily protected) as the principal engine of economic growth. At the same time State-owned Enterprises (SOEs) play a dominant role in many sectors, including oil and gas retail and distribution, electric power generation and transmission, civil aviation, banking, and fertiliser production and wholesale distribution. In the past three years Indonesia has promoted competition in some sectors and has decreased the privileges awarded to SOEs. The Parliament formed the State Ministry for SOEs in 1998; privatisation is an important part of its mandate but political opposition has effectively hindered such attempts. Some provincial governments have improved the management and transparency of provincially owned firms (BUMDs) in order to stem losses and prepare them for privatisation. |
Setting Up a Bussiness
|
Immigration and employment of expatriates
Visas
Indonesia issues a range of different classes of visa depending on the purpose of a foreigner’s visit. Short visit visas valid for 60
days may be issued on arrival at an official entry point to passport holders from most developed and neighboring countries. The
passport’s continuing validity should be at least six months.
Business visas may be issued for business visits not including work. Business visas are issued by Indonesian embassies
overseas, based on a letter of invitation from the party to be visited. Business visas may be renewed, once in the country, for up
to a maximum of six months.
Foreigners intending to take up employment in Indonesia, together with any foreign dependents, should apply for a KITAS or
semi?permanent residence visa. While much of the preparatory work is done in Indonesia, the visas are issued by embassies
overseas based on a temporary stay visa, or ‘VITAS’, issued by the immigration authorities in Jakarta. A KITAS visa is issued for
a year, but may be renewed for up to four years after which a fresh application is required.
Work permits
All foreigners planning to work in Indonesia must obtain a work permit in addition to a KITAS visa. Work permits are issued by
the Department of Manpower approximately concurrently with the VITAS visa. Employment of foreigners must be in the context
of an approved manpower plan. Many expatriates are employed as technical advisers. The BKPM will approve a certain number
of positions for expatriates as contained in the investment application.
Other requirements
All foreign residents must also hold a ‘police pass’. Work permit holders must pay in advance an annual training levy of USD
1,200 before issue or renewal of the work permit. All foreigners holding a KITAS visa require a valid exit/re?entry visa to leave
and return to Indonesia. A final ‘exit permit only’ is required when a work permit is to be cancelled or will not be renewed.
Drs. Thomas, Blasius, Widartoyo & Rekan, Certified Public Accountants provider of accounting, taxation and business consulting and other related professional services. We’re the professional services firm for companies on the move. Whether it’s accounting, tax or business consulting, we’re focused on listening to your needs, then designing solutions that fit your budget, your timeline, your corporate culture and vision. |
Tax system New laws The current framework of Indonesia’s tax laws dates from 1983 with subsequent revisions, most recently in 2000. 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 buildings and the law on stamp duty. Individual articles contained in the laws may be supported by implementing regulations and decrees, government regulations and decrees of the Directorate General of Taxation. The government is committed to a greater intensification of tax collection including increasing the number of registered taxpayers.Income tax Income tax is applied to resident corporations and individuals on most sources of increase in economic wealth. Income tax is collected both directly and at source through a wide range of withholding taxes, constituting advanced payments of taxation. An exception is local bank time deposit interest, taxable at 20% as final tax.Withholding taxes The rates of withholding tax vary according to the nature of the income source. Rates for domestic payments extend up to 15%. Payments made overseas on certain sources of income may be liable to withholding tax of up to 20%. Applicable tax treaties may reduce the rate of withholding tax.Tax rates Progressive rates of income tax for individuals rise up to a top rate of 35% applicable to annual taxable incomes in excess of IDR 200 million (approximately USD 20,000). The top rate of corporate income tax is 30% applicable to taxable incomes of more than IDR 100 million (USD 10,000). Residents are liable to tax on their worldwide income from all sources. A recent stipulation is the requirement for most individuals, including resident expatriates, to file individual tax returns. Calculation of Taxable Income Payment of Taxes Value Added Tax Sales Tax on Luxury Goods Special Industry Rules Tax Treaties |
Accounting & Reporting
|
Overview of Accounting Practice and Environment
The history of Indonesian Generally Accepted Accounting Principles began when the Indonesian Accountants Association
(abbreviated to IAI), established in 1957, was appointed by the Government of Indonesia in 1984 to develop accounting
standards in Indonesia to be used mostly for Limited Liability Partnership.
IAI then established a committee to develop accounting standards in Indonesia. This committee, which is responsible for
developing and implementing the accounting standards, is called Dewan Standar Akuntansi Keuangan (DSAK).
Over the years, IAI has developed many accounting standards for various types of business practices in Indonesia. In October
2004, DSAK developed Indonesian Generally Accepted Accounting Principles that consist of Accounting Methods and Procedures
for Financial Statements, Accounting Methods and Procedures for Financial Statement of Islamic Banking, 59 Statements of
Financial Accounting Standards, and seven Interpretations.
The Indonesian Statement of Financial Accounting Standards is mostly based on the International Accounting Standards (IAS),
which was recently changed to International Financial Reporting Standards (IFRS). The second major source of The Indonesian
Statement of Financial Accounting Standards is the United States Generally Accepted Accounting Principles. In addition to the
above two sources, IAI also pronounces their own Statement of Financial Accounting Standards such as Accounting Standard
for Indonesian Venture Capital, Accounting Standard for Mining Industry, and Accounting Standard for Islamic Banking.
The 59 Statements of Financial Accounting Standards consist of 43 General Statements, 15 statements for specific industries
and one statement revised and merged with other General Statements.
Other than IAI, the Government of Indonesia also appointed BAPEPAM (Indonesian Securities Exchange Commission) to
establish additional regulations, besides those established by IAI, designed specifically for publicly held corporations.
Presentation of Financial Statements
In compliance with government regulation, every limited liability partnership in Indonesia should prepare its Financial
Statements in accordance with the Financial Accounting Standards established by the Indonesian Accountants Association.
The Indone
sian Financial Accounting Standards require that Financial Statements consist of an Income Statement, Balance Sheet,
Statement of Equity, and a Note to the Financial Statement.
With the exception of the Cash Flow Statement, Financial Statements must be prepared based on the accrual basis, and on the
assumption that the company will remain in operation for the foreseeable future.
Financial Statements should be prepared annually and audited by a registered public accounting firm if the company meets any
one of the following criteria:
o The company is utilising public funds.
o The company has issued obligations.
o The company is a publicly held corporation.
The Audited Financial Statements of a company that meets one of the criteria above should then be verified and signed by the
Board of Directors, and published in the local Indonesian newspaper.
Moreover, the Minister of Trade and Commerce requires the filling of the audited financial statements for every limited liability
partnership that meets the following criteria:
o The entity is a publicly held corporation.
o The entity is utilising public funds.
o The entity has issued obligations or promissory note.
o The entity has total assets exceeding IDR 50,000,000,000.