If you’re a foreigner thinking of starting a business in Bali, you’ve come to the right place. If living and working on a tropical island is your dream, then setting up a lifestyle business in paradise could well be the realisation of your dream.
Why NOW is a good time to start a business in Bali
Bali’s thriving business economy has long been a rich and fruitful ground for local and expat start-ups, and Pre-Covid, the number of foreign investors and foreign direct investments (FDI) was climbing at a steady rate. You may be thinking that the pandemic has changed all of that, and indeed, since February 2020, COVID-19 has hit Bali’s economy really hard, most notably in the tourism sector. Travelling to Bali, especially for foreigners, has been very restricted, many businesses have been forced to close down, and sadly many of these may never reopen. Yet this is also a remarkable opportunity for anyone wishing to set up company in Bali as there will be less competition from other entrepreneurs looking to start a similar business. You will also have the chance to lease land and property for the long term at a cheaper price than before the pandemic, making this a good time to open a new business in Bali because when the island’s tourism picks up and booms again, which it will, you will be in the best position to make your business profitable. Furthermore, by opening a foreign investment company, or PMA, you will be providing jobs for the local people who are struggling to live day-to-day because of the pandemic.
Starting and operating a business in Bali is daunting, but with the help of GRO-Indonesia, a one-stop shop that provides guidance, advice, notarial services; visa services, company formation, and business licences and permits, the process is not as complicated as you might believe.
The importance of obtaining one hundred percent legitimate legal status
While we agree that Bali is a tropical paradise, we need to remember that the Indonesian government takes its visa laws very seriously and will require all of the correct paperwork. If your visa expires before you leave the country, you could be liable for a fine of 1 million IDR (US$70) per day and risk being detained, jailed, or deported. As a foreigner In Bali, and indeed throughout Indonesia, you cannot just start up a company, or even work for one, without obtaining all of the required legal documents. It should be noted that the Government of Indonesia has a policy that promotes hiring locals over foreigners. What this means is that you will not be able to arrive in Bali / Indonesia on a tourist visa and legally commit your time to anything that is work related, even if it is unpaid work. In fact, as a foreigner, you are not allowed to volunteer if you do not have a proper working visa.
If you work for a company, even if it is on an unpaid, voluntary basis, you will need a KITAS, which is your residential permit in Indonesia, and an IMTA, which is the working permit. Both the KITAS and the IMTA are generally taken care of by the company you have applied to work for. If you wish to own a business or company in Indonesia / Bali you will need an investor’s permit, which comes with more restrictions. As a foreigner, you must not engage in any work activity until the proper work permit and visa are issued by the immigration authorities. Furthermore, you should note that you also risk deportation for performing functions that are not represented by your KITAS title. The Government of Indonesia is strict on enforcing these rules.
Key factors that you need to consider before starting a business in Bali
Before you begin the process of starting your business, there are some key factors you will need to consider. It’s important to know that foreigners are only allowed to open certain types of businesses or sectors in Bali, which will generate jobs and opportunities for the locals. Whether a certain field of business is open for your business to engage in, and to what extent foreign shareholding is permitted, is regulated under the Indonesia Positive Investment List, which is regularly reviewed by the Indonesian government. Foreign ownership limits within the different sectors range from zero to ninety-five percent but don’t let this deter you. There are specific industries, which are open for full foreign ownership, and you are still allowed to have local business partners for the restricted sectors.
Indonesia’s Business Culture
Another very important factor that you need to consider when running a business in Bali, is the way in which Indonesia’s cultural norms and shared values, namely the family, social harmony, and religion, are pervasive within its business and social culture. There is a massive ethnic, religious, and cultural diversity in Indonesia because the country is home to a diversification of different religions, customs and beliefs, and an understanding and respect for these local beliefs is crucial. The expectation of respect towards elders and different communication styles is an area that foreigners doing business in Indonesia may find different from what they are used to. Understanding how your Indonesian colleagues think and behave in the context of the cultural diversity of their society will help you to successfully navigate Indonesian social and business culture.
In order to set up your own business in Bali, you will need to acquire a KITAS visa for long-term residency, open a bank account and make regular transactions to demonstrate that you are investing in Bali from day one. This will give you credibility with the business community; it will show that you’re serious about starting a business in Bali and intend to set up your business legally. You can either own one hundred percent of the company yourself or work with a business partner in Indonesia.
The first step to starting a business as a foreigner in Indonesia is to choose your preferred company structure. The options available include:
- Foreign Limited Liability Company (PT PMA)
- Local Limited Liability Companies (PT)
- Representative Office (KPPA), which is an office set up by a parent company located outside of Indonesia to take care of its business within Indonesia.
- There is also a limited liability partnership known as a CV, which can only be owned and operated by Indonesian individuals. A CV requires two individuals, both of whom must be Indonesian citizens: a managing partner and a limited partner.
Nominee Company (PT)
As a foreigner, you can open a nominee company in partnership with local businesses, which allows you to operate with a small investment. A foreigner can set up a local PT company through a local nominee arrangement in which the shares are pledged and the foreigner has full control over the company through a set of agreements. The registered shareholders are Indonesian individuals or entities. Since the nominee shareholders will be local entities the company does not have to follow the requirements of a large-scale businesses. Nominee companies are common in hospitality businesses such as restaurants, dive centres and yoga studios. Depending on the scale of your business, the minimum investment value ranges from IDR 50 million (US$3500) to IDR 10 billion (US$800,000).
Any PT with foreigners as investors and shareholders must be specifically approved by, and reported to, the foreign investment board. In a PT, the permitted activity and work of a foreigner will depend on the position of that foreigner, whether as shareholder, board member or employee.
To establish a PT, you will need two shareholders, one local Director, and one Commissioner. Note that this type of company only allows one hundred percent Indonesian citizen ownership. Therefore, in order to set it up, you will need a local nominee, and you cannot gain one hundred percent control or ownership this way. However, you can still gain control over most of the business process of the PT by owning the PT’s shares. Whether a foreigner can be sponsored as an employee depends on certain requirements including the intended work position and the minimum ratio between foreign and Indonesian employees. Foreign employment is generally limited to expert qualified positions, which must be proven by diplomas. Certain job positions are not permitted for foreigners. Every work permit and visa is specific and limited to the approved position and term.
Foreign-Owned Company (PT PMA)
Indonesian law allows you to set up a foreign investment company or PT PMA with limited liability protection. This is the legal entity through which a foreign investor can conduct commercial activities in Indonesia. PT PMAs are therefore the preferred option for foreign investors in Indonesia. One hundred percent foreign ownership is allowed with this structure, or it can be partially foreign-owned, and you are allowed to employ foreign workers as well. To set up a PT PMA in Indonesia, you will need to meet the following requirements:
- You need to have at least one director and one commissioner. Either one must be a local Indonesian.
- You will also need at least two shareholders, and at least one of these should be a foreigner.
- As a foreigner setting up a PT PMA, you will need to obtain a tax number (NPWP) and a KITAS work permit.
- To establish a PT PMA, you will need to comply with the minimum capital requirements for foreign investment, an investment plan, generating an overall investment realisation over time of at least ten billion IDR (US$800,000) in capital investment. The mandatory minimum paid-up capital requirement is at least twenty-five percent of the total required capital, i.e., currently 2.5 billion IDR (around US$200,000). Some sectors may even require a higher minimum of paid-up capital. But in practice, in most sectors, a PT PMA can be established without a foreign investor needing to transfer the paid-up capital to an Indonesian bank account. This can be done as long as the shareholders of the PT PMA sign a Capital Statement Letter declaring that the paid-up capital can be transferred if needed.
You will need a local office address to obtain your domicile letter. Residential addresses are not allowed. If you’re renting or buying business property in Bali, it’s essential you find a site with the right IMB permit. The IMB establishes what kind of business can be done at a given location. For example, an office requires a different type of IMB than a restaurant.
Establishing a PT PMA requires you to prepare a lot of legal documents and follow an often-confusing bureaucracy process. Moreover, there are a lot of requirements that should be met by the company. All of this can be taken care of by GRO-Indonesia, which provides guidance, advice, notarial services; visa services, company formation, and business licences and permits.
Generally, the type of licenses a business requires will be determined by the industry within in which it engages. There are numerous specific licenses for each industry with different government departments issuing permits for the specific business of a company.
To set up a PT PMA in Indonesia, you will require the following licenses/documents:
- A principle license and a business license from BKPM
- A Deed of Establishment that has been legalised by a public notary. This should detail the founders, the board of directors, the board of commissioners, and all shareholders.
- Legal entity status of the PT PMA by the Ministry of Law and Human Rights
- A business domicile registration from the local district authority for a physical office
- A tax identification number (NPWP) and taxable entrepreneur confirmation (PKP)
- Since 2018, a unique business identification number known as NIB from the Online Single Submission System known as OSS System.
- A company registration certificate (TDP) for integrated licensing services (BPPT)
- A Manpower report and company welfare report from the Ministry of Manpower
Once you have established your PT PTMA, be sure to always report your taxes on time, as this is something that the authorities in Indonesia keep a close eye on. You should also be aware that health insurance (BPJS) is now mandatory, and every PT PMA must report its investment activity.
Starting a business in a foreign country is always challenging. Enlisting the help of an experienced business consultancy company like GRO-Indonesia, which provides guidance, advice, notarial services; visa services, company formation, and business licences and permits, will ease the process.
