How To Get a Business License in Indonesia

If you want to start a business in Indonesia, you’ll enjoy a good business environment.

Firstly, the country boasts steady GDP growth. Indonesia also has strong foreign direct investment (FDI). Plus, it has a large and young population and a rapidly growing digital economy. Moreover, the country has made significant improvements to ease doing business recently.

However, your business journey requires a clear understanding of the legal framework. Specifically, you need to learn about Indonesian business permits and license application processes. That’s what we’ll discuss below.

Thus, dive into acquiring a business license in Indonesia and make the most out of your business idea. 

What Is a Business License in Indonesia

Start selling online today!

Conquer the world of e-commerce by creating your online store effortlessly.

Create a store

When it comes to acquiring business licenses, Indonesia has made great improvements.

In fact, the country has significantly simplified the procedures related to doing business. It ranked 40th out of 190 economies in the World Bank’s Doing Business Report in 2020. Admittedly, it still isn’t the best in the region. However, this ranking shows a good trajectory for its business environment.

If you’re considering launching a business in Indonesia, you need to learn about the types of companies there are. Specifically, there are three types of business entities:

• Local Company (PT).  Also known as Perseroan Terbatas (PT), this type requires only a small capital requirement. It also has a faster setup time compared to foreign companies. Only local entrepreneurs can incorporate this entity; no percentage of foreign ownership is allowed for a PT.
• Foreign-owned Company (PT PMA). A Penanaman Modal Asing (PT PMA) company is a wholly or partially foreign-owned limited liability company. It’s the legal method for foreign-owned businesses to operate in Indonesia. They are governed by the Indonesian Investment Law. 
• Representative Office (KPPA). A representative office is a foreign company’s liaison office in Indonesia. It can’t conduct any commercial activities. Their functions are limited to research and development, marketing, and promotional activities.

Your e-commerce license in Indonesia is your formal recognition by the Indonesian government. Whichever business entity you register for, the general process of getting a license is roughly the same.

Indonesian Business Permits. Categories and Requirements

Indonesia offers different business permits, each for different sectors and sizes of business. However, for local business licensing (or PT), you can skip straight to the application process.

But what if you’re a foreign entity seeking to invest or open a PT PMA? Then, you’ll be under the Job Creation Omnibus Law, or simply the Omnibus Law. 

Under this scheme, there are three PT PMA subcategories:

• Low-risk businesses. Companies must register their business. Then, they should get a Business Identification Number (NIB) to conduct business.
• Medium-risk businesses. Companies must follow certain business standards. Medium-low risk only need to provide a statement that they comply. 

Meanwhile, those of medium-high risk must also get a Standards Certification. They can get this from either the central or regional government. This certification confirms their fulfillment of the business standards.

• High-risk businesses. Companies are required to obtain an Indonesia business permit plus an NIB to conduct business.

These categories dictate the requirements you need to fulfill. Prepare them before you proceed with the license application process. 

Also, you might need to meet additional requirements before and after. However, to learn the specifics of your situation, company, and sector, it’s best to speak to a licensed professional.

License Application Process

The application process is relatively straightforward in Indonesia. First, you go through the Online Single Submission (OSS) System. Then, you comply with all the requirements.

Here’s a breakdown of the documentation checklist you can expect from the OSS.

• Approval of company name. First, get approval for the company name. It must have three words and should not be vulgar or obscene. Also, prepare documents such as:
  • Deed of Incorporation;
  • Articles of Association;
  • Approval of Legal Entity;
  • Domicile letter.
• Registration of Tax ID (NPWP). With the legal entity status approved, the next step is to register for a Tax Identification Number (NPWP). This is crucial for tax obligations, banking activities, and securing other company licenses.
• Application for a Nomor Induk Berusaha (NIB). Then, apply for the Business Identification Number or NIB. This is a unique company profile number for immediate operation if no more specific licenses are required. It’s also an import license and customs identification number. Moreover, if you’re planning internationally, always keep in mind the import and export duties in Indonesia.
• Obtaining Additional Licenses. Additional licenses may be required before the company starts operations. These could include commercial licenses, tourism licenses, or industry-specific permits. In other words, the additional permits depend on the nature of the business and its requirements.

The OSS system streamlines the business license issuance process.

It’s more efficient for local owners and foreign investors to enter the Indonesian market. Thus, no need for scattered application forms.

Moreover, the timeline for the entire application has now been shortened to 1 – 1.5 months.

Local Business Licensing. Authority Guidelines

In Indonesia, several local and national government authorities issue business permits and licenses.

The specific permits required depend on the nature of the business, its location, and the industry it operates in. Specifically, the three most important agencies to note are the:

• BKPM
• OSS System, and
• local government offices.

The Investment Coordinating Board (BKPM) is the central figure for streamlining business operations. Moreover, it serves both local and foreign investors. It issues:

• Initial approval for foreign investment (PT PMA) companies;
• Investment Registration (often the first step for foreign investors);
• Other related permits.

Furthermore, a critical tool for simplifying the business licensing process is the Online Single Submission (OSS) System.

The OSS System is a one-stop shop for business permit applications. Therefore, it is introduced as part of Indonesia’s ongoing regulatory reform. This also includes the crucial Business Identification Number (NIB).

Lastly, local government offices play a complementary role in the licensing ecosystem. They handle region-specific permits such as location and building permits. They ensure that businesses comply with local regulations and standards.

Submission and Documentation Review

Once submitted, the relevant government agency reviews the documentation.

The BKPM handles foreign investments, while local government offices tackle specific local permits. The review process assesses the validity of the documents against the regulatory requirements.

What if there are discrepancies or missing information? In this case, agencies may request businesses to provide additional documentation or clarification.

Businesses must comply with post-submission requirements. Specifically, these may include things like investment realization reporting and periodic renewals of certain licenses.

Renewal and Validity Periods

Different documents have different expiration dates, depending on their specific policies. Thus, the renewal and validity of business licenses vary by type and industry regulation. 

Here’s a concise summary of their validity periods.

• Business Identification Number (NIB). Permanent. There is no validity period, so no renewal is needed as long as the company adheres to legal requirements.
  
• Industry-Specific Licenses. Typically, these are valid for 1 to 5 years. Regulated sectors like finance and healthcare usually require renewal for continued operation.
  
• Environmental Licenses. These permits need review and possible updates every 3 to 5 years based on environmental assessments.
  
• Building and Location Permits (IMB and SITU). These remain valid unless there are significant changes to the premises. Modifications may necessitate reapplication.
  
• Employment of Foreign Workers (IMTA). Annual renewal is needed for each foreign worker’s permit.

Ensuring your licenses don’t expire is crucial for legal compliance. It prevents penalties and ensures uninterrupted operations. 

As a result, this proactive approach helps you navigate legal complexities smoothly. It also ensures your long-term success in the Indonesian market.

Registration Fees

For companies looking to get permits in Indonesia, business registration costs would vary. In particular, the fees are based on factors like:

• License type;
• Business size;
• Specific local and national regulations.

These fees cover specific costs. For example, processing applications, issuing licenses, and maintaining regulatory oversight. For company registration, the NIB itself may charge minimal fees.

However, related costs can accumulate. Specifically, think about notary services for incorporation documents and company domicile letters. Also, fields like finance, healthcare, and education might have additional licensing fees.

Environmental licenses can also be more expensive. For example, detailed environmental impact assessments are expensive, particularly for businesses with a large footprint.

Also, local governments set fees for building (IMB) and location (SITU) permits, so they vary widely across Indonesia’s regions.

Assessing Regulatory Compliance for Your Business

Starting with a solid understanding of compliance saves you headaches down the road. It paves the way for a successful license application. Better yet, compliance builds trust with your customer base.

Thus, here’s how you can assess regulatory compliance:

• Understand compliance requirements. First, get to know the rules about online business registration in Indonesia. Specifically, think of taxes, social contributions, and investments. What do you need, when is it due, and what happens if you don’t follow the rules? Learn everything!
  
• Establish internal controls. Set up teams to monitor your company’s money matters. Ensure things like payroll and auditing are above board. For public companies, this includes rotating accountants every three years.
• Always conduct fiscal year reporting. Submit your company’s taxes on time based on the fiscal year to avoid penalties.
• Comply with accounting standards. Your financial audits should stick to Indonesian standards. Also, submit your financial statements annually, possibly in two languages if required.
• Always be ready for inspections. Welcome government inspections with open records and transparency. It’s vital for a positive relationship with regulatory bodies.
  
• Be aware of penalties for non-compliance. Lastly, remember that not sticking to the rules leads to fines. You might also get jail time for serious offenses like false tax or accounting documents.

Keeping up with regulatory compliance assessment might not seem important initially. However, it becomes more important as your business grows. It helps you avoid penalties and legal trouble. Also, it lays a strong foundation for your business’s long-term health and reputation.

Tips for Ecommerce Businesses in Indonesia

Business licensing is essential for any business. But it has a special importance for e-commerce.

That’s because online businesses happen over the internet. Unlike physical stores, it’s difficult to build trust with your customers when all you can display is a web page on a browser.

Thus, you must nail down the fundamental needs of your business. If you’ve reached this far, you already know all about business licensing and how to become a legal Indonesian business.

But it doesn’t end there. You still must take a few additional steps related to legal compliance. To help you along, here are more tips on how to start an online business in Indonesia.

Choosing the Right Business Structure

Selecting the correct business structure from the start is critical. Changing it midway is possible but not ideal. It does happen when businesses change or outgrow their current setup. 

Nevertheless, doing so is a big undertaking. Thus, it’s not something you do because you simply changed your mind.

Avoid spending unnecessary time, money, and paperwork by picking the right structure from the start.

Specifically, here are some questions to ask yourself.

• What are your business goals? Are you aiming for rapid expansion or a small, family-run operation?
• How much liability are you willing to assume? Different structures offer varying levels of personal liability protection. Determine the risks of your industry and formulate a plan. Consulting with professionals is also an option.
• What are your financial needs? Some structures make it easier to attract investors.

Therefore, carefully evaluate these factors. Think about your liability protection, tax needs, investment moves, and even all the paperwork you need to do. Through careful consideration, you can choose a structure that best aligns with you.

Building Trust and Credibility

Just because you did everything right doesn’t mean your Indonesian clients will automatically trust you. You must communicate all your measures first. 

Building trust is a continuous process. You have to carefully cultivate it like a seedling and water it every day.

Here are some tips on how to foster trust:

• Secure website. Use HTTPS to protect customer data. Display security badges and ensure your payment methods are secure.
• Clear contact information. Provide clear, easy-to-find contact details. Offering multiple ways to reach you—such as phone, email, and live chat—assures customers they can get help when needed.
• Customer reviews and testimonials. Display genuine reviews and testimonials. Positive feedback from previous customers builds trust.
• Transparent policies. Clearly outline your return, refund, and shipping policies. Transparency helps customers feel secure about their purchase decisions.
• Professional website design. Ensure your ecommerce website looks professional and is easy to navigate. A clean, well-organized site builds credibility.

By implementing these practices, you establish a trustworthy and credible online business.

It’s a big undertaking, for sure. However, when done right, solid trust leads to good things. When consumers are confident in you and your business, they buy more, leave good reviews, and even refer you to their friends.

Understanding Consumer Protection Laws

Knowing consumer protection laws can make or break your success.

Consumer protection laws ensure that consumers’ rights are upheld. It safeguards them from unfair business practices. These laws provide guidelines on product safety, fair pricing, advertising, and dispute resolution.

Specifically, here are key e-commerce regulations in Indonesia.

• Law No. 8 of 1999 on Consumer Protection. This law covers the rights and obligations of consumers and businesses. It mandates transparency, product safety, and fair treatment.
• Electronic Information and Transactions Law. This law regulates electronic transactions, ensuring secure and reliable online business operations.

How can you implement them? There are a few guidelines.

• Clearly display prices, terms, and conditions
• Always provide detailed product descriptions and avoid misleading advertisements.
• Use secure payment gateways
• Take measures to protect customer data
• Offer easy ways for customers to contact you and resolve issues
• Provide clear return and refund policies

These laws are crucial for e-commerce businesses. They build trust and prevent legal issues from cropping up later. More importantly, they build trust with customers.

Thus, one of the best things you can do to ensure compliance is to use a reputable ecommerce platform such as NEXT BASKET.

An excellent ecommerce platform builds compliance with international standards into their systems. That’s what NEXT BASKET does with its website-building service.

Final Thoughts

Finally ready to start your online store in Indonesia? We’re just as excited as you are! 

As an aspiring entrepreneur, you might dread business licensing. It’s understandable. Bureaucracy is often tiring and time-consuming, especially if you don’t know how it all works.

That’s why we discussed everything you have to know in this article. Specifically, we talked about business entity permits and application procedures.

Embrace the process with a positive outlook, and your business will thrive. This is the best time to get a business license in Indonesia!