Indonesia Trade Industry Outlook
Indonesia import license is an important permit that foreign investors must have when entering Indonesia trade industry. Foreign trade has proven to be instrumental in boosting Indonesia’s economic growth by contributing 37.3% towards the GDP in 2019. As the 16th largest economy in the world, Indonesia has traded with many countries, among them China accounted for 16.7% of total exports whereas imports from China were 26.3%, making it the archipelago’s largest trading partner. Meanwhile, among ASEAN countries, Singapore became Indonesia’s largest trading partner with a 7.7% contribution in exports, whereas imports from Singapore stood at 10.1%.
Commodities in Indonesia
Here is a glance of commodities that form a major share in the foreign trade of Indonesia’s economy:
|Commodity||Coal, mineral and solid fuels||Palm Oil||Petroleum Gas||Motor Cars||Gold and Jewellery|
|Share in Export||11.3%||8.8%||5.3%||2.4%||2.1%|
|Commodity||Mineral Fuels and Oil||Electrical apparatus for Telephony||Motor Vehicle Parts and Accessories|
|Share in Import||11%||3.3%||2%|
Based on these figures, the International Monetary Fund projected export of goods and services to rebound by 18.4% and imports to rise by 23.5% in 2021.
Also as per the given data for imports and exports, oil and gas dominate over all other commodity categories, giving the government a strong reason to promote non-oil exports, such as food and beverage, tobacco, textile, leather, by optimizing International Trade Agreements.
In order to further bolster foreign trade, Indonesia and Europe are formulating the Indonesia-EFTA Comprehensive Economic Partnership Agreement (IE-CEPA), which is expected to liberalise Indonesia’s trade policy in goods and services, particularly palm oil and raw metals. The IE-CEPA does not only include the export market but also covers trade in services, offering opportunities for educational, professional, environmental, tourist, financial, fisheries technology, renewable energy and logistics services, among others.
These trade deals act as a catalyst towards the country’s economic growth. Along with playing an integral part in boosting the foreign trade, they also provide business opportunities in Indonesia for foreign investors to leverage untapped potentials.
Importing Goods into Indonesia – Opportunities for Singapore’s Investors
Singapore invested US$9.8 billion in Indonesia, making it the largest foreign investor in the country in 2020. Furthermore, strong bilateral ties are demonstrated at the annual Leader’s Retreat where leaders from both countries discuss key bilateral issues and prospective joint ventures. Such dialogues attest to strong bilateral relations and ensue confidence in Singaporean firms to venture into the Indonesian market.
Indonesia is rapidly developing, especially regions in Eastern Indonesia present viable and lucrative business opportunities for foreign investors. The abundance of natural resources, lower levels of competition and the growing middle class make this region a prime investment spot. This region also houses the Kendal Industrial Park, an SEZ (Special Economic Zone) which offers special financial and non-financial incentives to businesses operating in the region. Apart from SEZ(s), other east Indonesian cities such as Surabaya, Semarang and Yogyakarta have seen a plethora of foreign investments recently.
Indonesia Trade Policy – Impacts from Positive Investment List
The introduction of the ‘Positive Investment List’ (PIL) defines all the priority sectors that are eligible to receive fiscal and non-fiscal incentives from the government. This has further opened avenues for foreign investors to invest in the Indonesian Markets.
Here are some of the business lines that fall under the priority sector:
|Business Line||Current Arrangement||Tax Incentives||Previous Limitation|
|Pharmaceutical Product for Human Consumption||Open for 100% foreign investment||Investment allowances||Maximum 85% foreign investment|
|Canned fruit and vegetables||Open for 100% foreign investment||Tax Holiday||Maximum 30% foreign investment|
|Digital Economy (Including website hosting and e-commerce)||Open for 100% foreign investment||Tax allowances||Maximum 95% foreign investment|
|Storage, Purification and Distribution of Drinking Water||Open for 100% foreign investment||Tax allowances||Maximum 67% foreign investment (70% for ASEAN Countries)|
Indonesia Trade Agreements with Singapore
Aside from its proximity, growing opportunity, as well as government support through PIL, Singapore Investors can reap even more benefits from trade agreements between INA-SIN. Following are some trade agreements between Indonesia and Singapore:
1. ASEAN FTA
With the establishment of ASEAN Free Trade Area (AFTA), the ASEAN member countries have successfully lowered their intra-regional tariffs on trade products through an effective tariff scheme called CEPT, or Common Effective Preferential Tariff scheme. More than 99% of the products on the CEPT inclusion list have been brought down to the 0.5% tariff range.
AFTA comprises of three agreements:
- ASEAN Trade in Goods Agreement (ATIGA) – Aims to achieve free flow of goods by ensuring less trade barriers and creating deeper economic linkages among member nations.
- The ASEAN Framework Agreement on Services (AFAS) – Effectively safeguards market access and ensures a more stable operating environment for service suppliers.
- ASEAN Comprehensive Investment Agreement (ACIA) – Ensures protection of investor’s investments by creating a more transparent, facilitative, and secure environment for investors.
2. Bilateral Investment Treaty (BIT)
The Indonesia-Singapore Bilateral Investment Treaty (BIT) administers additional protection of Singapore Investments in Indonesia and vice versa. It safeguards investments made in shares, stocks and other forms of equity participation in an enterprise.
The treaty establishes a multi-tiered dispute settlement mechanism involving mediation, consultations and international arbitration. This provides investors with a provision to approach the International Centre for Settlement of Investment Disputes (ICSID) to resolve all disputes regarding their investment.
Signed between Indonesia and Singapore, the Double Tax Avoidance Agreement (DTAA) reduces the tax rates on branch profits and royalties on copyrighted works from 15-10%. Moreover, DTAA regulates taxation on capital gains and checks for tax evasion.
Although Indonesia also has trade deals with other countries, Singapore investors still stand a greater chance to make the best of Indonesia’s business opportunities.
Under ASEAN FTA, Indonesia eliminates 99% of tariff for import as compared to 89% in Indonesia – Chile Comprehensive Economic Association Agreement (IC-CEPA). Considering the geographical distance and absence of DTAA agreement between Indonesia and Chile, Singapore investors can leverage benefits ranging from reduced tariffs, tax incentives to investment protection provided in the INA-SIN trade agreements.
Understanding Types of Indonesia Import Licenses
Trading companies are specialized companies that cover all export and import operations and procedures. And the first step towards setting up a company is to obtain Indonesia business license for trading, locally known as Surat Izin Usaha Perdagangan (SIUP).
There are four types of SIUPs you need to know to make the best decision:
|Type (License)||Size (Company)||Net Worth (in US$)|
|Micro SIUP||Micro-sized, Sole Proprietorship||< US$3,560|
|Small SIUP||Small-sized||> US$3,560
|Medium SIUP||Medium-sized||> US$35,606
|Large SIUP||Large-sized||> US$712,125|
Trading Companies That Do Not Require an SIUP:
Branch Offices are not required to obtain SIUP as these business entities are considered a unit of the parent company under the Indonesian Company Laws. Representative Offices of trading companies are also not mandated to obtain SIUP as they act on behalf of their corporate headquarters and do not conduct revenue generating activities.
Choosing Indonesia Import License
After obtaining SIUP, a company also must have an Indonesia Import License – locally known as Angka Pengenal Impor (API) in order to become an importer in indonesia.
Primarily, there are two types of Indonesian import licenses:
- General Import License: API – U: An import and trading license for companies with the intention of selling goods within Indonesia.
- Producer Import License: API – P: It gives the industrial companies the right to import goods, like raw materials, capital goods and support materials that are further processed into finished products by manufacturing companies.
Import Procedure in Indonesia
How to get an Indonesia Business License in Trading:
After having considered the kind of business activity the entity wants to undertake, it needs to fill an application to the Indonesian government for the approval of the license. Following are the requisites for a legitimate application form for a limited liability company:
- Decree of Minister of Law and Human Rights.
- Statement from you regarding the intended business location.
- Domicile Letter
- Tax Registration Number (NPWP)
- Copy of the deed of establishment (including any amendments of the Articles of Association, if any)
- Two photos (of applicant)
- Copy of ID card and passport of KITAS for foreigners;
How To Get an Indonesia Import License
For a foreign investor setting up a business in Indonesia, obtaining an import license can be a tedious task. The following table depicts the tentative timeline for setting up an import business and obtaining various licenses in Indonesia.
|Business Process/ License Obtaining||Tentative Time|
|Incorporation of PT PMDN or PT PMA in Indonesia||6 weeks|
|Obtaining Permanent Business License (IUT), mandatory for all foreign investment companies.||1 – 2 weeks|
|Obtaining Import License API-U or API-P||1 week|
|Getting NIK (Customs Identification Number) and SRP (Customs Registration Certificate)||4 weeks|
|Acquiring a recommendation from DEPTAN Ministry of Agriculture (only for a particular category such as food or children’s items)||4 weeks|
|Approval by other authorities depending on your product category (such as National Agency of Drug and Food Control for food products)||3 weeks|
|Approved by the Ministry of Trade (MoT)||–|
Importing Goods Into Indonesia with Ease through IOR (Importer of Record)
An Importer of Record is a legal service that enables companies to import products into Indonesia, through an import partner. Companies that find themselves in the following business situations, will find IoR services beneficial to their business operations in Indonesia.
- Quick market access into Indonesia is a critical point in your business strategy.
- You have local distribution and retail partners to manage sales in Indonesia.
- You have a company in Indonesia, however, it is not eligible to apply for an import license.
- Importing goods occurs infrequently (e.g.: once every 6 months).
- You are importing multiple products from different categories.
How InCorp can Assist
Despite ample opportunities for investment in Indonesia, investing overseas comes with its fair share of challenges. A company from Singapore might face difficulties while registering their business in Indonesia as they might not be very well versed with various business nuances that are being followed in the country. In order to make the complete registration process seamless, Incorp’s consultants can bridge the gap between where you are and where you want to be by providing comprehensive business solutions to set you up for success.
The bilateral Trade and Investment Framework Agreement, 1996, grants the United States and Indonesia the opportunity to meet regularly, address bilateral issues and coordinate on regional and multilateral issues.
Australia and Indonesia, under the IA-CEPA (Indonesia Australia Comprehensive Economic Partnership Agreement), undergo mutual cooperation between businesses, communities and individuals, and foster a great chance of bilateral economic partnership.
Indonesia became a WTO member on 1 January 1995 and a member of GATT on 24 February 1950.
Most profitable businesses in Indonesia to invest are