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Doing Business in Singapore vs Indonesia

 

Investing in The World’s Largest Archipelago vs the 4th Richest Country Worldwide

Doing business in Singapore vs Indonesia. How do they stack up against each other and which could be the better business choice?

Doing business in any country needs to be beneficial for an investor. Singapore and Indonesia are no different. Is one country a more feasible business option than the other?  

 

Country Background – Indonesia

Indonesia is renowned as the world’s largest existing archipelago. With 17,500 islands, Indonesia is arguably a strong emerging market. Economically, Indonesia is the world’s 16th major economy. In Southeast Asia, it is by far the biggest.

Despite being a country that is young democratically, Indonesia has successfully maintained its political stability. Both urbanisation and economic growth have been the driving forces of infrastructure demand. The main exports of the country are primarily minerals and petroleum.

Still classified as an economy that is newly industrial, Indonesia’s government is committed to revolutionising its investment scene to attract more foreign investment. More sectors have been opened for investment, improvements made to the public sector and measures to simplify the red-tape process are all part of its ongoing efforts.

 

Country Background – Singapore

Despite being a small city-state, Singapore is a formidable force with an equally strong reputation when it comes to business. It is the 4th richest country worldwide based on GDP per capita. It is an economy that is trade-oriented and very highly-developed. Singapore is a country that relies on human capital and innovation to make up for its lack of natural resources, and that approach has evidently served it well.

Over the years, it has become highly successful in the areas of engineering, manufacturing, financial services, and biotechnology. Its effectiveness when it comes to policymaking combined with its diverse economy, philosophy when it comes to free trade is what consistently draw investors to its shores.

 

Comparison Between Doing Business in Singapore vs Indonesia

Per the World Bank’s 2017 Report on the Ease of Doing Business, Singapore is number two while Indonesia is one of the world’s top 10 improvers.

Business Factors Singapore Indonesia
Ease of Starting a Business Ranks number 6 Ranks number 151
Openness to Trade Open-door policy. Less procedures required for import and export Not as open as Singapore
Legal System English Common Law Civil Law
Local Workforce 5.5 million population. Median workforce age is 40. 250 million population. A young workforce (most being under 30).
Education 70% of residents have a tertiary education (age 25-34). 97% of locals have a primary education. 23% have a tertiary education.
Business Language English (education and business), Malay, Mandarin, Tamil. Most locals are bilingual. Bahasa Indonesia (both education and business). English is widely spoken in major cities. Madurese, Javanese and Sundanese are among the 700 other indigenous languages spoken.
Filing Requirements Annual General Meetings (AGMs) once every financial year. Financial reports must be audited. Taxes are filed annually. General Meeting of Shareholders (GSMs) close to the end of each financial year. If your company has an annual turnover of more than IDR50 million, a public accountant must audit the financial records. Public companies must submit financial reports to Otoritas Jasa Keuangan (OJK)
Income Tax 22% progressive tax rate 30% progressive tax rate for those who live more than 183 days in Indonesia within a period of 12-months.
Corporate Tax 17% of chargeable income 25% in general
Tax Exemptions New companies incorporated in Singapore enjoy full tax exemption for the first 3 years on the first S$100,000 (chargeable income) 50% discount on taxes for SMEs with an annual turnover lower than IDR50 billion. The discount applies to gross revenues (up to IDR4.8 billion)
Withholding Tax    
Requirements for Immigration Employment Pass (minimum monthly salary S$3,600). EntrePass is issued for those wanting to start a new business. Business visa (for 60-days and must not involve receiving payments or employment). Expats working in Indonesia apply for the KITAS, a permit allowing them to stay for a limited time. A KITAP (permanent stay permit) can be applied for once a foreigner has had the KITAS for 3 years.
Intellectual Property Protection 4th Worldwide 50th Worldwide

 

 

Doing Business in Singapore vs Indonesia – Setting Up a Business

Setting up a business is where Indonesia and Singapore differ vastly. The company incorporation in Indonesia process is very time-consuming, not to mention complex. Investors who want to set up a business in Indonesia need to undergo the following steps:

  • Acquire approval from the Indonesia Investment Coordinating Board (BKPM)
  • If the foreign investors wish to own the company entirely, the business entity is referred to as Perseroan Terbatas Penanaman Modal Asing (PTPMA).
  • Incorporating a PTPMA requires at least 2 shareholders before you can proceed. You will also need to provide a minimum paid-up capital amounting to IDR 10 billion.
  • Alternatively, you may opt to open an Indonesia LLC, which is also referred to as Perseroan Terbatas. This is Indonesia’s most prevalent entity, favoured by locals for their business.
  • Other business entity options in Indonesia include:
    • Persekutuan Perdata/Maatschap (Civil Partnership)
    • Firma Partnership
    • Representative Office
    • Comanditer Venootschap (Limited Partnership)

Foreign investors will not be allowed to establish the partnership entity in the country. Investors will need to complete as many at least 9 procedures before they can start a company in Indonesia. The timeframe to establish a business here is approximately 3-6 months.

In contrast, incorporating a company in Singapore only takes 24-hours. Investors only need to complete two procedures to get their business up and running. Options for business entities include:

  • Sole Proprietorship
  • Private Limited Company
  • Subsidiary Company
  • Representative Office

 

Doing Business in Singapore vs Indonesia – Which Is Better for Me?

Ultimately, it depends on what the needs of your business are. Both countries have their strengths, similarities, and weaknesses, but many businesses have found success in both countries too despite the shortcomings.

Investors who prefer the simpler approach might prefer Singapore for the following reasons:

  • It’s a single tier tax system
  • Double tax reliefs
  • No tax on dividends and capital gains

However, Singapore is an expensive country to live in and the cost of doing business is significantly higher than Indonesia. As a bigger country, Indonesia offers a wider scope of opportunities. The availability of a large local workforce means you’ll never have trouble finding the right people for the job.

 

Need More Information?

Should you require more information on the various 3E Accounting company incorporation services offered, visit our website or contact us today.