Home Blog A Guide to Permanent Establishment in Indonesia Business Setup | Business Visa | Indonesia A Guide to Permanent Establishment in Indonesia InCorp Editorial Team 11 November 2024 7 reading time Table of Contents Why Invest in Indonesia? Top Sectors to Do Business in Indonesia Taxable Permanent Establishments in Indonesia Business Activities in Indonesia Subject to Tax Tax Registration for Permanent Establishment in Indonesia Type of Visa You Should Choose for Doing Business in Indonesia Seamless Business Setup with InCorp Indonesia Under Regulation PMK-35 issued by the Ministry of Finance, a permanent establishment is a fixed and permanent business location where foreign investment in Indonesia is conducted. Foreign investors can either own or rent the location of the permanent establishment in Indonesia as long as it is permitted to be used for the business operations that the investors carry out under Indonesian Law. Why Invest in Indonesia? Over recent decades, Indonesia has grown into a thriving democracy with Southeast Asia’s largest and most dynamic economy. As a G20 member and ASEAN’s biggest economy (ranked 16th globally), Indonesia presents significant growth potential for foreign investors, supported by a young workforce and a rapidly expanding middle class. The Indonesian government is committed to improving the business environment through careful economic policies and structural reforms, including tax incentives, more opportunities for expatriate roles, and support for the New Capital Nusantara project. With these improvements, Indonesia has become increasingly attractive to global companies looking to: Expand their presence in Asia Tap into ASEAN and South Asia markets Complement operations in China Benefit from favorable trade agreements and business incentives Top Sectors to Do Business in Indonesia Indonesia’s economy is driven by various dynamic industries that position it as a key Southeast Asian player. Here’s a look at the key sectors shaping Indonesia’s economic landscape: Mining and Petroleum Since the 1970s, mining and petroleum have been pillars of Indonesia’s economy, with primary commodities comprising around 60% of exports. Although Indonesia aims to move up the value chain, commodities will likely dominate exports over the next decade, with China and India as key destinations. Manufacturing Indonesia is focused on enhancing its manufacturing sector, targeting a rise from 20% to 25% of GDP by 2030 to position itself as a global manufacturing hub alongside Germany and South Korea. Under the Making Indonesia 4.0 roadmap, key growth areas include automotive, chemicals, and electronics. The manufacturing sector employs about 15% of the workforce, mainly in food, beverages, textiles, electronics, and automotive. Micro, small, and medium enterprises (MSMEs) represent 99% of manufacturers and two-thirds of manufacturing jobs. Services The services sector is Indonesia’s largest job creator, contributing 45% of employment and GDP. Tourism and hospitality drive much of this growth, with rising demand for accommodations as more visitors arrive. The aviation industry is expanding rapidly and is set to become the fourth-largest market globally by 2036. Healthcare also offers strong potential, supported by the growing middle class and Indonesia’s universal healthcare program (JKN), which covers over 200 million people. Agriculture Agriculture employs one-third of Indonesia’s workforce. Small farms and large plantations produce rice, rubber, palm oil, tropical fruits, cocoa, and coffee. The country aims for food self-sufficiency by 2045. Digital Economy Indonesia’s digital economy is booming, projected to reach $124 billion by 2025, led by e-commerce valued at over $83 billion. As more tech-savvy consumers emerge, foreign investors, including major players like Google and Amazon, have flocked to this market, encouraged by a supportive regulatory environment. Infrastructure Indonesia has ambitious infrastructure plans, with a $400 billion investment goal covering airports, mass transit, waste-to-energy projects, 2,600 km of highways, and 35,000 MW of power plants. The development of the new capital on Borneo, estimated at $33 billion, is also underway. After reviewing the top sectors to consider in Indonesia, foreign investors should understand what qualifies as a taxable business presence there. Recognizing which business activities are considered a “permanent establishment” helps investors prepare for tax responsibilities and ensures compliance with Indonesian regulations. Taxable Permanent Establishments in Indonesia Permanent establishments (PE) in Indonesia are subject to tax. These include any spaces, facilities, equipment, or machinery that foreign entities use to conduct business activities in the country. The following are considered taxable permanent establishments in Indonesia: Management location Representative office Office building Branch Warehouse Workshop Factory Sales and promotion areas Natural resources mining and extraction Oil or natural gas mining and working areas Forestry, fishery, agriculture, animal husbandry, and plantations Electronic devices, computers, and automated equipment that are either leased or owned for online business transactions READ MORE:A Complete Guide for Registering a Company as ForeignersKITAP Indonesia: How to Obtain a Permanent Stay Permit Business Activities in Indonesia Subject to Tax Foreign investors may be taxed in Indonesia even if they don’t have a fixed business location there. Certain business activities are classified as establishing a “permanent establishment” and are, therefore, subject to Indonesian tax: Construction, Assembly, and Installation Projects Construction consultation services General construction work Integrated construction work, including engineering or design services Construction, assembly, or installation conducted both inside and outside Indonesia Projects subcontracted to foreign or local subcontractors Dependent Agents Dependent agents are individuals or entities acting on behalf of foreign investors. These agents are considered permanent establishments if they conduct core business activities, but they are exempt if they only perform auxiliary or preparatory tasks. Service Permanent Establishments Service-related activities that involve: Providing services in Indonesia for more than 60 days within 12 months Employing individuals or subcontractors for foreign investors’ services Delivering services to clients within or outside Indonesia Insurance Agents Insurance agents or employees operating without an Indonesian domicile are also considered a permanent establishment if they: Collect premiums in Indonesia. Insure risks or provide insurance to individuals or entities in or outside Indonesia (excluding reinsurance businesses) Tax Registration for Permanent Establishment in Indonesia Foreign investors must obtain a Nomor Pokok Wajib Pajak (NPWP) or tax registration number within one month of completing their establishment incorporation and running their business. Furthermore, foreign investors who exceed their minimum gross turnover threshold shall register their Pengusaha Kena Pajak (PKP) or VAT entrepreneur status at the end of the following month. Understanding tax obligations is crucial, as is selecting the correct visa type to support business activities. Type of Visa You Should Choose for Doing Business in Indonesia The correct visa is essential for foreign investors looking to operate in Indonesia. The type of visa depends on the nature and duration of business activities. Here are some common visa options: Business Visa A business visa is suitable for short-term visits. It allows foreign nationals to conduct business meetings, attend conferences, or explore potential investments. However, it does not permit direct employment or income-generating activities within Indonesia. Temporary Stay Permit (ITAS/KITAS) The KITAS is a long-term visa for foreigners planning to stay and work in Indonesia for an extended period. Common types of KITAS for business include: Work KITAS: For foreign employees or company representatives. Investor KITAS: Available for investors with substantial capital invested in an Indonesian company, providing ease of entry and residency. Multiple Entry Business Visa This visa is ideal for businesspeople who must visit Indonesia frequently. It allows multiple entries over one year, with each stay up to 60 days, but does not permit employment in Indonesia. Investor Visa Investors who hold a significant share in an Indonesian company may qualify for an investor visa. This visa allows them to reside and manage their investments without a separate work permit. It is valid for up to two years and offers flexibility for long-term commitments. READ MORE:Moving to and Living in Jakarta for Foreigners: A Complete GuideA Comprehensive Guide: Moving to Bali as an ExpatYour Guide to Dependent Visa in Indonesia Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe Seamless Business Setup with InCorp Indonesia Starting a business in Indonesia for foreigners can be challenging, especially when navigating complex requirements for company registration, business licenses, and immigration processes. Many investors need help with unclear regulations, slow processing, and compliance risks, which can hinder a successful launch. InCorp Indonesia can simplify each step, ensuring your business setup is fast, compliant, and hassle-free. You can focus on growth with our support while we handle the legalities. We offer: Company Registration: Comprehensive guidance to set up your entity legally and efficiently. Business Licensing Indonesia: Assistance in obtaining all necessary permits to operate your business with full compliance. Immigration Services: Smooth, accurate visa and permit processing to bring your team to Indonesia effortlessly. Take advantage of the ease of doing business in Indonesia by completing the form below. Read Full Bio Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.