Data Center in Indonesia: Prospective Business Opportunities

Indonesia’s Digital Economy

Indonesia has significant socio-economic potential recognized by several local and international data centers that have gradually penetrated the Indonesian market. The Indonesian population, primarily made up of tech-savvy youth with an average internet usage of 8 hours and 52 minutes, makes Indonesia one of the most susceptible markets for growth.

Intending to become South Asia’s digital hub, Indonesia has taken active steps to support the digital payments system, like initiating the National Non-Cash Campaign (Gerakan Nasional Non-Tunai). Transactions with digital payments have been rising in the usage of ride-hailing apps and e-commerce by various groups of the society continue to increase, which then brings about a natural demand for data center services.

The Current Landscape of Indonesia’s Data Center Business

Indonesia is home to many start-up companies that have seen and will grow exponentially. Local and foreign operators and developers have started investing in Indonesia’s data center to fully exploit this growth, usually done through joint venture arrangements between local operators and foreign data center providers. Several cloud players such as Alibaba Cloud, Google Cloud Platform, and Amazon Web Services have also established their presence within the market to cater to local customers and financial institutions.

The data center industry within Indonesia will see more growth in the years to come. The development in Indonesia’s data center industry is also driven by the population’s gradual transition into the digital world. The most commonly targeted areas are Greater Jakarta, Cikarang, and Karawang. Aside from that, operators and developers also develop smaller assets within the territory of Central Jakarta, as it is where most end-users are located.

Why Foreign Investors Should Invest in Indonesia’s Data Center Business

Foreign Ownership

There is a difference in the interpretation of the term data center businesses used within the Indonesian landscape and what is referred to by foreign companies. In Indonesia, data hosting business lines provide a data hosting system and not data center infrastructure or even areas leased by companies. It is essential to note that no specific business lines offer data center infrastructure for companies without a data hosting system. Thus, such business activities shall fall in the real estate business line.

For data hosting businesses that provide services related to hosting infrastructure, data storage, cloud computing system, and data processing and hosting-related activities should register those services under the KBLI code 63112. Said business line is open to foreign ownership up to 100%. Businesses listed as real estate shall register property leasing and operations under the KBLI code 68111 and are also open 100% to foreign investment.

Tax Incentives

Data hosting, data processes, and other parts of the digital economy are incentivized by the Ministry of Finance through the introduction of tax reductions. The number of the reductions is dependent on the amount of investment made. Investments ranging from IDR 100 billion to 500 billion are entitled to a tax reduction of 50%. Those with an investment of more than IDR 500 billion are entitled to a 100% tax reduction. However, the facility period of said reduction is again dependent on the investment amount. Cekindo provides tax consultation to guide businesses on prevailing tax incentives.

Setting Up Data Center Business in Indonesia: Important Things to Consider

Business Licensing for Data Center Business

The Indonesian government recently launched the Online Single Submission (OSS) System, significantly changing the Indonesian licensing regime. The requirements that are to be met by businesses are only to be processed through the OSS, which makes applying for licenses much easier and centralized.

Investment companies in the data hosting business line must first obtain a unique business identification number called Nomor Induk Berusaha (NIB) that is to be issued by the OSS alongside an unverified standard certification. After getting the two, companies can conduct preparation for business activities. However, commercial activities can only be officially begun after receiving certification by relevant authorities, thereby upgrading the unverified standard certification to a verified one. Considering the recent change in the systems, foreign businesses looking to set up data centers in Indonesia can rely on Cekindo for company registration and business licenses.

PSE Certification

The companies that set up an electronic system and make the system available to the general public should register with the Ministry of Communication and Information. Said registration also can be done for foreign private operators that provide their services or conduct business activities in Indonesia and even those who offer their electronic systems in Indonesia. Aside from registering, electronic system operators are also required to provide relevant access to data and electronic systems based on requests of government authorities.

Zoning Conformity

It is integral for investors to confirm that the area where the data center will be set up is one that is suitable for such activities from a zoning perspective. Investors can obtain the zoning confirmation by applying for a Space Utilization Confirmation or Kesesuaian Kegiatan Pemanfaatan Ruang through the OSS. The OSS system will also include detailed spatial plans regional governments have prepared to facilitate licensing. Based on that, data centers must be located in areas zoned as industrial.

Data Center Business Supply Chain

In setting up a data center, some or most of the components are usually secured from home offices of specific regions. However, to ensure minimal costs and expenses, it is vital for importers to identify if any of those components may be exempted or is subject to certain customs or fiscal facilities. Following this, it is also important for entities to make sure that rules regarding the shipment of goods are met to avoid circumstances that may lead to the revocation of the customs facilities. Lastly, businesses shall pay attention to the status of the importer in the importing country as certain said status is the basis on which physical examination shall be carried out or not. This is important to keep track of the components utilized in data centers are usually intellectual property that is considered highly confidential.

Data Protection and Localization

Data protection is something that is a prominent concern for almost all users. Unfortunately, the regulation on Indonesia’s data protection regulation is not as sophisticated as other countries. At current events, the central regime is only based on the consent of the data owners, which shall be written in the Indonesian language. However, the Indonesian government is currently looking to pass a new data privacy law that includes concepts that have been implemented in the European Union through their General Data Protection Regulation which is more extensive and stringent.

Private electronic service operators are not required by the law to process and store data in Indonesia. They are instead given the freedom to process and store data offshore. However, they are required to allow effective legal monitoring by the Indonesian authorities.