RUN FOR THE HILLS!
Was yelled out in Thai, Bahasa, Maylay and Balinese, and countless other dialects as people from over 20 countries in SE Asia ran searching for high-ground.
But the tsunami never came, this time.
On April 11th a massive earthquake striking 8.7 on the Richter scale occurred to the west of Indonesia. Had the earthquake not been a ‘split’ of the earth where the plates moved into each other, rather than apart, it would have caused a devastating wave destroying beaches across the Indian Ocean.
However, this time – there was nothing. I didn’t even feel a shake. I was on my motorcycle when it occurred, but the Indonesian earthquake had come and gone and I was none the wiser.
Then came calls and emails from friends and family around the world concerned for my safety. What they might not have realized is that Indonesia is the widest country on earth, and the 4th largest in terms of population. Simply because an earthquake happens somewhere in Indonesia, doesn’t mean it happened within 1000 miles.
Indonesia has 25o Million People on 17 Thousand Islands
When people think of massive populations, countries like India and China immediately come to mind.
However, Indonesia is a tremendous business market, with an estimated 250 million people spread across 17508 different islands in the South Pacific. The capital city of Jakarta has 10 million people. Its easy for that to escape as a number, but that’s a tremendous amount of people.
In the major cities in Indonesia, traffic is a pain point. However, in the capital city of Jakarta, traffic is so bad, the government mandates a “no car day” every other Sunday from 6 am to 12 am on the main avenue.
Speaking of driving, you’ll be stopped constantly simply for being a foreigner. Unless you have an Indonesian drivers license, it is a exercise in futility to do anything except bribe the policeman and go on your merry way. Many don’t realize that its just a fact of life, that the police are in power, and this is how they exert their power to make a little more money – by extorting foreigners. Its something you get used to, living in south east Asia. Most of the time, they are quite friendly about it, and you can even bargain for a lower price.
Overall, Jakarta is more of a place for business and government, for those looking for beaches, nightclubs or an ex-pat scene, the island of Bali is notable as a playgrounds flag.
Flag Theory
Ex-pats living in Bali can experience a very high quality of life. There are many places in Asia that have spectacular beaches, nightlife, interesting people, great food, and warm weather (my personal criterion for a ‘living flag’) Bali stands out as a place that has them all in abundance.
You might think that the island of Bali, located between the islands of Java and Lomback, in Indonesia, is nothing but a tourist destination, but there are a surprising number of western entrepreneurs doing business there, mostly via the internet.
The internet makes it possible to set up a business in Indonesia without having to set up an official Indonesian business, the process of which is detailed below. Many ex-pats enjoy a comfortable lifestyle in Indonesia ex-porting the goods and wares of the Island back home to Australia, or other places abroad.
Indonesian Visas
If you want to start a business in Bali, and certainly if you want to stay long term, you will need to navigate the Visa system. With no planning, you can land in Denpassar, where you can head left and buy a tourist on arrival visa with a crisp $20 and $5 American dollars. This Visa on arrival will grant you a stay of 30 days, and can be extended for just $30 more by paying an agent, or alternatively you could make 3 trips to immigration to complete the visa extension process yourself.
No matter what Visa you get – make sure you register with the local Banjar (or pay a local to register you) to avoid a hefty fee for not being ‘registered’. Like much of life in Indonesia, they have their own ways of doing things, and its best to smile and nod, and go about your day. Its easier to swim with the stream than against it, particularly if you are planning an extended stay. Registering with the local Banjar is really only necessary if you are staying in a rented house or villa, the hotels are exempt from this. The fee to register is a fraction of what it costs if you are ‘caught’ unregistered, whether were aware of the requirement to register or not.
The better ways to stay longer term are to set up a social visa which comes with a stay of six months, but only one entry, meaning you can only enter the country one time, and cannot leave even once for those 6 months you are on the social visa.
Another option is a business ‘investor’ visa which gives a considerably longer stay and is much more flexible. An Investor Visa is not to be confused with a work permit which includes permission to stay and work, which is called a Kitas, and is more difficult to obtain. The best way to live long term in Bali might be a business Visa. A business visa is not the same as a work permit, or Kitas. In general, a business needs to be capitalized with at least 100k USD. Further, there will be other, associated costs of doing business, and most likely, your business won’t make much money.
Why then, would anyone spend this much to start a company in Indonesia? Answer: the visa, the abundant culture and amazing quality of life. As far as a strictly business opportunity or incorporation flag, look elsewhere – perhaps Singapore for incorporation might be more suitable.
Balinese Culture
Balinese culture is unique, quite different from the rest of Indonesia. For example on Nyepi, Balinese new year, the entire island shuts down and no one is allowed to leave the house. No ATM’s, no restaurants, no flights. Imagine that for a moment. An island of 4 million puts sheets and boards up over the windows and NO ONE goes outside, save for the local Banjar (police/local authority) who tell others to go home. If you get caught outside on Nyepi, you’d be taken to a holding area and held there until it was over.
Hindu Balinese aren’t supposed to use fire, and many fast on this date. The reason for Nyepi? People believe that the evil spirits are scared away by the parades with monsters the day before, and the next day they return to the island and see no one there, the people are safe for another year.
The island of Bali has about 4 million Balinese citizens who are mostly Hindu are devout, and shrines or temples can be found on what feels like every street. The architecture in Bali is truly amazing, a style all its own. I was on my own constant search for style, and I wanted to see if Bali could get net me a custom suit for $500 USD.
Company Formation in Indonesia
It’s difficult to start a business as an official Indonesian company. You need about $100,000+ and to inject that money in the bank account (or bonds) and you can’t just withdraw that money right away. This would enable you to get a KITAS and run the business while in the country. Many people choose this route simply because it is the easiest way to stay in Indonesia long term. Regardless of the business opportunity, a company is oftentimes a method of securing a permanent residency flag. Starting a business to gain residency in Thailand is popular, many entrepreneurs start a business for a Singapore Passport, and indeed, Indonesia is no exception.
Business Markets
The big business markets in Bali that are obvious are ex-pat services, and exporting. The southern tip of the Island, mainly Kuta, has plenty of rich foreigners who are there for retirement or just a good time. Indonesia as a whole is an enormous business market with many different and ranging opportunities. You truly have to put boots on the ground to recognize what these might be. While I had an extended stay in Bali, I noticed the tremendous opportunity for exportation. However, there are other ways to fulfill market needs. I was mainly on the search for inexpensive custom suits I could export.
Custom Suits
Suits in Bali are sold at a low price. I had figured that a hand tailored suit would be possible at a good deal, even given my increased demands that upped the price, so I made a trip to a local tailor. When there, I was encouraged by their honesty – when they explained there was no way they could make the suit I wanted. They directed me to another tailor.
Arriving at the second shop, I was impressed by the storefront, but not their capabilities. They are unable to create the super high quality I would want. They could manage the hand sewn buttons and they assured me that no glue would be used. However, they did not have any 200+ wool and they could not achieve pic-stitched lapels. A subpar quality suit and thus, a deal breaker. I’m still on the hunt for a premium, hand-stitched, tailored suit in South East Asia.
Indonesia | Offshore
There are other, more creative ways, to run a business from indonesia. If you want to have staff officially on a payroll, an office would probably be necessary – and you would need to officially register and capitalize a company. However, If you didn’t have 100k, you could operate without a business, under a social visa. This way you could live in Bali, export goods, and work via the internet, technically this would be a non-legal approach. But if you were going to do this, hypothetically that is, you could also set up offshore and have your corporation operate tax free – with some added protection and privacy. When all is said and done, this could potentially save you the hassle of dealing with the laws of Indonesia, which are fairly confusing. The key would be to have minimal operations or footprint within the country, and operate entirely offshore.
It is possible, to export goods worldwide and pays a local under the table to ship the goods where it needs to go internationally. If you need to take title of the items, you might consider an offshore set up where there are no tariffs or taxes on imports- such as Singapore, RAK, or Dubai. Otherwise any true no tax jurisdiction should suffice: Nevis, Cook, Marshall Islands, or really any true tax free jurisidction would work fine. Pair these corporate set ups with a bank account in a reputable location and you are good to go.
Some people might suggest that you don’t immediately make your business known. Although I have no comment, you could, hypothetically, run your business off the books. The point where you would absolutely need to make your business apparent to the Indo government is if you have employees or physical office within Bali. If you have this, than you might be wise to start an Indonesian company.
For the Sheeple
If you want to be 100% compliant with Indonesian laws and live in the country long term, you will need to set up an Indonesian company. You could, even in this instance, hypothetically speaking, still opt for a dual structure that makes use of an offshore company and an Indonesian onshore company. The operations could be onshore, and a licensing, trading company or something like that could keep cash safe offshore, effectively limiting your Indo cash-flow.
With any export business that operates from the internet, via an e=commerce storefront – a the merchant account is the point of sale for this business. Setting up a Merchant account is simply easier with an offshore company and bank in HK or Singapore. For example, you might set up an LLC in Nevis (tax free) and then a Bank Account in Singapore; a perfectly normal procedure.
Property in Indonesia
Foreigners are not allowed to buy real estate in Indonesia. However, where there is a will, there is a way, and its not uncommon for foreigners to have property they have purchased though a proxy, which leaves them somewhat exposed. Some common methods for securing the property through leins (that are effective elsewhere) are not useful in Indonesia.
For instance, in other places, a mortgage could be placed against the property. Not common in Indonesia. Banks in Indonesia will no provide financing (and hence a “mortgage”) on a property where there is no Hak Milik or freehold deed or title to the property; therefore that pretty much bars or enjoins a foreigner from availing themselves of any form of traditional local financing since they cannot “buy” a property in the first place or truly “own” it in a freehold estate or Hak Milik.
A 20% down payment and the prevailing interest rate is somewhere between 12-15% which makes owning even for an Indonesian not as easy as elsewhere – such as the United States; where the FHA, local or state HDA (Housing Development Authority) can provide a loan program. Some of these loans in the US for first time home buyers typically only require 3% down payment.
Contrast this to Indonesia, where a foreigner would pretty much have to do an all cash deal in Indonesia which ties up or “parks” their funds or “assets”. This effectively places all their egg’s in only one basket.
Other Liens or debt instruments can be used elsewhere to secure control of land or property you don’t own directly in your name (We do not suggest that you do this, check with an attourney to see if this is even legal for your situation)
A “lien” against the property is not a viable solution here either in Indonesia as far as getting that “lien” recorded, perfected and placed in the National, regional or provincial Land Division Agency or “BPN” here. I have seen cases where they have issued multiple deeds on a property to separate individuals causing subsequent land disputes or issues. They have no system of “public records” or recording of deeds or liens as we know it in the States. The “lien” would not be any more valuable than the paper it was written on.
Links to more research on a foreigner “buying” real property in Indonesia through either a nominee or through a PMA.
Long Time
- A foreign national or “bule” can get a Limited Stay (social visit) Visa or a “KITAS” for either one or two years which can be renewed multiple and concurrent times.
- A foreign national can also get a Permanent Resident (PR) Visa or “KITAP” here also.
- Friends I know have found no impediment to a foreigner living in Indonesia for ether an extended period or indefinitely.
- At the expiration of a current KITAS you would get an EPO (exit permit only), go out of Indonesia which effectively cancels your current Visa (such as going to Singapore or Kuala Lumpur), then re-enter under a renewed Visa which just resets the clock again for another one or two year period. I have found no restriction on the number of concurrent or multiple times a foreign national can do this; so it appears you could just keep “resetting the clock” indefinitely.
- http://www.embassyofindonesia.
org/consular/consulates.htm
Indonesia is an amazing place to visit. If or when you decide to live there long term as a foreigner, you may need to get creative. I think that Indonesia fits in much better as a playgrounds, a place where we can live that has a high quality of life. Its not the most suitable for a business market, its horrible as an incorporation flag, and buying real estate is near impossible. The visa system is not simple, and overall, Bali can fit in nicely as a flag, but only if you truely enjoy the culture, the food, the people, and the lifestyle. As far as a strategic location to do business – look elsewhere.
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