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Mitigating the Risk of Economic Crimes

In Indonesia, there are many forms of economic crime like smuggling, tax evasion, drug trafficking, human trafficking, violation of copyrights, bank frauds, embezzlement, credit card fraud and fraud of certificates of bills of lading. Indonesia has criminalized money laundering but they are facing many difficulties in implementing the laws. There are laws controlling economic crime relating to banking, copyright, trade and service marks, and there is a provision in Law No. 15 of 2002 which criminalizes money laundering (amended by Law No. 25 of 2003).

Generally, the perception of the type and amount of economic crime which occurs in Indonesia accords with the reported instances of economic crime. The notable exceptions to this statement involve asset misappropriation and money laundering. Only 15.6% of companies in Indonesia perceive asset misappropriation as prevalent economic crime, compared to 31.9% of companies reporting incidents over the past two years. As to money laundering, the perceived risk of occurrence is 16.4% compared to reported incidents of 2.8%.

In general Indonesia companies have realized their exposure to economic crimes by taking some detection and prevention measures. 85.3% of these companies surveyed have more than 5 methods in place, as shown in figure 1.

Figure 1 Mitigating risk of Economic Crime

Methods

Figure.2 on the following page shows that almost half of the economic crime cases detected in Indonesia were initially identified by tipping-mechanisms, including whistle-blower systems, and tip-offs from internal and external sources.

Figure-2 Mitigating risk of Economic Crime

Indonesian companies are increasingly promoting whistle-blowing policies as an integral part of their risk management program. When this detection tool is correctly implemented, it has the strong potential of effectively uncovering fraud–increasingly replacing the chance element of anonymous tip-offs.

Another proven detection method is an internal audit, where detection occurs in 27% cases. There are several detection measures that appear to be effective globally but not been reported as being effective in Indonesia such as corporate security, audit committees, rotation of staff and electronic automated suspicious transaction report systems.


We assist clients with various legal issues that arise in operating business on a daily basis including providing legal advice and creating legal documentation such as contracts. Contact us for corporate practice service at +62 21 5082 0033 or mail to mey@fmbpartner.com

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Foreign investment in Indonesia’s e-commerce sector

To focus on the development of e-commerce potential of the country, the Indonesian government recently opened up the sector for foreign investment. In 2016, through the Presidential Decree No. 44/2016, Indonesia announced changes to its Negative List by removing the e-commerce industry from the list of prohibited sectors.

The updated list permits 100 percent foreign ownership of e-commerce businesses and companies approved by the country’s Investment Coordinating Board (BKPM). The caveat, however, is that the foreign e-commerce business must invest at least 100 billion IDR (US$6.67 million) in the business; or, create at least a 1,000 new employment positions for local workers through the foreign investment.

Investors that do not meet the threshold of US$6.67 million can opt for a joint venture with a local partner; investment below the IDR 100 billion levels is limited to a maximum 49 percent stake.

E-commerce businesses that can be fully (100 percent) owned by foreigners include the following:

  1. Reservation websites for services such as hotel or restaurants;
  2. Web portals that publish contents such as articles, audios, and videos using the content provided or made by the users; and
  3. Marketplace websites that enable the sellers to meet the buyers.

E-commerce businesses that cannot be fully owned by foreigners, and have a maximum permissible limit of 49 percent partnership include the following

  1. Content publishing websites made by the company itself;
  2. Marketplace websites with opportunities for the sellers to advertise their products or services.
  3. Distribution services websites that allow the company to deliver services.

The ease in regulatory environment sets out a strong foundation for the e-commerce industry in the country. It gives foreign companies with a low budget a chance to explore Indonesia’s local market and simultaneously helps domestic companies get access to foreign know-how in the sector.

The presence of liberal government legislation along with Indonesia’s evolving digital landscape offers businesses a unique opportunity to tap its growing e-commerce potential.


If you’re an investor or just starting to establish such business, you will need more to digital industry guidelines, business licensing and advising. Contact us for e-commerce and technology industry legal practice at +62 21 5082 0033 or mail to mey@fmbpartner.com

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Facebook to Open Limited Liability Company in Indonesia

Leading American online social media and social networking service Facebook will open a permanent business entity (a foreign limited liability company, in Indonesian: Perseroan Terbatas Penanaman Modal Asing, or PT PMA) in Indonesia later this month. The move is in line with Indonesian government requests. Earlier, Facebook only operated a representative office in Jakarta.

Samuel Abrijani Pangerapan, Communications and Information Ministry Director General of Information Applications, announced Facebook’s decision to open a permanent office in Indonesia on Wednesday (02/08).

Over the past one or two years Indonesian government officials had been ventilating their displeasure with the so-called “over-the-top” (OTT) giants, a term used for networks that deliver film and TV content via Internet, as these platforms had been hesitant to set up permanent corporate establishments in Indonesia and therefore pay few taxes to the Indonesian government. Besides Facebook, it also involved Google, Yahoo, and Twitter.

Rather than opening – and booking transactions and revenue at – a permanent office in Indonesia, they preferred to continue booking earnings (that were partly derived from Indonesia) at their regional headquarters in Singapore, implying Indonesia missed out on tax revenue.

But there were more reasons cited for the importance of setting up a permanent business entity in Indonesia. One is that Facebook would be in a better position to tackle negative content and fake news (hoaxes), an issue that has become a big problem in Indonesia (and can even destabilize the country), while communication with the government would also improve.

Indonesian authorities urge social media platforms such as Facebook to combat the spread of fake news and said it would help if these platforms would set up local entities in Indonesia because it would ensure better quality services, while they would also be able to familiarize themselves with Indonesian perspectives and the local cultural context (the local context determines the degree of sensitivity of the fake news message; a fake news topic that may be harmless abroad can be a major issue in Indonesia). With a proper company in Indonesia a social media network is much quicker to respond to “negative content”, which include hoaxes and pornography, because they have a better understanding of the local culture.

Besides hoaxes, Facebook also expressed its commitment to act on reports of “illegal content” such as radicalism, terrorism and pornography. Facebook will create a special algorithm for Indonesia to deal with this matter.

Facebook will follow the new Standard Industrial Classification – in Indonesia known as KBLI – that categorizes all businesses for the purpose of economic analysis, decision-making and policy-making. Before the revision, the previous KBLI did not recognize digital businesses and therefore Facebook received a license as a management consulting company. However, it now needs to change this classification to a commercial portal or web platform.

Number of Social Media Users at Start 2017:

Platform    World
(in million)
Indonesia
(in million)
Facebook    1,788     88.0
WhatsApp    1,000     12.3
Instagram
    500     28.0
Line     220     30.0
Twitter     313     16.8

Source: Investor Daily, Indonesia Investment

BKPM

You can read our establishing PT PMA series, and if you have any questions about PMA or facing a problem on the matter, FMB Consultant offers you multidimensional services in management as to company legal establishment for cross-industries.

With a team of professionals and experienced, allow us to support your business in accelerating legal requirement fulfillment, get you more time to focus on growing your business.

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Managing Partner:

Ivan Liyanto, ivan@fmbconsultant.com

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5 Tips for Expanding Business to Indonesia

Indonesia is Southeast Asia’s largest economy with a GDP of $888 billion (based on ppp), ranking 10th in the world and averaging over 5% growth over the last decade. In the last 18 months, growth has slowed to below 5% and is projected by the World Bank to be 4.7% for 2015. President Joko Widodo (known as “Jokowi”) took office in October 2014 and has pledged to improve infrastructure and reduce barriers to doing business in Indonesia as a means to increase the country’s GDP growth rate to 7% by 2017.

Over the past decade Indonesia has enjoyed steady economic growth, though less than needed to pull the country into upper middle-income status, and the rate of growth is slowing.  Sound macroeconomic policies, combined with growing domestic demand and high commodity prices, propelled economic expansion in recent years, but protectionist policies, corruption at all levels of government, poor infrastructure, weak rule of law, and labor rigidity have taken their toll.

The business environment in Indonesia can be challenging, with Indonesia ranked 114 out of 189 countries in the Ease of Doing Business 2015 report by the World Bank. U.S firms can encounter complex bureaucratic and regulatory requirements which make it time-consuming to enter the market.

On that note, here are five tips for Foreign SMEs looking to expand to Indonesia.

“Please come and invest in Indonesia, if you have any problem, call me”. – President Joko Widodo on World Economic Forum 2015. Source: AP Images

 

1. Have a local contact who knows your industry

The successful overseas businesses that have entered Indonesia in recent years have generally recruited local entrepreneurs to tap into their experience in the Indonesian market.

The Indonesian market can be very confusing for a lot of foreign investors when they first arrived. Although improving, significant rule-of-law issues persist. It can be conflicting like Indonesia has begun to implement local content requirements that prevent some foreign products from being sold in Indonesia.

What’s best for any company is to either have a local contact with good experience in their industry in Indonesia, or to partner up with a local company who already has the business connections or management skills. It will really helped in order to find new clients and navigate the unique challenges of the local market.

2. Don’t take the large population for granted

One of the biggest dangers for overseas businesses looking to invest in Indonesia is being overly optimistic about how successful they’ll be because of the large population.

250 million Indonesians sounds big, but a lot of people don’t realize that it’s a very fragmented market because of geography. Most of the population is concentrated on the island of Java, but there are also big population centers in Sumatra and Sulawesi.

Local market dynamics also present obstacles to foreign investors taking advantage of the large consumer base. Domestic firms have a pretty strong influence right across Indonesia, and the government still looks to protect Indonesian small businesses from foreign competition.

In one of these measures, the minimum total investment before SMEs can do business in Indonesia is IDR 10,000,000,000 (ten billion Rupiah). 25% of total investment, i.e. IDR 2,500,000,000, shall be injected as equity and the remaining balance may be injected as shareholder loan.

While attracting foreign investment is a priority, SMEs currently planning to expand to Indonesia will need to be savvy with the investment they make.

3. Navigating geography

Part of this savviness is in deciding where to set up shop. Most of foreign SMEs have chosen to manage their Indonesian operations in Jakarta because, it’s where the big money is.

But this presents challenges for businesses whose product or services need space, such as agriculture. Navigating geography is a key skill of entrepreneurs with this type of business.

Being close to the decision-makers and clients is important, and most of them are in Jakarta, but sometimes those decision-makers are influenced by people on the ground.

Logistics can also be a problem because Indonesian infrastructure and service networks have not been developed the best at this point. Thus it is really important to know where your market is, consider travel costs and distribution channels to make sure your costs don’t blow out.

4. Build good relationships with your overseas staff

A key point to come out is how Indonesians value foreigners insights. Take the goodwill of Indonesian people at face value. Some of the companies that already in Indonesia have strong cross-cultural training programs in Indonesia and overseas, said that Indonesian staff appreciated working for foreign companies.

5. Be aware, but not put off, by politics

While diplomatic problems may occur  or defined some countries’ recent relationship with Indonesia, the small businesses exporting to Indonesia has remained consistent.

There’s no reason why this shouldn’t also be the case for businesses who establish a physical presence here. SMEs would be aware of those political factors definitely, but the business activity doesn’t really drop off. There’s a lot of exporters doing really well in Indonesia, and some of the companies have their rates of return are high compared to China and India.

 

How We Can Help

Established in 2010, FMB Consultant is a management consultancy that provides you, multidimensional services at most on financial, management, and branding. FMB Consultant works with a high-knowledge team leading in tax administration, legal company (PT PMA) establishment, business plan, financial planning and regular book-keeping. FMB Consultant has handled majority clients from national, multinational, to international companies cross-industries.

Media contact:

Ivan Liyanto, Managing Partner, ivan@fmbconsultant.com  +62 899-6777-879

 

 

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