Your Blueprint To Setting Up Your Own Bali-Based Business
Sometimes in life, all we need is a bit of a push — a push that could irrevocably change our future for the better. A push you’ll look back on fondly and forever thank your lucky stars for finding. This might just be it, dear reader.
If you’ve been yearning to start your own business, one that offers endless possibilities, this could be the push you need. If you apply these steps and put in the work, this time next year, you could be working from a tropical paradise with financial abundance flowing into your dream life.
In this blog, we’re going to walk you through how to start your own business in Bali, navigate the complexities of doing so, and share tips and tricks to turn this dream into a reality.
Let’s get into it –
Before all else, you’ll need to choose and apply for the right business structure.
As an Australian, you’ll have a few main ones to choose from based on what you’d like to do –
PMA (Foreign Investment Company): A PMA allows foreign investors to have full or partial ownership of a business in Indonesia. It is the preferred structure for international investors due to its flexibility and legal recognition. Establishing a PMA requires a minimum investment of USD 700,000 and permits the company to conduct full commercial operations, including sales, manufacturing, and distribution.
PMA companies in Indonesia are subject to corporate income tax (CIT) at a standard rate of 11%. For annual revenues exceeding IDR 4.8 billion, the tax rate increases to 22%. PMA companies may also qualify for tax holidays or incentives based on the size of their investment or the industry they operate in, making Indonesia an attractive destination for foreign investors.
Examples of a PMA: Tourism companies, retail franchises, e-commerce platforms, tech start-ups, etc.
PE (Permanent Establishment): A PE (Perusahaan) is established when a foreign company operates in Indonesia through a fixed place of business or a dependent agent. This structure is subject to Indonesian taxes on income earned within the country. Unlike other business types, a PE does not require a minimum investment. It allows the foreign company to conduct business activities through its fixed premises or agent, with taxation applying only to income sourced from Indonesia.
A PE (Perusahaan) in Indonesia is subject to corporate income tax (CIT) at a standard rate of 22% on profits generated within the country. In addition, PEs are also subject to withholding taxes on specific payments, such as royalties and interest, in accordance with Indonesian tax regulations.
Examples of a PE: A consulting firm with a physical office, a financial services branch, logistics and shipping warehouse, etc.
KPPA (Representative Office): A KPPA (Kantor Perwakilan Perusahaan Asing) is a non-operational office established to represent a foreign company in Indonesia. It is restricted from engaging in commercial activities such as sales or production and does not generate revenue. This structure, which requires no minimum investment, is limited to functions like marketing, research, and promotional activities.
A KPPA (Kantor Perwakilan Perusahaan Asing) is not subject to corporate income tax, as it is not permitted to generate revenue. However, it may still incur local taxes and other operational costs associated with maintaining its presence in Indonesia.
Examples of a KPPA: A brand’s market research office, a brand’s liaison office, etc.
There’s also another business setup option called a Perseroan Terbatas (PT), or Local Limited Liability Company. However, the ownership of this company must be held by an Indonesian individual. If you're planning to go into business with an Indonesian citizen, it could be worth considering.
The next step is to get your financial setup in order.
You’ll need to —
Open a business bank account in Indonesia.
Foreigners establishing a PMA, PT or PE can open an Indonesian business bank account, but the process varies slightly depending on the structure and the required legal documentation.
PMAs and PTs can open business bank accounts as part of their setup process, but Permanent Establishments (PE) may need additional legal support due to more complex regulations.
KITAS (Temporary Stay Permit) is required for foreigners to open a business bank account.
Ensure you have the necessary company documents (such as NIB and NPWP) and your KITAS ready when applying.
Set up accounting and bookkeeping systems.
Effective accounting and bookkeeping systems are essential to track financial transactions, prepare tax reports, and provide insights into your company’s financial health. In Indonesia, all businesses must comply with local accounting standards known as PSAK (Pernyataan Standar Akuntansi Keuangan), which are based on International Financial Reporting Standards (IFRS).
Implement a payroll system for employees.
Organised payroll management is essential for ensuring timely payments to employees and compliance with Indonesia’s tax and labour regulations. Indonesia requires businesses to pay employees on a regular schedule and deduct taxes and social security contributions from salaries.
Step three is to ensure compliance with Indonesian tax obligations.
When setting up and running a business in Indonesia, it’s essential to understand your tax obligations to ensure compliance and avoid penalties. PMA (Foreign Investment Company), PT (local company), and PE (Permanent Establishment) structures are all subject to various taxes, including corporate income tax, withholding tax, value-added tax (VAT), and payroll taxes.
Let’s get acquainted with the key taxes you'll need to focus on —
Corporate Income Tax: In Indonesia, corporate tax applies to the income earned by businesses registered in the country, including PMAs, PTs, and PEs. The standard tax rate is 22%, but businesses with annual revenue below IDR 4.8 billion may qualify for a 50% discount. Tax filing is required on both a monthly and annual basis.
Value-Added Tax: VAT applies to specific goods and services once your business surpasses a designated revenue threshold. The VAT rate is 11% in 2024 and will increase to 12% in 2025 for luxury goods and services. Businesses with annual revenue exceeding IDR 4.8 billion (approximately USD 320,000) are required to register for VAT. After registering, businesses must file monthly VAT returns, reporting the VAT collected from customers and the VAT paid to suppliers.
Payroll Tax & Social Security: Employers in Indonesia are responsible for managing payroll taxes and making contributions to BPJS. Here are the two specific ones you’ll work with –
Payroll Tax Withholding: Employers must withhold income taxes from employee salaries and report these to the tax office (individual income tax rates vary based on salary and range from 5% to 35%).
BPJS Contributions: Employers have a responsibility to contribute to BPJS Health and BPJS Employment for their employees. BPJS Health is 5% of the salary (4% employer, 1% employee - deducted from wages). BPJS Employment covers pension, work accident, and life insurance, with rates based on wages. As of recent updates, the salary cap for BPJS Health contributions is IDR 12 million per month. Any salary beyond this cap will not increase the contribution.
Once you’ve familiarized yourself with and prepared for Indonesian taxes, the next step is to address the other side of the equation: your Australian tax obligations.
When operating a business in Indonesia as an Australian resident, it’s important to understand how your overseas business income and tax residency status affect your tax obligations in Australia. The Indonesia-Australia Tax Treaty provides guidelines on how to avoid double taxation (we have a great blog on that actually, which you can check out here), but you’ll need to make sure you are complying with both countries’ tax rules.
We’ll walk you through the two main factors to consider: reporting overseas business income and determining your tax residency status.
Declaring overseas business income: As an Australian tax resident, you are required to report your worldwide income, which includes any earnings from your business operations in Indonesia. A few things to note —
You must report any income earned from your Indonesian business (either through a PMA, PT or PE) on your Australian tax return. This includes profits, dividends, and any other income generated abroad.
You may be eligible to claim a foreign income tax offset (FITO) to avoid double taxation. This allows you to reduce your Australian tax liability by the amount of tax already paid to Indonesia.
Keep detailed records of all Indonesian tax payments, including corporate tax, withholding tax, VAT, and payroll tax. These documents will be required to support any tax credits claimed in Australia.
Determining your tax residency status: Determining your Australian tax residency status is essential, as it impacts whether you declare only Australian-sourced income or your entire global income. If you remain an Australian tax resident, you must report all worldwide income in Australia, though you can typically claim foreign tax credits to prevent double taxation. However, if you qualify as a non-resident for tax purposes, only income sourced from Australia will be subject to Australian tax, simplifying your tax obligations on foreign earnings.
Once you’ve got your tax situated sorted, it’s worthwhile to start looking into property ownership and other investments.
When establishing a business in Indonesia, especially in Bali, property ownership and investments can be complex for foreign investors. Choosing the right business structure — PMA (foreign-owned company), PT (Local Company) or PE (permanent establishment) — will greatly impact your ability to invest in property and other assets in Indonesia. Let’s run through a brief synopsis of what to expect with property ownership and each business structure —
PMA (Foreign-Owned Company): One of the key advantages of setting up a PMA (Penanaman Modal Asing) in Indonesia is the ability to legally own property, but there are strict regulations governing foreign ownership of land. PMAs cannot directly own land in Indonesia, but they can acquire the Hak Guna Bangunan (HGB) or “Right to Build”, which allows foreign-owned companies to build and use land for 80 years, renewable for up to twenty years.
PE (Permanent Establishment): Permanent Establishments have more restrictions when it comes to property ownership in Indonesia. While a PE is allowed to conduct business operations, it does not have the legal standing to own property like a PMA. PEs cannot directly own land or buildings in Indonesia. They are limited to leasing or renting premises for their business operations, such as offices,warehouses, or factory space.
Other Investment Considerations: Beyond direct property ownership, there are alternative methods and structures that foreign investors may explore when investing in Indonesian real estate or other assets. However, these structures carry specific risks and regulatory considerations.
Lastly, you’ll need to ensure that you’re maintaining compliance and address any legal considerations.
Running a business in Indonesia, particularly as a foreign investor, demands consistent focus on compliance and legal obligations. From drafting service agreements to navigating tax audits, staying aligned with local regulations and relevant international agreements is essential to protect your business and its operations.
Let’s go through service agreements, licenses and permits, and tax audits and inspections to ensure you’re ready for anything that comes your way with your Indonesian business —
Service Agreements: When managing a business that operates in both Indonesia and Australia, it’s essential to regularly review and understand the legal agreements governing your business relationships.
If your business involves services provided between Australia and Indonesia, make sure all agreements clearly outline obligations, payment terms, and dispute resolution processes.
Double-check that the agreements comply with both Australian and Indonesian laws, especially concerning tax and employment regulations.
It’s advisable to consult with legal professionals familiar with both jurisdictions to review service contracts, non-disclosure agreements (NDAs), and consultancy contracts to avoid legal complications later on.
Licenses & Permits: Depending on the nature of your business in Bali, you may need to acquire specific licenses or permits. Ensure your PMA or PE holds valid business permits, including a NIB (Business Identification Number) and SIUP (Business License) issued by the Indonesian Investment Coordinating Board (BKPM). Many licenses and permits in Indonesia have specific renewal periods, so it’s critical to monitor expiration dates and renew promptly to avoid disruptions.
Tax Audits & Inspections: Indonesian businesses, including PMAs, PTs, and PEs, are regularly subject to tax audits. Compliance with local tax laws is essential for maintaining business legitimacy.
Starting your Bali-based business might feel like a distant dream, overwhelming and hard to imagine, but when you break it into simple, actionable steps, it suddenly feels within reach — real and attainable.
If this blog feels like the push you need to start your next financial adventure, we’ve got just the thing to guide you.
We’ve created a detailed guide and checklist to bring your Bali-based business vision to life, all wrapped up in a downloadable PDF. Everything covered in this blog is included, but with finer details, helpful checklists, to-do lists, and tips to ensure you’re fully set up for success.
It’s yours for the taking — just click this link, and take your first step toward something extraordinary.
