Working in Indonesia?
Doing Business in Indonesia
The Dos and Don’ts of Doing Business in Indonesia
Business is business in every country. However, successful business partnerships can often be directly linked to one’s adherence to the cultural etiquette. Indonesia is a mainly Muslim country, therefore, it would be wise to get acquainted with the major Muslim holidays and practices. For example, bringing alcohol as a gift to a practicing and devout Muslim is inappropriate, as consuming alcohol is forbidden in Islam.
Below you will find a few helpful hints for dos and don’ts concerning proper business etiquette in Indonesia:
- Business relationships are based on trust in Indonesia. It is important to make personal contact with potential partners when doing business here.
- Handshakes are customary when meeting someone for the first time. Contrary to many Western societies, where a firm handshake is a sign of a strong character, most Indonesians apply only very light pressure when shaking hands. Women’s hands may be shaken as well if they initiate. When meeting several people in a group, it is customary to shake the eldest person’s hand first.
- Negotiations can be lengthier than you may be used to in your country of origin. Multiple meetings may be necessary in order to come to a final decision or agreement. Refrain from hurrying your Indonesian business partners along, as this may cause offense.
- Make sure to have your business cards printed in both English and Bahasa Indonesian (or Chinese, depending on whether or not you will be working with Chinese Indonesians).
- Keep in mind that religious Muslims pray five times a day. If you conduct business with Indonesian Muslims, you should not schedule any meetings or lunch dates during these times. Prayer times are listed on the Islamic Finder as well as at the local mosques.
- Avoid using red ink when writing a person’s name. It is considered impolite, as red was originally used to record the names of the deceased.
The Knotty Indonesian Taxation System
Since 1984, every person working in Indonesia is required to have a tax file number, called Nomor Pokok Wajib Pajak (short NPWP). The procedure to apply for a tax number can be found on the Indonesian Directorate General of Taxes website. Resident tax payers are subject to taxes based on worldwide income, while non-residents are taxed only on their Indonesian income. You count as a resident for fiscal purposes if you reside for more than 183 days per year in Indonesia.
Since the Indonesian tax system is complicated — but the individual tax payer is held responsible for properly registering with the local tax service office and correctly paying their taxes — we recommend asking a reliable and competent tax advisor for help. For instance, you could contact your home country’s chamber of commerce in Indonesia and ask them if they know of any resident tax accountants.
They will inform you about how to check if your employer pays the right amount of salary withholding tax, what counts as income (e.g. benefits in kind do not!), and how to minimize your taxes. For example, if your employer agrees to cover housing costs or school fees, the company should pay this money directly to the landlord or international school. If they transfer the money to you instead, you might have to pay taxes on it — which is easily avoidable.
Indonesia has double taxation treaties with 65 countries, among them Australia, Canada, China, Germany, India, New Zealand, Singapore, the United Kingdom, and the USA. Be sure to check with your future employer in Indonesia, or the local tax office in your home city, to find out whether or not your country of origin has such an agreement with Indonesia.
The Reform of the Social Security System
Until recently, solely companies with more than ten employees were required to pay social security benefits for their workers. In 2015, however, the workers’ social security agency (BPJS) was launched, with the aim of extending social security to all workers. The plan includes a pension scheme, death benefits, old age benefits, and workplace injury benefits. Nevertheless, since this reform is quite recent, there are many challenges to it, and it is often unclear how contributions are calculated. It should be noted that there are two separate BPJS in Indonesia; one takes care of the healthcare, whereas the other manages social security.
Additionally, the medical benefits that you are offered under the company healthcare policy may be limited. Therefore, it would be wise to carefully check what exactly your employer’s insurance offer will cover. You may need to take out additional insurance or go for a private international insurance plan instead.
Last but not least, working in Indonesia may affect your entitlement to the national pension scheme back home. Talk to your local social security administration and your bank about your retirement provisions.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.