Stuart BlandSenior ManagerICT/Technology TradeGlobal Victoria

Doing Business in Indonesia for Tech/ICT Companies

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2017: Victoria’s Exports to Major Markets and Priority Industries (AU$ billion)

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Today’s Session

Keynote Address: Leith Doody - Australia International Business / AIBC

Business Culture: Roger Nowell - Asialink Business

Tax/Accounting: Wendy Hartanti - PwC / AIBC

Legal: Jared Heath - Corrs Chambers Westgarth / AIBC

Case Study: Richard Taylor - Tapp Group

Panel Discussion• Lucy Liu - Airwallex• Fil Filiposki - Cyber Security Hub & AttackForge• Helen Brown - Bisnis Asia• Amelia King - Global Victoria

Doing Business in IndonesiaKeynote: Leith Doody

This publication contains market and industry specific general information and does not address the circumstances of any particular individual or entity. While all efforts have been made by Asialink Business, Australia Indonesia Business Institute (AIBC) and Tapp to ensure that the data and information provided herein are accurate, the accuracy of the information in the future cannot be guaranteed. Users of this document should undertake their own independent analysis and obtain appropriate professional advice, if required, before acting upon such information in any given situation. Asialink Business, AIBC and Tapp accept no liability for any loss which may arise from the use of the information contained in this publication.

Reproduction of any part of this publication without prior written approval of Asialink Business, AIBC and Tapp is strictly prohibited.

The information in this document is accurate as of April 2019.

Disclaimer

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2. Introduction to Indonesia

3. Technology and the Digital

Economy

4. Business culture

1. Setting the scene: ASEAN

1. Setting the scene: ASEAN

“The IMF forecasts that over the next five years, six of ASEAN’s economies will growfaster than China, and every single one of ASEAN’s economies will grow faster than boththe United States and Europe,”

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Countries in the (ASEAN) and their neighbours will undergosignificant social, economic and industrial change over the coming decades. CSIRO have identified potential ‘Sunrise Industries’ expected to emerge.

www.data61.csiro.au

https://dfat.gov.au/about-us/publications/Documents/why-asean-and-why-now.pdf

2. Introduction to Indonesia

Indonesia-AustraliaA relationship is born

In 1933, the Australian Government despatched a goodwill andtrade delegation to South East Asia, upon Australia’s first tradeship, or showboat.

The ship was a turbine steamship, owned by the Royal DutchPacket Company, called the “Nieuw Holland”.

On board were 120 passengers covering finance, manufacturing,primary production and shipping, plus federal and staterepresentatives and the media.

The delegation visited ten ports across: New Guinea, NetherlandEast Indies (Indonesia), and the Federated Malay States(Malaysia).

During the visit to Indonesia the delegation paid a formal visit onH R H Sri Sultan Hamengkubuwono VIII at the Kraton inYogyakarta.

On the return to Australia of the mission, the leader recommendedstrongly, to the Minister for Commerce & Customs that trade officesbe established in Batavia and Hong Kong.

In 1935 Mr C E. Critchley was appointed as Australia’s first TradeCommissioner to Batavia, as Jakarta was then known.

• 34 Provinces• 17,508 islands• 16th largest economy in the world• 3rd largest democracy behind India and the US• Forecast to be World’s 4th Largest GDP by 2050• 264 million population with around half of its residents

under the age of 30• Middle Class of 52 million people• Democratic system of government and a market-based

economy that is relatively open to foreign investment and participation

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Fast Facts

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The Business Case for Indonesia

• Emerging middle class

• Proximity to Australia

• Young and tech savvy consumers

• Launchpad to the ASEAN region

• FTAs and Comprehensive Economic Partnership Agreements (CEPA)

Jababeka Development

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Perceived Challenges

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Researching Indonesia

Comprehensive research is crucial when entering the Indonesian market because of its unique features, including:

• Geographical and cultural complexity

• The speed with which the market can change and evolve

• Rapid change in rules, regulations and the focus of enforcement authorities

• A lack of consumer information and vague regulations

• A shortage of publicly available information to assist with understanding processes and rules. Public databases are in short supply.

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Getting started

You should develop an Indonesia strategy before deciding on how to enter the Indonesian market. In particular, it is important to:

Avoid going into Indonesia cold – get a foot in the door first

Consider carefully who you use to help you get started

Make sure you are directly involved in the setting-up process

Allow plenty of time for bureaucracy, both filling in forms and waiting for approvals

Form a strategy based on research specific to your industry and your product or service

3. Technology and the Digital Economy

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Tech trends and opportunities

o Indonesia’s digital innovation sector is rapidly evolving

o Seventy per cent (185 million) of Indonesia’s 264 million people are aged 39 or younger and are relatively tech savvy.

o One third of Indonesians have internet access and this rate is growing

o Smartphones are the key platform for accessing the net, with more than 280 million SIM cards in use across the archipelago.

o Currently 1.6% of sales in Indonesia are made on e-commerce sites, compared to 13% in China.

o Incubators and co-working spaces are appearing across big cities to facilitate the growth and development of start-ups.

• IA CEPA will:

• Guarantee the free flow of data or information across borders for service suppliers and investors

• Create confidence for software exporters

• Facilitate electronic trade

• Protect consumers from spam and privacy invasion

• See https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/outcomes-documents/Pages/outcomes-electronic-commerce.aspx

Impact of IA CEPA on Tech

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• Indonesia currently has 4 tech ‘Unicorns’, with a fifth predicted to be minted in 2019 (Australia has two)

• Go-Jek (Ride Hailing)

• Traveloka (Travel Site)

• Tokopedia (e-Commerce Market Place)

• Bukalapak (e-Commerce Market Place)

• https://www.reuters.com/article/us-indonesia-startups/indonesia-expects-to-have-more-than-5-unicorns-by-2019-minister-idUSKCN1G310J

Tech ‘Unicorns’ in Indonesia

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Social Media in Indonesia

• Indonesia is ranked high for social media penetration

• 130 million Facebook users — active and inactive — Indonesia comes joint 3rd globally and first in Southeast Asia.

• 62 million are on Instagram, 4th in the world

• Joko Widodo has 11.1 million followers on Twitter (as of April 2019) and has significant presence across different platforms

The biggest risk for doing business with Indonesia is not doing business!

Indonesia now is the equivalent of China in the 1990s – opportunities are abundant for Australian business

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Business CultureRoger Nowell, Capability Development

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“a propensity to suspend judgment –to think before acting”

“Does culture have anything to do with this?”

RESPOND Rather than

REACT

© Asialink Business 2018

• I/You focus• Start with task• Feedback in

message• Direct and explicit• Clarity is primary• Time is Money.

• We/us focus• Start with relationship• Feedback deferred to

face to face or phone• Indirect and implicit –

between the lines• Saving face is primary• Time is flexible.

LOW CONTEXT HIGH CONTEXT

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Contrasting approaches

Hofstede’s Power Distance Index (1<100)

Country Power Distance IndexMalaysia 100

Philippines 94China 80

Indonesia 78India 77

Singapore 74Hong Kong 68

Thailand 64South Korea 60

Taiwan 58Japan 54

Australia 36

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High power distance

Low power distance

Hofstede’s Individualism (1<100)

Country IndividualityAustralia 90

India 48Japan 46

Philippines 32Malaysia 26

Hong Kong 25Japan 20

Singapore 20Thailand 20

South Korea 18Taiwan 17

Indonesia 14

Individualist societies

Collectivist societies

Key differences

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Key considerations – Tax & Accounting• Wendy Hartanti

Director & Treasurer, Australia IndonesiaBusiness CouncilDirector, PwC

Tax profileAustralia Indonesia

Self-assessment regime Yes Yes

Statute of limitation Generally 4 years other than for fraud and transfer pricing

Generally 5 years, except for criminal acts

Company tax rate Generally 30% Generally 25%

Default tax year end 30 June 31 December

Lodgment due date Generally 15 Jan Generally 30 April

Tax group Yes No

Ability to carry forward tax losses

Yes Yes, max period of 5 years

Ability to carry back tax losses

No No

Frequency of audit Increasing High

GST / VAT Generally 10% Generally 10%

Repatriation of profits

Dividend WHT: 15% Interest WHT: generally, 10% Royalty WHT: 10/15%

(reduced from 20%)

After tax profits are subject to branch profits tax (BPT) at 15%

Aus Co

Indo Co

Aus Co

Indo branch /

PE

Accounting reporting requirements

• Generally, 31 December year end

• Must be maintained in accordance with the Indonesian FAS

• Prepared using IDR and in Bahasa Indonesia

• Allowed to use English and USD currency with permission from DGT and Ministry of Finance

• All accounting books and records must be kept for at least ten years

• Certain companies are required to have their financial statements audited by a qualified auditor

Practical tips

• Obtain good advice for your investment. Don’t cut corners.

• Invest the time and money in getting your set up and licencesin order BEFORE you do anything to avoid problems down thetrack.

• Protect your IP.

• Corruption. Don’t do it – you don’t need to!

• Don’t ignore the work permit requirements

• Engagement with the tax office.

Key considerations – Legal

• Jared HeathDirector, Australia Indonesia Business CouncilPartner, Corrs Chambers Westgarth

• Cameron GrantForeign Counsel, Soemadipradja & Taher

General

• It’s all about relationships, not transactions• Investment framework

• Negative List• Investment structures

• Foreign Representative Office• Foreign Investment Limited Liability Company – PMA

Company• Not-for-profit foundation – Yayasan

• Contracting• What is an agreement? MOUs may be legally enforceable and

must be performed in good faith• Bahasa Indonesia: Agreement must be in Bahasa Indonesia

or at least bilingual• Courts: Consider preferred dispute resolution mechanisms,

including Indonesian or foreign arbitration or litigation

Tech sector

• Overview of regulations• Young regulatory regime• Perverse outcomes • Pressing need for reform

• Restrictions on foreign investment• Generally open• E-commerce restrictions

• Data pitfalls• Data localisation• Personal data handling

• Going forward• Regulatory sandboxes • New negative investment list• New Competition Law

• Questions?

Copyright Tapp Group

Doing Business in Indonesia: Case Study

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Business in Indonesia

1. Tapp2. A market for Tapp3. The people4. The advancements5. Our partner

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Market Indonesia

265.4MILLION

TOTAL POPULATI

ON

Percentage of the adult population (that responded) that currently uses each kind of device Source: Hootsuite Indonesia Digital Landscape 2018

177.9MILLION

PENETRATION:

67%

UNIQUE MOBILE USERS

$

HAVE A BANK

ACCOUNT

HAVE A CREDIT

CARD

36% 2.0%

Panel Discussion

Lucy LiuCo-Founder & President - Airwallex

Fil FiliposkiCo-Founder & Director - Cyber Security Hub & AttackForge

Helen BrownManaging Director - Bisnis Asia

Amelia KingTrade Specialist - Global Victoria

Upcoming Activities

Global Victoria Trade Mission to CommunicAsia 2019

• Singapore 18-20 June• Jakarta 21 June (optional)

• Applications close on 5 May

Thank you