Finding the most suitable location for your manufacturing company in Indonesia is crucial for the success of your business. In this article, we take a look at the key benefits of building your factory in an industrial area in Indonesia.
Industrial areas in Indonesia
According to the Indonesian Industrial Estates Association (Himpunan Kawasan Industri Indonesia – HKI), there are 73 industrial estates in 20 regions all over Indonesia.
Many of the licenses of manufacturing companies depend heavily on the location of the plant. Therefore, it is indispensable to choose the most suitable location for your manufacturing. It is also important to take account of the necessities for the production, e.g proximity to natural and labor resources, ports, and main transport routes.
4 main benefits of setting up a factory in an industrial estate
In addition to incentives that help companies cut their costs, building your plant in an industrial park can also increase its efficiency significantly.
#1 No need to apply for a construction permit for specific areas
Choosing an industrial estate for the location of your factory means that you will have one less thing on the list. That is, you don’t have to apply for a separate construction permit in order to build a plant in that specific area.
Furthermore, in some areas, it is not even allowed to build a factory. According to the zoning regulation for property development, areas such as green or residential zones prohibit industrial activities.
#2 Existing infrastructure
Industrial estates already provide easy and cost-effective access to electricity, water, and roads since the surrounding infrastructures have been established to support industrial activities. Consequently, you can focus more on your core activities.
It is also easier to access ports and main transport lines for goods distribution and logistics which otherwise could take more time and result in a larger waste footprint. Moreover, most industrial estates also provide support for industrial waste disposal where tenants do not have to worry about the complex process and regulations regarding it.
#3 Easier to find land
Land acquisition could also be a problematic part of the plant building process in Indonesia. Especially when you have to deal with the people claiming the land or with the neighbors.
Thus, avoiding conflicts with residents or neighboring communities is yet another reason to build your factory in an industrial estate since the permit for industrial activities is legal and aligns with the zoning.
Furthermore, the government promotes the Kemudahan Layanan Investasi Langsung Konstruksi (KLIK) Program which allows starting the construction process already after the Principal License acquisition while waiting for other additional licenses.
However, the Industrial License together with other licenses have to be settled as soon as 80% of your main production machines have been installed and before operation activities begin. Presently, the KLIK Program has already been applied to 14 selected industrial estates, according to the BKPM.
#4 Tax incentives in industrial areas
In some areas, regional governments also create incentive programs that could benefit the company. For example, the VAT tax allowance for import products or machinery coming into the industrial area, and customs tax allowance for goods coming from selected ports such as ports in free trade zone.
Some popular industrial estates in Indonesia
|Krakatau Industrial area||Cilegon, Banten|
|Modern Cikande Industrial Estate||Serang, Banten|
|Lippo Cikarang Industrial Park||Bekasi, West Java|
|Suryacipta City of Industry||Karawang, West Java|
|Bintang Industrial park||Riau islands|
Key facts regarding industrial areas in Indonesia
#1 Most industrial areas do not rent properties, they only sell them. Renting a plant or a warehouse is possible only if there has already been an existing tenant. You can rent the property for 1 to 5 years, after that you can extend the lease with a new agreement and a new price.
#2 Majority of the payments are settled within one year, in maximum 6 installments. However, after the 20% down payment, you can have the Sales and Purchase Agreement (Pengikat Perjanjian Jual Beli – PPJB) which allows you to start registering all necessary licenses and permits.
#3 Also, note that industrial areas do not provide building service. However, industrial estate managements have constructor lists and connections among construction vendors.
#4 Toll manufacturing is only available in large industrial areas such as Bekasi, Cikarang, Karawang.
#5 All prices, including maintenance, are based on one square meter and always exclude the VAT. It is possible to pay in US dollars.
Regulations for manufacturing companies in Indonesia
Manufacturing businesses are not listed in the Negative Investment List (DNI). Therefore, it is possible to establish a 100% foreign-owned manufacturing company with at least 2 shareholders.
Also, take note that you can sell the products manufactured by the plant only to a distributor, not to retailers or to the end customers directly. In addition, you also cannot register manufacturing and distribution classifications under one company since they require separate legal entities.
The current DNI (Regulation No. 44, 2016) sets the maximum allowed foreign ownership of distribution businesses to 67%. However, it is possible to set up a 100% foreign-owned distribution company if you meet the following conditions:
Distributor company is affiliated with the manufacturer
Manufacturer is also a shareholder in the distributor company
Additionally, you can change your current trading company’s activities from an import company to a distribution company afterward.
Minimum investment and paid up capital
The minimum capital requirement for foreign-owned companies (PT PMAs) in Indonesia is Rp. 10 billion (~USD 750,000). This amount includes both working (salaries, utilities, etc.) and fixed capital (machinery, office rent, etc.).
You don’t need to inject the minimum capital all at once. In reality, it is simply a plan to demonstrate your company’s sustainability and you have 3 years to fully realize it. Additionally, this time can be extended as well if you haven’t met the realization target in 1 year.
Paid up capital of Rp. 2,5 billion (~USD 190,000), on the other hand, should be submitted during the company registration process. You can prove it by transferring it to your corporate bank account or by submitting a capital statement letter signed by the shareholders.
More information about minimum capital in Indonesia in our previous article.
Process of setting up a manufacturing company in Indonesia
#1 Choose the location and settle land acquisition
Firstly, manufacturing company establishment starts with choosing the location of your future plant and settling land acquisition.
According to the Law 5 of 1960, foreign companies and individuals cannot have the Freehold Certificate (SHM). However, foreign companies (PT PMAs) can obtain the Right to Build Certificate (SHGB) which allows to rent and use the land.
The SHGB is valid for 30 years and can be extended up to 20 years. Also, note that requirements for SHGB can differ in each region.
#2 Incorporate your PT PMA
The total time of incorporation process in Indonesia is roughly 6 weeks. However, for manufacturing companies, it may take some additional time since this business classification requires additional licenses.
For more detailed information on foreign-owned company registration process in Indonesia, see our previous blog post.
#3 Obtain other necessary licenses
After your incorporation process is completed, you can proceed to the acquisition of other required licenses such as import license, industrial license, and import tax exemption.
Also note that if your plant is in an industrial estate, you don’t have to acquire a construction permit nor a disturbance license /HO.
Additionally, other documents that need to be reported to the Industrial Estate include:
Deed of Establishment and its amendment
AMDAL and UPL enforcement
Licenses for manufacturing businesses
|Import license for manufacturing companies (API-P)||Given to industrial companies to import raw materials and machinery |
Not for importing trading goods
One company is allowed to have only 1 import license, therefore it is wise to separate the trading activities with different legal entities
|Master List Application||Enables tax exemption on imported goods/materials/machinery necessary for production|
|Location License||Required only if the plant is not located in an industrial area|
|Analysis related to the environmental effect (AMDAL)||Environmental approval is necessary|
|Environmental watch Plant (UPL)|
|Industrial License||Allows industrial enterprises to operate in their fields|
Straits Partners provides complete service from setting up the company to finding and negotiating terms with the industrial area.
Reach out to us for a consultation via [email protected] or leave the details regarding your planned future business in the form below.