Doing Business - Singapore vs Indonesia

In this article, we explore the feasibility of doing business in Singapore vis-a-vis Indonesia, with respect to areas such as business environment, workforce and taxation. 

Economic Overview

Indonesia is the 16th largest economy in the world and the largest economy in Southeast Asia. As a young democratic country, Indonesia has maintained political stability since emerging from decades of autocratic rule. Demand for infrastructure in Indonesia is fueled by both economic growth and urbanisation, while petroleum and minerals continue to make up the majority of exports. To continue reforming its investment climate, the government has rolled out measures to ease red-tape, open up sectors for investment and improve public services. 

While Indonesia has been classified as a newly industrialised economy, Singapore is a highly-developed, trade-oriented one. Due to a small land area and a lack of natural resources, Singapore had to rely on innovation and human capital for its development. This has successfully resulted in a leading global economy for high-end manufacturing and engineering, bio-technology and financial services. Singapore’s strong institutions and effective policymaking, a free trade philosophy and a diversified economy remain a major draw for investors. 

Business Environment

With ongoing reform efforts in place, Indonesia now stands among the world’s top 10 improvers (World Bank’s Ease of Doing Business Index 2017). It also climbed 15 places to #91, up from its previous rank of #106. Comparatively, Singapore is the second easiest place to do business in the world. Here are key comparatives at a glance: 

• Starting a business (Singapore) #6; Starting a business (Indonesia) #151
• Getting credit (Singapore) #20; Getting credit (Indonesia) #62
• Enforcing contracts (Singapore) #2; Enforcing contracts (Indonesia) #166
• Singapore is also more open to business and trade than Indonesia. Due to Singapore’s open-door policy, importing and exporting require less procedures and are relatively more inexpensive compared to Indonesia.

The legal system in Indonesia is based on civil law, while Singapore’s legal system is based on the English Common Law. In general, common law courts abide by past judgments in examining an issue, while in civil law systems, codes and statutes are designed to cover all cases. The World Justice Project, which measures the effectiveness of rule of law in each country, has ranked Singapore and Indonesia #9 and #61 for rule of law respectively. 

Workforce

With a population of over 250 million, Indonesia is the world’s fourth most populous nation. Indonesia has a young workforce, with over 50% of its population under the age of 30. Today, 97% of Indonesia’s citizens receive a primary education, and only 23% of students make it to the tertiary level. 
Though Singapore’s 5.5 million population has a median age of 40 years, more than 70% of residents aged 25 to 34 are tertiary educated. Overall, the tertiary educated accounted for 40% of Singapore’s population aged 25 and over. 

Business Language

Bahasa Indonesia is Indonesia’s official language that is used for both business and education. Though English is spoken quite widely in Indonesia, it is less so outside its major cities. As such, business owners and foreign workers may like to consider taking lessons in Bahasa. In addition, more than 700 indigenous languages are also spoken across the archipelago, such as Javanese, Sundanese or Madurese. 

By contrast, English is the medium of education and business in Singapore. In addition to learning English, citizens study their mother tongue – Mandarin, Malay, or Tamil – in school. Most Singaporeans are therefore effectively bilingual.

Business Incorporation & Set-Up

Starting a business in Indonesia can be complex and time-consuming for foreigners, who will have to seek approval from the Indonesia Investment Coordinating Board (BKPM) before doing business. Companies that are wholly-owned by foreigners are called Perseroan Terbatas Penanaman Modal Asing (PT PMA), which require 2 shareholders and a minimum paid-up capital of IDR 10 billion (approx. S$1 million). 

The Indonesian LLC (Perseroan Terbatas) is the most prevalent type of business entity used by locals to do business in Indonesia. Other forms of business entities include a civil partnership (Maatschap or Persekutuan Perdata), firma partnership, representative office, permanent establishment and limited partnership (Comanditer Venootschap). Foreign parties, however, are not allowed to establish partnerships in Indonesia. 

Corporate entities in Singapore include Private Limited Company, Subsidiary Company, Representative Office and Sole Proprietorship. While it takes only 24 hours and two procedures to incorporate a company in Singapore, it takes 3-6 months and as many as 9 procedures to form a company in Indonesia. 

Filing Requirements

Companies in Indonesia must present annual reports to their General Meeting of Shareholders (GMS) after the close of each financial year. Some companies, such as public companies and companies with a turnover of more than IDR 50 billion are required to have their financial statements audited by a public accountant. In addition, publicly listed companies must submit financial reports to Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK). 

Each year, companies in Singapore must hold an Annual General Meeting (AGM) once every calendar year. Annual financial reports are required to be audited, and tax returns must be filed on an annual basis. 

Immigration Requirements

A business visa is the fastest and easiest type of visa for doing business in Indonesia. However, the 60-day visa should not involve taking up employment or receiving payments in Indonesia. Expatriates employed in Indonesia can apply for the KITAS, a limited stay permit. However, employers are required to specify why the job requires a foreign specialist. After having KITAS for three years, individuals will be eligible for KITAP, a permanent stay permit. 

In Singapore, an Employment Pass can be issued to foreign professionals, managers and executives, who are required to draw a minimum monthly salary of S$3,600. In addition, foreign entrepreneurs wanting to start and operate a new business in Singapore can apply for the EntrePass. 

Income Tax

Individuals living in Indonesia or are in the country for more than 183 days within a 12-month period are subjected to a progressive income tax rate of up to 30%. 
By contrast, Singapore’s progressive tax rate goes up to 22%. 

Corporate Tax

Companies in Singapore enjoy a headline corporate tax rate of 17% on their chargeable income. 
In general, a corporate income tax rate of 25% applies in Indonesia. 

Tax Exemptions & Incentives

In addition, small and medium-enterprises with an annual turnover below IDR 50 billion will receive a 50% tax discount for gross revenues of up to IDR 4.8 billion. 

For the first 3 years, newly incorporated companies in Singapore can enjoy full tax exemption on their first S$100,000 of chargeable income. 

Withholding Tax

Non-residents are subject to a 20% withholding tax on Indonesia-sourced income. Singapore’s withholding tax, however, ranges from 10 to 17%. 

Foreign-Sourced Income

Chargeable income for resident companies in Singapore includes profits arising from both Singapore and foreign companies when remitted to Singapore. Profits earned and retained outside the country are not taxable. 

On the other hand, companies in Indonesia are taxed on both domestic and worldwide-sourced incomes.  

Country Rankings at a Glance

YEAR	CATEGORY	SINGAPORE’S RANK	INDONESIA’S RANK	SOURCE
2017	Ease of Doing Business	2	91	World Bank, 2017 Ease of Doing Business Report
2016	Ease of Doing Business	1	109	World Bank, 2016 Ease of Doing Business Report
2016	World’s Freest Economy	2	99	Heritage Foundation’s Index of Economic Freedom
2015-2016	World’s Most Competitive Economy	2	37	World Economic Forum, Global Competitiveness Report
2015	Country with Least Corruption Perception	8	88	Transparency International’s Corruption Perceptions Index
2015	World’s Best Country for Business	8	93	Forbes’ Best Countries for Business Index
2015	World’s Most Competitive Economy	2	42	IMD, World Competitiveness Yearbook
2010	Country Most Open to Trade	1	68	World Economic Forum, Global Enabling Trade Report
2009	Country with Lowest Tax Misery	11	19	Forbes Tax Misery and Reform Index
2010	Ease of Paying Taxes	4	130	PWC, IFC, World Bank’s 2011 Paying Taxes Survey
2010	World’s Best Country for Life Experience	12	–	HSBC’s 2010 Expat Experience Report
2010	World’s Best Labor Force	1	–	BERI’s Labor Force Evaluation Measure
2010	Most Efficient Bureaucracy in Asia	1	9	Political and Economic Risk Consultancy Survey 2010
2010	Best Place for Asians to Live	1	23	ECA International’s 2010 Location Ratings System
2010	World’s Lowest Risk City for Employers	3	67	Aon Consulting’s People Risk Index

On a Final Note

Despite Indonesia’s growing consumer sector and ongoing reforms, the ease in doing business in Singapore is one of the key reasons as to why more investors and traders prefer Singapore to Indonesia. Connectivity, business-friendly policies and a stable regulatory environment also underscore the Republic's appeal as the business gateway to South-east Asia.