How Foreigners Can Legally Start a Business in Bali

Starting a business in Bali can be a smart move, especially with the island’s growing appeal to both tourists and entrepreneurs. 

Bali attracted 219,852,000 USD (about 3.25 trillion IDR) in Foreign Direct Investment (PMA), spread across 2,513 projects, showing the potential for new ventures. 

But before diving in, it’s crucial to understand the local business structures, taxes, and key tips that will help you succeed as a foreign investor. 

Whether you’re setting up a small venture or a larger project, knowing the essentials can make all the difference in turning your idea into a profitable reality.

Can foreigners legally own a business in Bali?

Yes, foreigners can legally own a business in Bali, but there are a few things to know. Bali, being a part of Indonesia, has specific laws that determine how a foreigner can set up and operate a business. 

The most common method is through:

• PMA (Foreign Investment Company), which allows full ownership but requires a minimum investment and, in some cases, a local partner or representative. 
• Local entity or nominee structure, but these come with added complexities and risks. 

It’s important to understand the legal requirements, taxes, and business structure that best suit your goals to ensure a smooth process.

Read more: 15 Profitable Business Ideas & Opportunities in Bali

Choose the right business structure, before starting a business

Setting up your business in Indonesia involves critical decisions, especially selecting the right business structure. Your choice significantly affects operations, liabilities, and taxes.

1. PT PMA (Foreign-Owned Limited Liability Company)

Perseroan Terbatas Penanaman Modal Asing (PT PMA) is required for all foreign companies in Indonesia.

Any percentage of foreign ownership (1%, 51%, or 100%) classifies your company as PT PMA.

Key structure: 

• Allows foreign direct investment
• Permitted to generate income within Indonesia
• Subject to specific capital investment and regulatory requirements

2. Representative office

This entity represents a foreign company in Indonesia. Its purpose is non-commercial; cannot earn income locally.

Used for: 

• Market research and promotional activities only.
• Ideal for companies assessing the Indonesian market without full commercial operations.
• Less complicated setup compared to PT PMA.

Each business structure has distinct regulatory frameworks and specific legal requirements. Moreover, the tax implications can vary significantly between a PT PMA and a representative office. 

Given these complexities, it is crucial to make informed decisions tailored to your business objectives. 

To simplify this process and ensure compliance, consider seeking advice from legal experts familiar with Indonesian business laws. Professional guidance can help your business succeed and avoid common challenges.

Company tax in Indonesia

In Indonesia, corporate taxation is structured to accommodate businesses of different scales, ensuring a fair contribution while supporting smaller enterprises.

1. Standard corporate tax rate

The general corporate income tax (CIT) rate applied to companies operating in Indonesia is 22% of their taxable profit.

2. Tax incentives for small businesses

To support micro and small enterprises, the government provides a reduced tax rate for companies with an annual turnover of less than IDR 4.8 billion:

• For the first three years of operation, these businesses enjoy a 0.5% tax on turnover rather than a profit-based tax.
• After the initial three-year period:
  • If their annual turnover remains below IDR 4.8 billion, they transition to an 11% tax on their profit.
  • If their turnover exceeds IDR 4.8 billion, the standard 22% corporate tax rate applies.

This progressive structure allows startups and small businesses to grow with minimal tax burden in the early years while aligning them with broader corporate tax obligations as they expand.

Read more: Foreign Company Registration in Indonesia: A Simple Guide 

How to start a business in Bali

Setting up a PT PMA in Bali generally costs between IDR 25 million to IDR 40 million, and the entire process can typically be completed within a few weeks.

By following these steps, starting a business in Bali as a foreigner can be a rewarding venture. However, professional guidance is crucial to navigating the legal and regulatory requirements effectively.

Here are the key steps for starting a business in Bali as a foreigner:

1. Choose your business activity

The first step in starting your business in Bali as a foreigner is selecting a business activity that aligns with your interests, expertise, and market demand. Consider the type of product or service you want to offer and ensure it complies with local regulations. 

Visit the Investment Coordinating Board (BKPM) website, which provides a list of approved business activities for foreign investors. This will help you understand the legal framework and restrictions surrounding foreign ownership and the type of business you can operate in Bali.

2. Decide on the legal entity

In Indonesia, foreign entrepreneurs have the option to establish two main types of legal entities:

• PT PMA (Foreign-Owned Limited Liability Company): This entity allows full ownership by foreign nationals and is the most common structure for foreign investors in Bali.
  
  A PT PMA can hire foreign employees, sponsor business visas, and operate in most sectors that allow foreign ownership. It’s a popular choice for those looking to establish a fully foreign-owned business.
  
• Local PT Company: This type of business structure requires all shareholders to be Indonesian citizens. It’s suitable for foreign entrepreneurs who partner with local nationals or prefer a joint venture model. With this structure, foreigners can still be involved in management but cannot hold full ownership of the company.

3. Choose a business name

Selecting a unique and legally compliant business name is essential. The name should reflect your brand while adhering to Indonesia’s regulations on business names. 

Once you’ve decided on the name, submit it for approval to the Ministry of Law and Human Rights. They will verify that your chosen name is distinctive and does not violate any naming conventions or trademarks.

4. Prepare the deed of incorporation

The Deed of Incorporation is a crucial document that officially establishes your business in Bali. This document outlines the legal structure of your company, including the Articles of Association, shareholder details, business activities, and other fundamental information. 

It must be prepared by a public notary, who will ensure all the necessary legal requirements are met. Think of it as your company’s “birth certificate.” Once notarized, this deed needs to be filed with the Ministry of Law and Human Rights for further processing.

5. Obtain legal entity approval

After the deed of incorporation is notarized, you need to seek Legal Entity Approval from the Ministry of Law and Human Rights. This step is essential to formalize your business registration and obtain official recognition as a legitimate business entity in Bali. 

It’s similar to receiving an official seal or stamp of approval, indicating that your company has met all the necessary legal and regulatory requirements to operate in Indonesia.

6. Register for tax and obtain a tax ID (NPWP)

A critical step in setting up your business is registering for a Tax Identification Number (NPWP) with the local tax office. This number is essential for all business-related tax matters, including VAT, corporate tax, and employee income tax. 

In addition, foreign-owned companies must also secure a Taxable Entrepreneur Confirmation (PKP), which confirms your status as a taxable entity. These tax identifiers are necessary for opening a business bank account, complying with tax laws, and applying for other relevant business permits.

7. Obtain a domicile letter

A Domicile Letter is a document issued by the local district (kelurahan) that confirms your business’s physical address. This letter is vital for proving that your business exists at a legitimate location in Bali. 

It is often required when applying for other permits and licenses, such as a business license or certain operational permits. Ensure your business address is registered correctly to avoid any legal complications down the line.

8. Get your company registration certificate (TDP)

The Company Registration Certificate (TDP) serves as official proof that your business is registered and recognized by the Indonesian government. 

It’s an essential document for any business operating in Bali, as it acts as confirmation of your company’s legal existence. This certificate is often requested by local authorities, suppliers, and financial institutions, so it’s crucial to have it on hand to ensure smooth operations.

9. Apply for the NIB (Business Identification Number)

Once your company is registered, you’ll need to apply for a Business Identification Number (NIB). This number is issued by the Online Single Submission (OSS) system and acts as your company’s primary identifier in Indonesia. 

Along with the NIB, you’ll also receive a business license and location permit. The NIB is required to legally operate your business, and it helps ensure that your company complies with the country’s regulatory framework.

10. Apply for additional business licenses

Depending on the nature of your business, you may need to apply for additional licenses or permits to operate legally. These could include sector-specific licenses for activities like hospitality, health, or tourism, or environmental permits if your business has a potential impact on the environment. 

Research the specific requirements for your business type and ensure you have all the necessary licenses in place before you begin operations.

11. Open a local business bank account

Opening a local business bank account in Bali is essential for managing your company’s finances. To do so, you’ll need to present your NPWP and other documents, such as your Deed of Incorporation and company registration certificate. 

A business account is important for handling payments, receiving funds, and ensuring your business operates efficiently in compliance with Indonesian banking regulations.

12. Secure a business visa

If you, as a foreign entrepreneur, plan to be actively involved in the management of your business, you’ll need to secure a business visa from the Indonesian Immigration Office. 

This visa allows you to stay in the country legally while managing your business operations. Depending on your circumstances, you may apply for a short-term or long-term business visa, or potentially a multiple-entry business visa.

Additional tips for starting a business in Bali

One of the most crucial aspects of managing a business, especially in a location like Bali where international transactions are frequent, is having an effective expense management system. 

As a foreign entrepreneur, you’ll likely be handling various transactions in different currencies, making it important to choose a solution that supports international remittance transactions seamlessly.

Here’s what to look for in the software:

• Seamless integration with your accounting system to ensure smooth financial tracking.
• Multi-currency support for handling transactions in different currencies.
• Low transaction fees for international remittances to reduce costs.
• Real-time currency conversion to ensure accurate financial reporting.
• Compliance with local and international regulations to ensure your transactions are legally sound.
• User-friendly interface for easy navigation and monitoring of payments and expenses.
• Automated reporting to track both local and international expenses efficiently.

With the right system, you can efficiently manage payments to international suppliers, contractors, and clients, saving time and money while focusing on business growth.

Streamline your cross border payment with Mekari Expense

Managing cross-border payments can be complex, but with Mekari Expense International Remittance, you can manage international payments across 40+ countries and 15+ currencies, including SGD, USD, EUR, and more easily. 

Here’s why it’s the ideal solution for your business:

• Real-time exchange rates: Monitor live exchange rates to ensure accurate payments and avoid the risk of fluctuating rates affecting your budget.
• Flexible access: Pay invoices in various currencies across the globe with just a few clicks, saving you time and streamlining your operations.
• Fast transfer: Quickly and securely transfer funds abroad, ensuring timely payments without disruptions.
• Practical solution for international transactions: Track and manage payments easily, with transparency through real-time transaction reports, so you’re always informed.
• Comprehensive monitoring: Stay up-to-date with the latest exchange rates and cut-off times, ensuring accuracy every time you send funds.

Simplify your international transactions, optimize workflows, and seamlessly integrate with accounting software for a fully connected experience. 

Choose Mekari Expense to take control of your cross-border payments and keep your business moving smoothly.

References

Finns Beach Club. ”The Ultimate Guide To Starting A Business In Bali As A Foreigner”
Our Year in Bali. ”Opening a Business in Bali”