Indonesia Country Facts
We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in your country of choice and employment contracts.
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Expanding into Indonesia generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.
What types of Work Visas and Permits for Indonesia are there?
Visas to enter this Southeast Asian archipelago depend on the trip’s purpose and duration as well as applicant’s nationality. For instance, around 86 countries’ nationals can visit Indonesia through the Visa on Arrival (VoA) policy for a 30-day stay or apply online for an e-VoA (B213) A 30-day extension may be allowable at an Immigration Office or online. Nationals from nine ASEAN countries are visa exempt.
For longer stays, people can apply for one of the national visas.
Visitor or Visit Visa (ITK)
Can cover a number of purposes. For example, Social, Cultural or Family Visits, Business Activities, Transit, Sporting Activities. B211 is the index for a Visit Visa (non-working purpose). This is a good option for those who are not visa-exempt or cannot receive a Visa on Arrival (VoA). This visa cannot be applied for while in the country on a VoA. Also, the ITK Visitor Visa can be changed to an ITAS under certain circumstances.
Tourist Visa B211A. 60-day visa initiated from January 2023; can be extended to 180 days.
Business Visa B211B. 60-day visa which can be extended for up to one year but individual trips can be for no longer than 60 days at one time.
- Single entry level – allows short trips, extendable. For more information and required documentation: An e-visa or PDF is sent by email and used to pass through immigration on arrival
This is generally applied for to stay in the country long term but is not for employment purposes. However, Digital Nomads often use this single-entry visa to work remotely. As of the end of 2022, there had been no introduction of a specific Digital Nomad Visa, although one is being considered.
- Multi-entry level (VKBP) or Visa Kunjungan Beberapakali Perjalanan (D212) is generally for business purposes or family visits and valid for one year, but only allows trips of 60 days at any one visit. This is a good long-term visa for those needing to frequently travel outside Indonesia
Note: This was re-instated on November 28, 2022, to encourage tourism after COVID. PLUS, the VKBP is designed to encourage international business travellers. A sponsoring company in Indonesia can apply for the visa.
Second Home Visa
This was introduced on December 25, 2022, as a multiple entry tourist visa and is valid for either five or 10 years. Qualifying applicants need a minimum of IDR two billion, approximately €122,000 or US$130,000, in their bank accounts. Applicants’ activities should be confined to tourism. Those wanting to work have to apply for a work permit.
Applying for the Work Visas and Work Permits for Indonesia
It is not easy to negotiate the various steps towards being granted the relevant work documentation for onboarding personnel. Also, there are ratios to consider, the Foreign Worker Placement Plan to submit and fees to pay throughout the process; it can up to five months to complete.
For companies onboarding staff from overseas or transferring from a parent office:
- VITAS the Temporary Stay visa or e-visa to enter the country for work, investment etc. when coming from abroad
- ITAS is the Limited Stay Permit for permission to stay for up to two years, and requires the VITAS
- Work Permit is to legally work in the country (formerly called an IMTA) is now a two-part process – the RPTKA and the Assessment
- Multiple Exit Re-entry Permit allows the employee to exit and enter the country multiple times (MERP)
Steps in the work process
Most of the work documentation is obtained or instigated by the employer.
- Employees should have a job and employment agreement as the first step
- Employer needs formal approval to employ a foreign national i.e., RPTKA which is a Foreign Worker Placement or Utilisation Plan (Rencana Penggunaan Tenaga Kerja Asing). This applies to domestic companies (PT) who submit the RPTKA to the Ministry of Manpower, and wholly or partly foreign owned entities (PMA) to the BKPM The RPTKA Assessment of all employment information is carried out by the MOM in two working days
- The foreign employee applies for confirmation of the Duration of Work Authorisation and supplies all personal details, which are also assessed and verified by the MOM over two working days. On approval, the employer pays the DPKK (Expertise and Skills Development Fund) fees to the Ministry of Manpower (MOM) within three days
- Employer applies for the Work Permit, submitting documents and proof of paid DPKK fees and RPTKA approval to the the Ministry of Law and Human Rights (MOLHR) who will process the VITAS and Limited Stay Permit.
- The permit can be valid for one year and extended, depending on validity of the RPTKA, up to two years
- Once the Work Permit is approved, the next step is applying for the VITAS, so the employee can enter the country. This can be done at an embassy abroad or by the employer at the Directorate General of Immigration in Jakarta under the auspices of the Ministry of Law and Human Rights
(preferable). When issued, the VITAS or Temporary Stay Visa is only valid to use for 90 days to enter the country
- The VITAS is sent to the employer who emails a PDF attachment to the employee who takes a printout when entering Indonesia for immigration, who put a sticker in the passport. The sponsor makes an appointment for his employee to have his biometrics taken and Visa recognition
- Once employee enters Indonesia, the VITAS is in force until the ITAS is requested i.e., the Limited or Temporary Stay Permit, which can be done online at A digital copy is issued. Applicants still go to an KaIM (immigration office) to pay and receive a passport stamp
- An Exit and Re-entry Permit can now be applied for
Overview of Taxes in Indonesia
Figures are given in Indonesian rupiah (IDR), where applicable with euro and US dollar equivalents.
Personal Income Tax: There are five bands starting at 5% on income up to 60 million IDR (€3,630, US$3,870) to a top rate of 35% on the excess above IDR 5 billion (€302,630, US$322,530).
Severance Payments Tax: Above 50 million IDR (€3,030, US$3,225) taxed at three rates of 5%, 15% and a 25% top rate on excess above IDR 500 million (€30,260, US$32,250).
Lump Sum Pension Fund Payment: Above IDR 50 million (€3,030, US$3,225) taxed at 5%.
Value Added Tax (VAT): 11% in general on goods and services, with zero-rated exemptions including exports. The VAT law allows the government to change the rate between 5% and 15%.
Corporate Income Tax (CIT): The standard rate is 22%. A reduction of 3% can apply to public companies in some circumstances. Small enterprises with turnover under IDR 50 billion (€3,026, 280, US$3,225,275) can qualify for a 50% reduction on the standard rate.
Regional Corporate Taxes: Rates set by regional authorities can range from 0.2%-75% on a wide range of categories.
Corporate Branch Income: Profits are taxed at CIT rate of 22%. After-tax profits are subject to a withholding branch profits tax of 20%.
Luxury Goods Sales Tax (LST): Additional to VAT on such as private and commercial vehicles, vessels, aircraft, electronics goods, textiles, alcoholic drinks at rates from 10% to 95%.
Digital Services Tax (CST): A VAT rate of 10% applies to companies providing digital services, such as Zoom, Twitter and streaming services.
Withholding Tax (WHT): Rates vary between 2%-35% for Indonesian resident individuals and corporations; 10% or 20% applies to non-resident individuals and entities. Rates apply to dividends, royalties, interest and fees for technical services.
Capital Gains Tax (CGT): Non-residents are taxed at 5% on the gross value from sale of Indonesian assets. Gains by a resident company are generally taxed at the normal CIT rate of 22%.
Customs and Excise Duties: The Directorate General of Customs and Excise sets rates that generally range up to 15% but can reach 170%, and is responsible for collecting levies.
Other Taxes: Stamp duty (nominal); land and buildings transfer tax, maximum of 5%.
Personal Income Tax in Indonesia
Figures are given in Indonesian rupiah (IDR), where applicable with euro and US dollar equivalents.
Personal income tax for residents
Income | Tax on Excess
Up to IDR 60 million (€3,630, US$3,870) | 5%
Excess up to IDR 250 million (€15,130, US$16,126) | 15%
Excess up to IDR 500 million (€30,262, US$32,252) | 25%
Excess up to IDR 5 billion (€302,630, US$322,530) | 30%
Excess over IDR 5 billion | 35%
Non-resident individuals are liable to a general withholding tax of 20% on income earned in Indonesia.
Tax on severance payments
Rates apply if made in one amount or over a period up to two years. Payments into a third year are taxed at usual PIT rates.
Income | Tax on Excess
Up to IDR 50 million (€3,025, US$3,225) | 5%
Excess up to IDR 100 million (€6,050, US$6,450) | 15%
Excess up to IDR 500 million (€30,262, US$32,252) | 15%
Excess over IDR 500 million | 25%
Tax on lump sum pension payments: Payments above IDR 50 million (€3,025, US$3,225) are subject to taxation at 5%. Rates apply if made in one amount or over a period up to two years. Payments into a third year are taxed at usual PIT rates.
Note: There are no local taxes on personal income in Indonesia.
Individual Tax Rules in Indonesia
- The tax year is the calendar year from January 1 till December 31
- Where income is not withheld by employers for remitting to the revenue authorities, it must be paid through a registered tax payment bank (bank persepsi) with a return filed with the Directorate General of Taxes
- Individuals’ tax is due by the 15th day of the following month, with returns filed by the 20th day of that month
- The deadline for individuals to pay tax and file their return is the end of March after the calendar tax year
- Individuals can file an annual return electronically through the relevant tax office’s e-filing system
- Employment income comprises salary, overtime payments, bonuses, allowances and certain benefits in kind
- Individuals’ capital gains are liable at normal PIT rates
- Spouses file separate returns
Employers’ and Employees’ Social Security and Statutory Contributions in Indonesia
Employers must ensure their employees are covered by two government social insurance agencies, the Social Security Agency for Health Insurance (BPJS, Kesehatan) and the Social Security Agency for Workers’ Social Security (BPJS, Ketenagakerjaan). Employers deduct and remit employee’s contributions through payroll deductions along with their own percentage contributions of the employees’ salaries.
The multi-island Southeast Asian nation of Indonesia is a fascinating prospect, with an economy rich in natural resources that ranked 16th globally with Gross Domestic Product of 1,380 billion US dollars in 2022. Industrialisation, diversification and a drive to become the region’s e-commerce hub are among the factors attracting Foreign Direct Investment.
The usual choice of business structure for a subsidiary is a limited liability company, but this is not a straightforward route into the Indonesian economy. Wholly or partially foreign-owned subsidiaries must comply with the Foreign Capital Investment Law and be approved by the Capital Investment Coordinating Board (BKPM). It is also required to provide investment plans to the authorities.
There is a more practical choice … take a faster and simpler route into the Indonesian economy and bypass the complications of opening a subsidiary. Bradford Jacobs has the expertise to remove these potential obstacles. Our Professional Employer Organisation (PEO) specialists and Employer of Record (EOR) consultants will point you in the right direction – from recruiting the staff to managing every legal aspect of compliance. Instead of waiting weeks or months, you can be up-and-running in days … and your staff are always under your day-to-day control.
How to set up an Indonesia Subsidiary
A subsidiary operating as a limited liability company that is wholly or partly owned by a foreign company is known as a Penanaman Modal Asing (PMA). The subsidiary operates under Indonesia’s Company Law and must comply with requirements of the Foreign Capital Investment Law and be approved by the Capital Investments Coordinating Board (BKPM). A locally-owned LLC is a Perseroan Terbatas (PT).
Requirements include at least the following:
- Create the Deed of Establishment, which includes the Articles of Association, and have them authenticated by a notary public
- The Ministry of Law and Human Rights (MOLHR) verifies and registers the choice of company name
- The MOLHR issues the Company Decree, establishing the legal entity. If the considered risk is low, the company is ready to operate. If risk is medium, standard certification is obtained via the Online Single Submission (OSS) portal. For high risk entities a licence is necessary
- Companies intending to hire foreign staff may need a licence from the OSS
- The MOLHR assigns a tax identification number (Nomor Pokok Wajib Pajak, NPWP) for the company.
- Apply for the Certificate of Company Domicile and the business identification number (NIB), which also acts as the Company Registration Certificate (TDP) and the Importers’ Identification Number for reporting to the customs and manpower authorities
- Register with the relevant State Tax Office of the Indonesia Revenue Department; the National Social Insurance System and the Ministry of Manpower
- Details of registered office must be submitted to the OSS
- Other necessary requirements include: All documents relating to ownership or lease of any business properties, in addition to the registered office; documents and IDs of shareholders and directors; licences relevant to the type of business operation
What are the Benefits of setting up a Subsidiary in Indonesia?
The subsidiary operates in Indonesia as a separate and independent legal entity from the parent company, which is generally protected from responsibility for debts or liabilities, including legal issues. Shareholders and members are generally liable only to the extent of their contribution to the subsidiary’s capital. However, Indonesia’s Company Law allows for shareholders to be personally liable for any liabilities against the company in some circumstances.
The subsidiary provides the parent company with the opportunity to test new markets outside its regular area of operations. The subsidiary opens the potential to enter into agreements with other registered companies in Indonesia and throughout Southeast Asia and further into the Pacific Rim. Also, the permanency of a subsidiary has greater credibility with clients and suppliers, compared with branches.
However, taking the step of setting up a subsidiary is still a long way from finding the most efficient and financially sensible route to operating in Indonesia.
Consider this … Bradford Jacobs will find the perfect fit and brightest talent for your company in Indonesia through our in-country Professional Employer Organisation (PEO) specialists. Employees can be working at their desks and screens in days … not weeks, or even longer. All concerns regarding employment laws and compliance will be removed by our Employer of Record (EOR) teams. We handle the hassle … while you have day-to-day operational control over your workforce.
Subsidiary Regulations in Indonesia
The subsidiary which is wholly or partly foreign owned, a PMA, must comply with the Foreign Capital Investment Law with approval from the Capital Investments Coordinating Board (BKPM). The subsidiary operates under Indonesia’s Company Law. Incorporation requirements must at least include the following, although additional matters may need to be addressed.
Registration and Documentation:
- Verify and register the unique company name with the Ministry of Law and Human Rights (MOLHR)
- Draw up the Deed of Establishment, including the Articles of Association, to be authenticated and legalised by a notary public
- The legal entity is established once the MOLHR issues the Company Decree if the subsidiary is considered low risk. Companies assessed as medium risk need standard certification from the Online Single Submission (OSS) site. High risk companies need a licence to operate
- A licence from the OSS may also be needed if the company intends hiring foreign employees
- Apply for the Certificate of Company Domicile and the business identification number (NIB), which also acts as the Company Registration Certificate (TDP) and the Importers’ Identification Number for dealing with the customs and manpower authorities
- Details of registered office must be submitted to the OSS
Accounts and Taxation:
- Register with the relevant State Tax Office of the Revenue Department
- Corporate Income Tax is paid at 22%, with some exceptions for small enterprises
- Must submit annual returns to the revenue authorities
- PMAs must submit periodic investment reports to the BKPM
Management:
- The subsidiary must have at least one resident director and a minimum of two shareholders
- Shareholders’ annual general meeting must be held within six months of the end of each financial year
- Board of directors must compile annual report for the shareholders’ meeting
- There are no specific requirements regarding directors’ meetings
- In general there are no nationality restrictions on shareholders or directors, except in those sectors closed to foreign investment
Foreign companies entering the Indonesian market will find a nation with many remarkable features. The Republic of Indonesia is not simply an island nation, it is a nation comprising more than 17,000 islands spread across 3,000 miles from east to west and 1,000 miles north to south in Maritime Southeast Asia. Indonesia lies across the equator, with the South China Sea to the north, the Pacific to the east and the Indian Ocean southwards. It sits on the southwest section of the Pacific ‘Ring of Fire’ and has maritime borders with eight neighbouring countries.
Indonesia’s major islands are Java, Sumatra, Sulawesi and Borneo (shared with Malaysia and Brunei) in the Greater Sunda Islands. The Lesser Sunda Islands include Bali and Lombok and form a volcanic island arc east of Java. Indonesia shares New Guinea, the world’s second largest island, with the independent nation of Papua New Guinea. Indonesia’s population of over 275 million makes it the world’s fourth most populous nation and the third largest democracy, after the US and India.
The official language is Bahasa Indonesia and the religion is predominantly Islam, but its official religions also include Protestantism, Catholicism, Hinduism, Buddhism and Confucianism. Indonesia reflects huge diversity in its culture, with over 300 ethnic groups spread over the islands but constant themes revolve around the extended family, a hierarchical communal structure and mutual respect.
Lying across the equator, Indonesia’s climate is almost entirely tropical and its two seasons are simply defined as wet or dry. The rainy season lasts from the end of September until March, to be replaced by generally dry and sunny days from April.
Starting your business in Indonesia
Foreign companies intending to start business operations by opening a subsidiary in Indonesia face making urgent decisions. Which business type best suits their plans? Where should they locate in order to recruit staff with the right skill set for the business? Which incentives apply to foreign businesses and where is the ideal location to access them – a major consideration in Indonesia. And … how long will the incorporation process take?
Opening a limited liability company (LLC) is the typical choice for setting up a subsidiary in Indonesia; however, there are strict procedures and requirements for setting up subsidiaries that are wholly or partly owned by foreign entities, compared with those that are wholly owned by locals. LLCs that are wholly or partly foreign-owned are known as a Penanaman Modal Asing (PMA). PMAs must comply with the Foreign Capital Investment Law and be approved by the Capital Investment Coordinating Board (BKPM). The stakeholders must present an investment plan for at least 1.2 million US dollars of which approximately 58% is paid up share capital. For locally-owned LLCs, known as a Perseroan Terbatas (PT), share capital varies according to the size of the company, which are classified as small, medium and large. Small US$3,745 – US$37,435; Medium US$37,435 – US$748,740; Large US$748,740 plus.
These rigorous requirements emphasise the complexities of establishing an entity in Indonesia. By making the right choice now, you can steer a course through these obstacles by working alongside Bradford Jacobs. Our Professional Employer Organisation (PEO) specialists and Employer of Record (EOR) experts will recruit the staff and undertake every step of compliance. Instead of waiting weeks or months, you can be up-and-running in days.
Incorporation procedures for a limited liability company include:
- Engage a notary public and obtain the Deed of Establishment, which will include the Articles of Association
- Verify availability of chosen company name and register with the Ministry of Law and Human Rights (MOLHR)
- The MOLHR will issue the Company Decree, establishing status of the legal entity, and automatically assign a tax identification number (Nomor Pokok Wajib Pajak, NPWP) for the company
- Apply for the Certificate of Company Domicile
- Apply for the business identification number (NIB) from the Online Single Submission (OSS) system via the OSS Agency
- The NIB acts also as the Company Registration Certificate (TDP) and the Importers’ Identification Number, giving access to customs and manpower reporting authorities
- Companies intending to hire foreign staff may need a licence, obtained through the OSS
- Register with the relevant State Tax Office of the Indonesia Revenue Department; the National Social Insurance System and the Ministry of Manpower
- Other necessary requirements include: All documents relating to ownership or lease of business property; documents and IDs of shareholders and directors; licences relevant to the type of business operation
Expanding your business into Indonesia
The Republic of Indonesia is a remarkable country in which to expand your business. It stretches east to west the equivalent distance of Lisbon to Montreal, straddles the equator and has over 17,000 islands with combined coastlines of 34,000 miles … 9,000 miles more than the circumference of Planet Earth.
Rich in culture and heritage, foreign companies extending their corporate reach into Indonesia will find similarly rich potential in Southeast Asia’s most powerful economy. In 2021, Indonesia ranked 16th in the world with Gross Domestic Product of 1,380 billion US dollars, with the World Bank predicting average annual growth of 4.9% for 2023 to 2025.
The export base features palm oil, agricultural produce, oil, gas and ferroalloys, and natural resources include the world’s largest reserves of nickel. The possibilities come with challenges, not only from dealing with infrastructure across the islands. Indonesia’s talent gap brings extra demands for foreign companies searching for the highest quality staff to support their expansion plans.
Advantages and Challenges when entering the Indonesian Market
Some Advantages:
- Largest economy in Southeast Asia and third largest in Asia behind China and India
- Low-cost and young workforce
- Natural resources include oil, gas, tin, copper, gold, coal and largest global reserves of nickel, an essential factor in manufacturing batteries for electric vehicles
- Significant agricultural base and among world’s leading exporters of produce, including palm oil
- Large consumer base which drives domestic economic activity
- Flexible exchange rate and ranked as ‘Investment Grade’ by three leading rating agencies
Some Challenges:
- Disjointed market and supply chains due to infrastructure having to cope with islands spread over large area
- Investment disparity for the same reasons
- Susceptible to global prices for its commodities, particularly relating to China
- Location on ‘Pacific Rim of Fire’ brings danger of volcanic eruptions, earthquakes and tsunamis
- Lack of transparency in regulatory procedures, tendering and a perception of corruption
Indefinite, permanent contracts can be oral or agreed in writing. However fixed-term contracts must be in writing and these must be registered with the local office of the Ministry of Manpower within three days online, or within seven days manually. Permanent employees need receive only a letter of appointment. Written contracts must be in the Bahasa Indonesia language, and these will be the default option in the case of legal issues.
Different types of Employment Contracts in Indonesia
Open-ended, permanent employment contracts (Perjanjian Kerja Waktu Tidak Tertentu, PKWTT): These can be either orally agreed or in writing, usually confirmed by a letter of appointment which should cover the basics of the agreement. It should include the full name of the employee, including age and gender, their registered address; full name and address of employer, type of business; the employee’s job title, place of work, terms and conditions of employment, rights and obligations; start date of the agreement, the date and place it was signed by both parties.
Fixed-term employment contracts (Perjanjian Kerja Waktu Tertentu, PKWT): These must be in writing and registered with the relevant Ministry of Manpower office within three days, if registered online, or seven days manually. The contract must have a Bahasa Indonesia language version, which will prevail legally, in the case of a dual language agreement. They cannot include a probation period. They can last for two years with the option to renew for one further year. After a grace period of 30 days it can be renewed for a further two years. Defined-period contract rules do not apply to expats as the Regulation on Recruitment of Foreign Workers (2018) states that the work permit can be valid for as long as the employer stated was necessary in their expat utilisation plan (RPTKA) application. These contracts generally have the same entitlements and benefits as open-ended contracts.
Probation periods: These cannot exceed a single period of three months and must be included in a written agreement. Trial periods cannot be part of a fixed-term contract.
Part-time employment agreements: In general, employees on part-time agreements have the same rights and entitlements as those on indefinite contracts.
Collective Bargaining Agreements (CBAs): The Manpower Act allows trade unions to conclude CBAs between workers and employers or employer organisations. Trade unions are recognised under the Labour Union Law, once they have registered with the Manpower Agency and notified the employer with its registration number. Multi-company CBAs apply across sectors, such as the textile industry, but implementation can be problematic due to the size of Indonesia and with regional governors setting their own minimums on such as wages.
Laws that regulate the labour relationship in Indonesia
The Employment Law, also referred to as the Labour Law or the Manpower Law, and the Constitution and Civil Code are the main factors governing employment legislation in Indonesia. Laws are amended and added to by decree or ministerial decisions.
- Employment Law (2003). This applies to Indonesia citizens only, whether employed by local or foreign companies
- Law on Industrial Relations Dispute Settlement (2004)
- Labour Union Law (2000), which includes the Law on Discrimination
- Law on Job Creation Regulation
General requirements for Contracts
Open-ended, permanent contracts can be in writing or agreed verbally. Fixed-term contracts must be in writing and cannot include a probation period, which must otherwise be included in a written agreement. Trial periods cannot exceed a single block of three months. Written agreements must be in the Bahasa Indonesia language, which will be the legal version in the case of dual language contracts. Agreements, whether written or verbal, should stipulate full details of both parties; the employees job title, job location, terms and conditions, benefits and obligations; start date of agreement and the date and location it was signed by both employer and employee.
Employment legislation applying to rights and benefits is fluid following the attempted implementation of the Omnibus Bill for Job Creation in 2020, which led to protests and legal challenges in the courts. Bradford Jacobs, as your Employer of Record, will be up-to-the-minute with employment legislation and compliance regulations.
Employment law applies to resident Indonesian citizens working for local or foreign companies. Rights and entitlements of foreign workers are covered by their individual contract, unless it is agreed they are covered by statutory minimums under the law.
What are the Compensation Laws?
National Minimum Wage (NMW): Indonesia has no nationally-applied minimum wage as they vary between provinces and cities across the islands. The Ministry of Manpower announced that wages could increase by a maximum of 10% from January 2023. In the capital, Jakarta, the monthly minimum is IDR 4,901,798 (€298, US$318). In Aceh, for example, the monthly minimum is IDR 3,413,666 (€207, US$220).
Working Hours and Breaks: Generally seven hours a day up to 40 for a six-day week and eight hours daily in a five-day week. These limits need not apply to sectors such as tourism, hospitality and security work. There should be a 30-minute unpaid break after working four hours.
Overtime: This is allowed to a maximum of three hours per day up to 14 hours a week. Overtime pay is a minimum of 1.5 times the normal hourly wage for the first hour and twice that for subsequent hours. Extra pay for working weekends or on holidays can be up to four time the normal rate.
Sick Leave and Benefits: On producing a medical certificate, employees are entitled to unlimited sick leave paid by the employer, who cannot recover benefit from the government. The first four months are on full salary; next four months 75% salary; third four-month period 50% and more than 12 months at 25%. However, once absence exceeds 12 months the employer can terminate the contract. Two days’ paid bereavement leave is allowed following the death of immediate family members.
Paid Vacations: Entitlement is 12 days paid leave after working for one year. After working for the same employer for six years, employees receive a statutory two months’ vacation taken at one month in the seventh and eighth year of employment. This applies after every sixth year of service. At least six days must be taken annually, or unused entitlement expires after six months.
Public Holidays: Joint Ministerial Decrees set the dates for public holidays. The government introduced ‘joint holidays’ to promote domestic tourism. For example, if a holiday falls on a Thursday, employers are encouraged to give workers the Friday off to create a long weekend. Dates for the Muslim holidays of Eid al-Fitr and Eid al-Adha, known in Indonesia as Lebaran, vary year by year. Dates for Islamic New Year and the Prophet’s Birthday similarly vary.
Probation Periods: These are taken in one block, a maximum of three months, must be included in a written agreement but cannot be part of a fixed-term contract.
Notice Periods: Employment cannot be unilaterally terminated by simply giving notice, but employment legislation recognises the concept of notice periods for permanent employees. Notice of intended termination must be given 14 business days in advance. Termination during a probation period requires seven days’ notice.
Termination, Severance and Redundancies: Termination must be mutually agreed and follow strict protocols, according to legislation. Notice of termination must be given 14 business days in advance and the employee then has seven days to give their written objection. If the parties cannot resolve the dispute, the process goes through the local Manpower Office, then the Industrial Relations Court, possibly leading to a Supreme Court ruling. Termination with cause includes such as breach of contract, breaking company rules or a CBA; when sick leave exceeds 12 months. Severance is based on an Employment Law formula; one month’s salary for every year of service up to nine months’ salary. Service appreciation pay is two month’s salary for the first three years of service; an additional month’s pay for every three years up to a maximum of 10 months’ salary for 24 years’ service. Employment legislation does not specifically cover redundancies, although employers are expected to provide justification and follow industrial dispute resolution procedures.
Maternity / Paternity Leave: Maternity leave is one-and-a-half months before and after the due date, although in practice employers can allow all of the leave to be taken after the birth. The pregnant employee receives full salary from the employer, not from any social insurance scheme. Fathers receive two days paid paternity leave.
13th Month Salary: The 13th month salary is mandatory and known as the Tunjangan Hari Raya (THR). They are generally linked to religious holidays and paid at least seven days before the relevant date.
Pensions: The pension system has mandatory and voluntary tiers. The mandatory system comprises three pension institutions, PT Taspen, PT Asabri and BPJS Ketenagakerjaan and is funded by payroll deductions of 2% from employers and 1% from employees. The scheme consists of employer pension funds and financial institutions funds. The retirement age for men and women is 58 years as of 2022, with plans for it to incrementally increase to 65 by 2043.
Health Insurance: Healthcare in Indonesia is a mix of privately-funded schemes and a basic government funded system, Jaminan Kesehatan Nasional (KJN). Employers contribute 4% from payroll to the scheme and employees 1%. The World Health Organisation ranks Indonesia’s healthcare system only 92nd compared with other nations. Under the JKN scheme launched in 2014, the government plans to make basic healthcare and facilities freely available for all citizens although not all hospitals have committed to the programme. Expats working in the country for more than six months must register for JKN and many opt for additional private schemes with the option of repatriation in the case of serious illness.
The recruitment ‘to do’ list is long and often complex. Locating new talent will be the No. 1 requirement and it is certain to raise major issues. This definitely applies if trying to recruit staff in Indonesia while still based in your home country, or if intending to import staff from home base. The Indonesian government restricts the number of expats that can be hired, depending on the company’s level of investment, and also the sectors in which they are allowed to work. Ratios of 10 Indonesians to one foreigner generally apply, and five to one for senior management. The Ministry of Manpower decides.
Once recruited and onboarded, employers face strictly-applied employment legislation laid down by the Employment Law that spells out their responsibilities and obligations to employees, in addition to the legal rights of their staff. These requirements are further complicated by Indonesia comprising a huge number of islands on its Southeast Asian archipelago that can have their own regulations.
These demands add up to a considerable workload. There is a better option … a straightforward, fast and cost-effective alternative that will have your new staff operational in a matter of days, without the need to unravel the red tape.
Bradford Jacobs has the essential expertise you need to provide the simplest route for your journey into the Indonesian economy. Our Professional Employer Organisation (PEO) networks have global reach to find the right staff. Then, through our Employer of Record (EOR) platforms we will have your new employees at their desks and screens in the shortest time. This guide highlights the essentials of recruitment and onboarding in Indonesia. You can trust Bradford Jacobs to put the brightest talent in position for your company – right now!
Recruiting in Indonesia
The Republic of Indonesia is the fourth most populous in the world. The population of over 275 million is estimated to have a workforce of around 135 million … providing wide scope for foreign companies who intend to recruit locally.
The main area for Foreign Direct Investment in 2022 – a record year for Indonesia’s FDI revenue – was in the metals and mining sectors, therefore also a key area for recruitment. Companies are also looking for key high-tech recruits into Indonesia’s developing sector of battery production for electric vehicles (EVs). Hyundai are building one of Southeast Asia’s largest EV battery factories in Indonesia, due to be completed in 2023 and becoming operational in 2024. Recruiters also look for skilled personnel for other FDI-funded sectors. These include chemicals, pharmaceuticals and healthcare.
As Indonesia intensifies its drive towards becoming the digital and e-commerce hub for Southeast Asia, this becomes a crucial area for recruitment. However, the shortfall between the necessary skills and the personnel who have them particularly affects ICT, web design and programming. Individuals who can match their skills with fluency both in Bahasa Indonesia and English are in high demand.
Foreign employers hoping to sidestep the talent shortage by importing staff face other issues. The Ministry of Manpower restricts expats being employed in various areas while also requiring RPTKA validation under the Foreign Workforce Utilisation Plan. Failure to comply risks sanctions against the company and deportation for the employee.
These considerations highlight where the global experience and local know-how of Bradford Jacobs is essential. Our Professional Employer Organisation (PEO) platforms will bridge the gap between the skills you need and finding the right fit for your company.
Employees’ pre-hire checks in Indonesia
General: In general, Indonesia applies no legislation on requirements or prohibitions regarding pre-hire checks. It is assumed all checks are permissible including those for health, education and employment references.
Specifics include:
Discrimination: The Indonesian Constitution and the Employment Law’s ban on discrimination applies during the recruitment process and employment generally. Individuals cannot be discriminated against on grounds of race, nationality or ethnicity; gender; religious or political beliefs; disability or HIV-positive status. The specific legislation is Law No. 21 on Discrimination in Respect of Employment and Occupation.
Criminal Checks: It is possible to obtain a police clearance certificate (SKCK).
Basic requirements when recruiting in Indonesia
Indonesia employment legislation is based on the Law No. 13 (2003) on Employment Law, supplemented by other laws, government regulations, presidential decrees and ministerial decisions. The Employment Law also applies to drawing up contracts, a basic requirement in the initial stages of the recruitment and onboarding process.
Open-ended, indefinite contracts can be oral or written, but contracts for definite term, fixed-term employees must be in writing. They must be registered with the local office of the Ministry of Manpower within three days online, or within seven days if registered manually. Permanent employees need receive only a letter of appointment. Written contracts must be in the Bahasa Indonesia language, which will prevail legally if the contract is also provided in another language.
Where used, written contract include the following:
- Full name of the employee, including age and gender, their registered address
- Full name and address of employer, type of business
- The employee’s job title, place of work, terms and conditions of employment, rights and obligations
- Start date of the agreement, the date and place it was signed by both parties
The Basics of Indonesian Culture
Indonesia’s location along trading routes that linked the Middle East and the Far East throughout the centuries created a cultural mix between hundreds of indigenous ethnic groups and foreign influences. This is also reflected in the range of religions, including Islam, Christianity, Buddhism and Hinduism. Some ethnic groups are Animist, believing their gods live in the mountains. Religious festivals play a large and colourful role in Indonesian culture.
Indonesia’s culture is reflected in arts and crafts, wood carvings, music, puppetry, animism, dance and traditional dress.
The variety of folklore, traditions and culture stretching across the network of islands is bound together by common themes however. Indonesians, often still in their extended families, embrace their place in the community and its hierarchical structure and when possible adopt a leisurely approach to life. ‘Jam karet’, literally ‘rubber time’, equates to everything having its time and place. Time, like rubber, can be stretched to fit in what needs to be done.
Indonesia Work Culture
Hierarchy: In line with all Asian cultures, society and business have a hierarchical structure with respect for seniority and experience.
Introductions/Greetings: A brief, loose handshake (not with the left hand) is accompanied by the word ‘selamat’ (‘peace’); a slight bow should be directed to the senior member of the other team. Steer clear of bodily contact, especially slaps on the back or arm. Wait for Indonesian women to extend a hand first. Speak in soft, gentle tones and do not show irritation or impatience.
Language: The official language is Bahasa Indonesia, with English and Dutch often spoken in business especially in Jakarta.
Gift Giving: Small and discreet is best, from your company. Be aware of what is suitable or not for Muslim, Chinese or Malay recipients. Gifts will be opened later in private. Avoid sharp objects as these can be interpreted as cutting off a relationship.
Business Cards: Exchanged as part of the introductions and treated with respect and prestige; offer with both hands and show interest in examining details of the cards you are given. Lay them on the table used for the meeting.
Dress Code: Usually formal for initial meetings, but allowing for the heat and humidity hosts can set a more relaxed tone by removing jackets. The traditional male ‘batik’ shirt is acceptable office wear. Women should dress conservatively and bear in mind Muslim attitudes to female dress.
Punctuality: Be on time, but this is often flexible along with timescales, deadlines and agendas … Jam karet.
Negotiations and Meetings: Be patient. Decision making is top down, but consensus must still be reached, which can make for protracted discussions. Building a trusting relationship can be more important than the small print. Trying to rush will probably prolong reaching an outcome … remember that patience, consensus, compromise are key words in concluding a deal.
Out of Hours: Socialising is part of the ‘getting to know you’ phase and therefore important to the business process. Exchange small talk about family, interests, relative cultures. Details of the deal are not normally discussed on these occasions.
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