With quick market growth, five homegrown unicorns, and more than 100 million potential customers, there is little doubt that Indonesia is one of the hottest markets for creating a startup in Southeast Asia.
A report by Google and Temasek projects the country’s digital economy to reach USD 133 billion by 2025. Indonesia has more than 175 million internet users, and the number will continue to rise. This large market entices digital players to set up operations in the country. The success of homegrown unicorns—and even a decacorn—such as Gojek, Tokopedia, Traveloka, Bukalapak, and Ovo also attract young, ambitious people to establish their own tech companies, perhaps with the dream of seeing the firm they built join the list someday.
The Indonesian government realizes the benefits that digital companies bring to the country’s economy. It has designed a number of initiatives to encourage entrepreneurs to found new startups, which in 2019 consisted of 2,190 entities, according to startup registration site Startup Ranking. There are various government-funded programs, such as Gerakan 1,000 Startup Digital (“1,000 Digital Startups Movement”), as well as workshops hosted by provincial-level governments. Three years after its launch in 2016, the program has fostered the conception of 525 startups across industries, although it is not clear how many have managed to scale up.
Furthermore, the Indonesian government is open to collaborating with tech companies to solve problems for the populace. One recent notable example is when the government partnered with health tech apps to provide public assistance, which may change the habits of Indonesians when they seek medical assistance in the future. It also tapped on-demand transportation platforms such as Gojek and Grab to deliver food aid to low-income households. The government has tech startup founders filling important official roles, such as ex-Gojek head Nadiem Makarim as education minister, education tech company Ruangguru’s CEO Adamas Belva Syah Devara and fintech firm Amartha’s founder Andi Taufan Garuda Putra as presidential advisors. (However, both Devara and Putra have left public service.)
Here are the government bodies that any aspiring entrepreneur in the country needs to talk to before creating a startup in Indonesia.
Ministry of Communication and Information Technology (Kemenkominfo)
Think of the Ministry of Communication and Information Technology as the class prefect. It exists, in part, to keep tech companies in line. Tasked with overseeing all matters related to digital platforms and technology in Indonesia, other government departments often lean on Kemenkominfo to tackle “problems” stemming from digital platforms in their own fields.
For instance, during the early days of on-demand ride-hailing apps in 2016, the Ministry of Transportation asked Kemenkominfo to ban Uber and GrabCar, accusing them of “illegal operation.” However, Kemenkominfo was able to mediate and found a middle ground for all parties involved. Consequently, the companies weren’t barred from the road.
With that said, Kemenkominfo has been stricter in other cases. In recent years, it has suspended Tumblr, Reddit, and even TikTok and Netflix. Incidents like these are often based on the reasoning that the platforms carry “negative content” that is pornographic or vulgar. Some companies comply with the demands laid out by the ministry and access is reopened in Indonesia, but others, like Reddit and Netflix, are still partially inaccessible in the country.
Kemenkominfo is also in charge of the 1,000 Digital Startup Movement and frequently hosts classes for the public. It is intended to boost Indonesia’s growing creative economy sector, which includes all tech startups. The programs range include networking events, incubation, as well as mentorship by well-known startup founders and experts.
Financial Services Authority (OJK)
If your startup operates within the circles of fintech, then it will need to meet the requirements set by OJK, which ensures that any fintech firm that handles payments, loans, or other financial transactions has safe and dependable processes for users.
The licensing process was put in place for good reason after the emergence of unethical debt collection practices and unreasonable interest fees, often involving illegally established lending platforms.
At the moment, OJK has 161 registered fintech lenders, 33 of which are already licensed.
The relevant licensing entity
The government body responsible for issuing the license for your new startup varies based on the type of your business.
The Law and Human Rights Ministry covers limited liability companies, cooperatives, foundations, and incorporated associations. Your local district court handles individual companies, civil partnerships, and limited partnerships.
There’s more paperwork involved. You’ll need to obtain two legal documents—the Corporate Domicile Certificate (SKDP) and a business license (SIUP), both of which are issued by the regional government where your business is physically located. Round this out with a certificate of registration (SKT) and your tax ID number (NPWP) from your local tax office.
Once you have all of these items in hand, your startup can start doing business.
Directorate General of Intellectual Property (DJKI)
Imagine building a startup that amasses millions of users and a sky-high valuation, then someone comes along and knocks off your work without permission, in essence committing product piracy. The commercial value of your product will plummet if there are many extremely similar alternatives on the market. Gaining intellectual property rights (HAKI) is one way to safeguard your company’s interests.
The Directorate General of Intellectual Property, which is under the Law and Human Rights Ministry, offers this protection. Indonesia’s HAKI regulations covers seven properties.
Each property is regulated under a different law and registration process. However, as a first step, you can register under three categories—copyright, patent, and brand. The minimum total fee for these three licenses is IDR 1 million (USD 71).
Indonesia’s intellectual property rights follow the adage “first come, first served,” and the courts do not deviate from this even in cases involving large corporations. Here are two examples: IKEA lost the right to its own name in the country, and DC couldn’t register its Superman trademark, simply because small local players managed to submit their applications first.
So, if you believe that your company has a bright future in the Indonesian market, the safest move is to get a hold of your intellectual rights before someone else beats you to it.
Directorate General of Taxes (DJP)
Here’s a frequent flashpoint for businesses—taxes.
After Indonesia’s economy slumped due to the COVID-19 pandemic, the Indonesian government now requires major internet companies to pay value-added tax on the sales of digital products and services starting July this year.
Indonesian authorities have previously said services by streaming platforms like Spotify and Netflix would be among those subject to the new tax. That scope might extend to other services once the Indonesian government figures out how to implement the new rule effectively.
All startups will have to comply. Anyone who strays could be suspended by Kememkominfo.