Setting up a company: Singapore versus Indonesia
6 minute read
With a population of just 5.8 million, what makes Singapore one step ahead of Indonesia? This guide will discuss the comparison between both countries when it comes to incorporating your own company.
Based on World Bank’s Ease of Doing Business Report 2018, Singapore is ranked #2 in the world while Indonesia is ranked #73.
Starting a business
The World Economic Forum’s Global Competitiveness Report recently ranked Singapore as having the best IP protection in Asia and ranked #4 globally whereas Indonesia is ranked #46 globally.
Ease of incorporation
Incorporation and company registration for Private Limited Company (Pte Ltd) in Singapore is fairly simple, with the process being completed online while scanning and attaching relevant documents.
The incorporation is more time-consuming in Indonesia – in fact, the World Bank’s Doing Business report in 2018 found that the incorporation process is more onerous than in most other countries in ASEAN, East Asia, and the Pacific region.
The most common vehicle for businesses is the foreign investment company (Penanaman Modal Asing) (PT PMA). Often it takes more than 3 months for all the steps in the incorporation process to be completed – from obtaining clearance of the company name at a bank, to obtaining certificates of company domicile and registration, permanent business trading licenses, and more.
Shares and foreign ownership
In Singapore, a company can be 100% foreign-owned, with a minimum of $1 paid-up capital. The capital requirements of an Indonesian company are much greater (IDR $10,000,000,000 or almost US$1mil), with foreign-ownership restrictions depending on the business classification and industry (for example, there are many limitations in hospitality). In practice, many smaller businesses look to use a nominee company service (with nominee shareholders) with minimum paid-up capital requirements from around $50,000.
Directors and shareholders
Singapore only requires 1 resident director and 1 shareholder. Indonesia’s PT PMA needs 1 resident directors and 2 resident shareholders. Indonesia has further legalities on certain positions, especially related to human resource, that expressly prohibit foreigners taking those positions.
Singapore has been known to have one of the lowest corporate taxes in the world, ranging between 0 to 17%. This is further equipped with extensive tax treaties with more than 60 countries which provide companies greater advantage over other countries.
(Want to know more about Singapore’s tax system? Read our introduction to Singapore’s tax system here.)
Indonesia charges between 1 to 25% in terms of corporate tax rate depending on the industry and level of profit your company is making. Tax treaties also apply to 64 different countries to benefit foreign companies.
Both countries also apply value added tax (VAT) for goods and services in the country. Singapore’s rate at 7% remains lower than Indonesia’s at 10%.
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Looking to get VC money? Many VC firms these days are based in Singapore or will only invest in companies with a Singapore entity. Various foreign VC firms now are looking beyond United States and China, especially towards Southeast Asia. Located in the center of this region, Business Times mentioned that Singapore saw a surge of funds being poured into the various VC firms in Singapore. This indicates the high interest from investors to support the startup scene in Singapore.
The Singaporean government has also provided various incentives to attract entrepreneurs and venture capitalists. From cutting red tape, good protection of intellectual property and allocating public money for early investments.
(To find out more on the various VC firms in Singapore, check out this Map of money.)
Investor’s interest in Indonesia is growing fast but still lags far behind Singapore. For the first time, the Indonesian government has introduced incentives for venture capitals that invest in SMEs or startups related to tech. Indonesian government has shown their interest to build digital economy and e-commerce.
Anyone intending of working in either Singapore and Indonesia must have a valid visa/pass before they can start working.
The most common visa for foreigners in Indonesia is called the “Business Visa”. You can also apply for the KITAS (a Limited Stay Permit), but employers are then required to specify “why does the job require foreign expertise?”. After having the KITAS for 3 years, you are then eligible for KITAP (a Permanent Stay Permit).
In Singapore, the most common visa for foreigners is Employment Pass “EP”. This visa can be issued to foreign professionals, managers and executives who are required to have a monthly salary of more than SG $3,600. If you are looking to start a new business in Singapore, you can also apply for an EntrePass.
Workforce and talent
English language proficiency ranking
In addition to a higher proficiency in English, most Singaporeans are effectively bilingual with either Chinese, Malay, or Tamil. This is very beneficial for companies with an English-speaking headquarters as it can reduce miscommunication. Furthermore, as Singapore has a very diverse population, your business may benefit from the various cultural and commercial ties with other countries such as China, Taiwan, Indonesia as well as strong economies from the West.
Indonesia performed average in Asia being ranked #10 compared to Singapore as the top performer in English proficiency. English is mainly spoken by educated individuals centralised in bigger cities. Majority of Indonesian are unable to converse in English and may be a big obstacle for your company if you need to be located or having transactions outside the major cities.
Work permits must be secured for all non-Singaporeans wanting to work in Singapore (see here for our resources on the different visa and work permits), with quotas required for some visa types and minimum capital requirements. Quotas and capital requirements are also active in Indonesia, with generally more restrictive ratios in place for local vs foreign workers.
With the exceptionally low cost of living in Indonesia, location independent expats or ‘digital nomads’ are a common sight, particularly in Bali. As long as you are not employed by an Indonesian company or earn revenue in Indonesia it’s fairly easy to stay in Bali and work remotely and you do not need to meet the above requirements, though under a business visa you need to leave the country every 60 days.
When starting a business in another country, you may face a language barrier. Singapore and Indonesia both have high literacy rates and are educated. Most Singaporeans generally can speak more than one language, English being the main business language. In Indonesia, the business language is technically Bahasa Indonesia – however English is widely spoken and commonly used.
Indonesia being bigger in size, may have more opportunities but business owners might find it easier to converse with Singaporeans, with English being the main spoken language.
Infrastructure and resources
Singapore is a small city-state, leading the government to focus its resources on ensuring high quality of workforce, extensive public transport for ease of accessibility and a high level of reliable internet connectivity.
Indonesia is hailed as the richest country in terms of natural resources compared to its neighbours in the nearby region. However, its basic infrastructure has only just started to develop and expanded outside major cities.
Access to resources such as minerals, wood and agriculture are also abundant in Indonesia, but distribution can be slow due to small intercity roads, and accessibility can be limited due to lack of reliable public transport. Internet connectivity has grown exponentially although is still at times unreliable depending on your geography.
Governance and transparency
Corruption is a major concern for many entrepreneurs and investors in Southeast Asia. The Corruption Perceptions Index by Transparency International shows that Singapore had the highest score of all Asian countries at 84/100 (on par with Sweden), with Indonesia scoring 37/100 (on par with Colombia).
Inefficient civil servants have also made the process of incorporation and starting business in general to be very slow. A lot of red tape has been lifted by the Indonesian government in order to make the process smoother and incentivise foreign investment, however it is still rather slow in comparison to Singapore.
While both countries are similar in culture, location and language, Singapore provides several significant benefits to Indonesia when choosing a location for your regional expansion, although if you are looking to escape the rat race and settle down with a small lifestyle business, Indonesia may be right for you. Interested in getting started in Singapore? Talk to us.