Complete Guide to Business Registration Number in Indonesia

What is a business registration number?

The business registration number, commonly known as the Nomor Induk Berusaha (NIB), represents a significant stride towards streamlining the administrative procedures for businesses. This regulation was part of a broader government initiative to simplify the entrepreneurial landscape in Indonesia to bypass the cumbersome and time-intensive process of acquiring multiple permits.

Contributing Advisor

Jennifer Halim

Manager, International Business Advisory

Business registration legal framework

The legal framework for business registration in Indonesia is governed by Government Regulation Number 24 of 2018, which details the procedures under the Integrated Electronic Business Licensing Services, or Online Single Submission (OSS).

According to Article 25, paragraph 1 of this regulation, the NIB serves not only as a business identity but also as a comprehensive permit that replaces all previous business licensing requirements.

The NIB is a mandatory requirement for all companies operating in Indonesia and serves multiple functions:

• It provides legal proof that a company is recognized by the government and protected under Indonesian law.
• A business registration number is essential for a company to apply for company tax, file returns, and perform other business operations legally. Without this number, a company's operations are considered unlawful, and it faces risks such as being frozen or liquidated by the authorities.
• The NIB also functions as the Importer Identification Number (API), which facilitates customs processes and enhances market access.

Businesses lacking a valid NIB are subject to stringent penalties, including potential shutdowns by government authorities.

Types of business entities

Investors must carefully evaluate their specific requirements before deciding on the type of corporate structure to establish in the country. Newcomers should engage a trusted local advisor to help navigate the regulatory environment more effectively.

Here's a table outlining the pros and cons of three different business structures in Indonesia:

• Foreign Investment Company (PT PMA);
• Representative Office (RO); and,
• Local Companies (Individually Incorporated Companies).

Benefits of a business registration number

Legal protections

The primary benefit of acquiring a NIB is the legal recognition it offers. Companies holding an NIB are officially recognized by the Indonesian government, ensuring protection under the nation’s laws and regulations. This registration not only safeguards the business legally but also significantly mitigates the risk of governmental shutdowns or penalties.

Moreover, public reporting of unlicensed businesses can lead to severe legal consequences, emphasizing the NIB's role in establishing a company's legal foundation in Indonesia.

Market credibility and business operations

A registered business gains immediate credibility with consumers, suppliers, and potential investors. The NIB serves as proof that a business is a recognized entity within the state, enhancing its reputation and trustworthiness in the marketplace.

This is particularly vital in Indonesia, where business tenders and large transactions often require verifiable credibility. Additionally, the NIB allows companies to engage in a variety of essential business activities that are otherwise restricted, including:

• Importing goods, as the NIB doubles as an Import Identification Number.
• Applying for work visas for foreign employees is crucial for businesses looking to bring in international talent.
• Participating in business tenders across Indonesia, thereby expanding market opportunities.
• Registering for health and manpower social security programs, which are mandatory for legitimate operations.

Step-by-step guide to obtaining a business registration number

This detailed guide outlines the process, identifies the required documents, and highlights common pitfalls to avoid, along with providing expected timeframes for each step.

Required documents

To apply for an NIB, companies must gather the following documents:

• Business Establishment Deed: This is your company’s foundational legal document.
• Approval from the Ministry of Law and Human Rights: This confirms your company's name and legal status.
• Tax Identification Number (NPWP): Essential for all tax purposes.

Step-by-step process

The application process for obtaining an NIB involves several key steps, each with its own timeframe:

Common pitfalls and how to avoid them

• Delays in documentation: Ensure all documents are completed and accurately filled out before submission to avoid delays.
• Compliance with local laws: Stay informed about changes in Indonesian business law to ensure compliance and prevent legal issues.
• Underestimating timeframes: Be prepared for potential delays in government processes; start early and allow for more time than the minimum estimates.

Timeframes and expectations

The entire process to obtain an NIB can take between 4 to 6 weeks, which includes the process of drafting the AoA, and deed of establishment, until the obtainment of the Decree Letter from the Ministry of Law and Rights, along with the tax ID.  It’s essential to closely monitor each stage and maintain constant communication with the relevant authorities to ensure a smooth registration process.

What to do once you have your Business Registration Number

Immediate actions post-registration

• Open a corporate bank account: Opening a bank account for your company is essential for any financial transactions. It is noteworthy that you can open an Indonesian company bank account without the need to be physically present in the country, which simplifies the process for foreign investors.
• Acquire property and assets: With a Business Registration Number, your company can rent or purchase property and other assets in Indonesia. It's important to select a location for your physical office based on your business needs and restrictions.
• Initiate operational setups: Begin the practical aspects of setting up your business operations. This includes recruiting staff, preparing your office space, and any other logistical arrangements necessary for operational readiness. Efficient planning at this stage can significantly save time and resources.
• Secure work and residence permits for foreign employees: If your business plan includes hiring foreign nationals, you'll need to navigate the process of obtaining work and residence permits for these employees. Understanding and complying with Indonesian regulations regarding foreign workers is crucial.

Ongoing compliance and annual requirements

Maintaining compliance with Indonesian business regulations is crucial for the continued legality and success of your enterprise. Here are the key ongoing compliance requirements and annual obligations:

• Regularly review and adhere to local business laws and regulations, which may change over time. This includes complying with labor laws, safety standards, and industry-specific guidelines.
• Ensure timely and accurate tax filings. The Business Registration Number allows your company to be recognized for tax purposes, and it's essential to maintain up-to-date records and submit tax returns as required.
• Depending on your business structure and the nature of your business, you may need to file annual reports and renew certain permits. These filings typically include financial statements and reports on company activities throughout the year.
• Larger businesses or those in certain regulated industries may be required to undergo annual audits. Prepare for these by keeping detailed financial records and having accounting processes in place that meet Indonesian accounting standards.
• Some business activities require licenses that need regular renewal. Keep track of renewal dates for all necessary licenses and permits to avoid legal complications.

Regional Insights

Business Registration in Jakarta vs. Other Regions

Jakarta, as the economic heart of Indonesia, offers a dynamic business environment with a well-established infrastructure and a vast network of business services. Here, the processes and systems for business registration are typically streamlined and more efficient, reflecting the city's role in attracting international investments.

However, this also means that the cost of doing business— from renting office space to salary expectations—is generally higher in Jakarta compared to other regions.

In other regions of Indonesia, such as East Java or Bali, the process of business registration might involve more localized procedures. These areas may not have the same level of infrastructure or government efficiency as Jakarta, potentially leading to longer processing times. However, these regions often offer lower operational costs and may have specific local incentives designed to attract businesses to less saturated markets.

Local business practices

Understanding and adapting to the local business culture is crucial for success in Indonesia. Here are a few key cultural practices to be aware of:

• Indonesian business culture places a significant emphasis on building personal relationships. Face-to-face meetings are preferred, and taking the time to develop mutual trust and respect is crucial before moving forward with business transactions.
• Indonesians tend to communicate in a non-confrontational, indirect manner. It's important to pay attention to non-verbal cues and be sensitive to the tone of voice and body language. Patience and politeness are highly valued.
• When meeting Indonesian business counterparts, it is customary to exchange business cards upon introduction. Offer and receive the card with both hands as a sign of respect. It is also important to address individuals with appropriate titles unless instructed otherwise.
• Negotiations in Indonesia may take longer than in more direct cultures. The process is often seen as a way to build a relationship, not just to finalize a transaction. Patience during negotiations is considered a virtue and is expected from both parties.
• Each region in Indonesia might have its own additional regulations and compliance requirements. For instance, some areas have stricter rules about foreign ownership and employment, while others might offer tax incentives for certain types of businesses.