How Foreign Investors Can Access Indonesia’s Growing Trading Sector

As Southeast Asia’s largest economy, Indonesia offers both local and international businesses ample opportunities to thrive in its fast-growing marketplace. The trading industry, divided between wholesale and retail, contributes significantly to Indonesia’s GDP, showcasing steady growth even amid global economic challenges.

Trading activities in Indonesia

Wholesale trade

In Indonesia, wholesale trade spans a wide range of industries, from consumer goods and electronics to agricultural products and industrial machinery. The structure of this trade allows businesses to focus on logistical efficiency and the strategic management of supply chains, which are key to maintaining profitability in a sector characterized by lower margins but larger transaction volumes.

Retail trade

Retail trade in Indonesia is vast, encompassing industries such as fashion, food and beverages, electronics, and personal care. With Indonesia’s growing middle class and rapid urbanization, retail trade has seen continuous growth, driven by increasing consumer demand and the rise of digital commerce. Indonesian consumers are increasingly turning to online platforms for convenience, propelling the country’s retail sector to new heights in terms of revenue and market penetration.

Impact of trading activities on Indonesia’s GDP

In 2023, these sectors accounted for an impressive 2.2 quadrillion rupiah (US$142.8 billion) in GDP, excluding motor vehicles and motorcycles. The trading sector’s consistent growth since 2014 highlights its resilience, particularly during economic downturns, such as the COVID-19 pandemic. After a brief dip in 2020, the trading sector returned, propelling Indonesia’s economic recovery.

The ongoing expansion of both sectors underscores their importance in terms of GDP contribution and presents lucrative opportunities for investors looking to enter the market. Whether through wholesale channels, which offer the potential for high-volume transactions, or retail avenues, which tap into Indonesia’s large and growing consumer base, the trading sector remains a cornerstone of the nation’s economic fabric.

Key differences between wholesale and retail trade

While both sectors are integral to the country’s economy, they serve distinct purposes, cater to different audiences, and operate under varying business models. Below are the critical differences between wholesale and retail trade, highlighting their target markets, sales volumes, pricing structures, distribution channels, and regulatory considerations.

Aspect	Wholesale Trade (Perdagangan Besar)	Retail Trade
Target market	Businesses (e.g., retailers, distributors, industrial firms)	Individual consumers or households
Sales volume	High-volume, low-margin transactions	Low-volume, high-margin transactions
Pricing structure	Bulk pricing—lower per-unit cost due to larger purchase quantities	Marked-up retail pricing—higher per-unit cost to cover operational expenses
Distribution channels	·       B2B (Business-to-Business) distribution through direct sales; ·       Distribution agreements; or, ·       Partnerships.	·       B2C (Business-to-Consumer) through physical stores; ·       E-commerce platforms; or, ·       Both.
Operational focus	·       Efficiency in logistics, ·       Supply chain management, and ·       Handling large volumes	·       Customer service, ·       Marketing, and ·       Creating a retail experience
Regulatory considerations	·       Business license under appropriate KBLI code; ·       Additional permits required for certain goods (e.g., BPOM, Halal certification); and, ·       Eligible to import/export goods.	·       Business license; ·       May require permits for specific sales channels (e.g., online sales must comply with Personal Data Protection regulations); and, ·       Can export but generally cannot import goods directly.
Main business model	Resale of goods to other businesses without technical changes	Resale of goods to consumers for personal or household use
Business restrictions	Must appoint a local distributor for certain products if a PT PMA is involved	Cannot engage in wholesale or import activities directly

Foreign investment in Indonesia’s trading sector

Foreign investors can choose from two primary business structures to enter the Indonesian market: the Foreign Trade Representative Office (KP3A) and the Limited Liability Company (PT PMA). Each option comes with its scope of activities, restrictions, and benefits, which investors must carefully consider depending on their business objectives.

Aspect	Foreign Trade Representative Office (KP3A)	Foreign Investment Limited Liability Company (PT PMA)
Main function	Market research, business coordination, and liaison between parent company and Indonesian clients	Full commercial operations, including sales and income generation
Income-generating activities	Not allowed – non-commercial activities only	Allowed – can generate revenue from sales of goods or services
Capital requirements	No minimum capital requirement	Minimum authorized capital of IDR 10 billion (approx. USD 625,000); at least 25% must be paid-up
Business activities	Limited to market research, promotion, and liaison roles	Broad operational scope including, ·       Direct sales; ·       Participation in tenders; and, ·       Hiring foreign workers.
Eligible to Participate in Tenders	Not eligible for national tenders	Eligible to participate in government tenders and contracts
Operational flexibility	Limited to non-revenue-generating activities	Full flexibility to operate across various sectors and generate income
Establishment process	Simpler, with fewer regulatory hurdles	More complex, with strict capital and regulatory requirements
Foreign worker employment	Can hire foreign workers for specific roles, such as Chief Representative	Can hire foreign workers without restrictions on roles
Business restrictions	Cannot engage in direct commercial activities (e.g., sales)	May face restrictions on certain sectors under the Positive Investment List
Ideal for	Companies exploring the market, testing viability, or coordinating local activities	Businesses aiming for long-term operations, income generation, and large-scale investment

Compliance and licensing for wholesale trading

Licensing

To operate as a wholesale trader in Indonesia, businesses are required to obtain several key licenses, each serving a specific regulatory function. One of the primary licenses for all business activities is the NIB (Business Identification Number), which functions as a universal identifier for businesses across Indonesia. The NIB is essential for conducting any legal business operations and is often the first step in the licensing process.

In addition to the NIB, businesses may also be required to obtain a Standard Certificate or specific licenses depending on the type of goods they trade. For example, wholesalers dealing with food, beverages, or cosmetics must obtain additional permits from Indonesia’s regulatory bodies, such as BPOM (Food and Drug Monitoring Agency).

If a company trades products that fall under religious regulations, such as food requiring Halal certification, it must secure a Halal certificate to ensure compliance with Indonesia’s strict Halal regulations.

Compliance

Foreign investment companies engaged in wholesale trading, especially those organized as PT PMA (Foreign Investment Limited Liability Companies), are mandated to appoint a local distributor as per Minister of Trade Regulation No. 24/2021.

For PT PMA entities, the agreement is typically notarized locally, while for KP3A entities (Foreign Trade Representative Offices), the agreement must be notarized and submitted to Indonesia’s Trade Attaché or Embassy in the home country of the parent company. The agreement includes crucial details such as:

• Full names and addresses of the parties agreeing;
• The aims and objectives of the agreement;
• Agency or distributorship status;
• Type of goods agreed;
• Marketing area;
• The rights and obligations of each party;
• Authority;
• Duration of the agreement;
• Method of terminating the agreement;
• Method of resolving disputes;
• The governing law ; and,
• Deadline for completion.

E-Commerce requirements for PT PMA

Web Portal Requirements

• Must operate a compliant web portal for online trade.
• Register as an Electronic System Operator (PSE) with the Ministry of Communication and Information Technology.
• Provide clear consumer complaint services (phone, email) and contact information for the Directorate General of Consumer Protection and Orderly Commerce.

Registration as an Electronic System Operator (PSE)

This license is required for web portals and digital platforms with commercial purposes. Submit necessary documentation to verify technical functionality and compliance with standards.

Adherence to Indonesia’s Personal Data Protection Regulation

• Must implement strict data protection measures for personal information (e.g., names, contact details, payment info).
• Obtain explicit consent from users before collecting personal data.
• Provide clear, accessible privacy policies on the web portal detailing data usage, storage, and protection.
• Ensure data security measures are in place to prevent unauthorized access or breaches.
• Non-compliance can lead to legal penalties, fines, and reputational damage.

Distribution flow

In the distribution chain, local distributors and agents play critical roles in ensuring that goods reach end consumers efficiently. A typical distribution flow involves several key parties: the Principal Producer, the PT PMA or importer, the Local Distributor or Agent, the Retailer, and ultimately, the End Customer.

• Principal producers produce and export goods to Indonesia for distribution.
• PT PMA (Importer/Wholesaler) imports the goods into Indonesia and works closely with the local distributor to ensure that the goods meet local regulatory standards and are distributed effectively.
• Local distributor or Agent acts as an intermediary, responsible for distributing goods in bulk across various regions. They may handle storage, transportation, and even marketing. Local agents, on the other hand, may facilitate the sale and distribution of goods without owning the products but working on a commission basis.
• Retailers, whether through physical stores or e-commerce platforms, sell the goods in smaller quantities to the final consumers.
• End customers are the individuals or businesses that purchase and use the products. For wholesale goods, these may include industries or smaller businesses that use the products for further resale or production purposes.

Investment opportunities

Indonesia’s trading sector offers numerous opportunities for foreign investors, driven by the country’s vast market, strategic location, and government initiatives to attract investment. As such, the country’s Positive Investment List provides a clear framework for foreign ownership, many areas within the trading industry are open to international investors, although some restrictions apply.

This list is part of Indonesia’s effort to protect specific industries, particularly those that support local small and medium-sized enterprises (SMEs) and sensitive sectors crucial to public interest.

Goods trading activities that are closed to foreign investment typically include those where local businesses, especially SMEs, are prioritized. Additionally, sectors related to public health, security, and cultural preservation may also be limited or restricted to foreign entities.

While most trading activities are open for foreign investment, those involving sensitive goods may require additional permits or face restrictions on foreign ownership.

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