Doing Business

Comparison Between Singapore and Indonesia for Ease of Doing Business

Nora Setiawan

December 1, 2020

Indonesia is the largest archipelago and the fourth populous country in the world. It comprises 17.500 islands, also one of the world’s emerging markets. Meanwhile, there is a small city-state, Singapore is ranked the fourth richest country in the world by GDP per capita. In this article, you will be given knowledge about the comparison between Singapore and Indonesia for ease of doing business, with respect to areas such as business environment, workforce and taxation.

READ MORE: Viettonkin Consulting Market Research service to help you doing business in ASEAN.


Economic Overview

Indonesia is the 16th largest economy in the world and the largest economy in Southeast Asia. Additionally, Indonesia as a young democratic country has maintained political stability since emerging from decades of autocratic rule. The demand for infrastructure in Indonesia is sustained by both economic growth and urbanisation, while petroleum and minerals continue to make up the majority of exports.

Indonesia continues reforming its investment climate, the government has rolled out measures to ease red-tape, open up sectors for investment and improve public services. Furthermore, Indonesia’s economic planning follows a 20-year development plan, called the RPJMN (Rencana Pembangunan Jangka Menengah Nasional) each with different development priorities. 

Indonesia has also made enormous gains in poverty reduction, and was cutting the poverty rate by more than half since 1999 to 9.78% in 2020. Due to the COVID-19 crisis, Indonesia is somehow able to maintain consistent economic growth, recently qualifying the country to reach the upper-middle-income status.

Although Indonesia has been classified as a newly industrialised economy, Singapore is a highly-developed, trade-oriented one. Singapore has to rely on innovation and human capital as well for its development, it’s because the country has a small land area and lack of natural resources. 

However, it has successfully resulted in a leading global economy for high-end manufacturing and engineering, biotechnology and financial services. Singapore’s strong institutions and effective policymaking, a free-trade philosophy and a diversified economy remain a major draw for investors.


Business Environment

As a result of ongoing reform efforts in place, Indonesia eventually stands among the world’s top 10 improvers, according to the World Bank’s Ease of Doing Business Index 2017. It also climbed 15 places to #91, up from its previous rank of #106. On the other hand, Singapore is the second easiest place to do business in the world. There are some key comparatives, so you can take a glance:

  • Starting a business in Singapore takes a rank of #6, meanwhile starting a business in Indonesia ranks of #151.
  • Getting credit in Singapore ranks of #20, while in Indonesia ranks of #62.
  • Enforcing contracts in Singapore ranks of #2, while in Indonesia ranks of #166.
  • Singapore is also more open to business and trade than Indonesia. It’s because Singapore’s open-door policy, importing and exporting require fewer procedures and are relatively more inexpensive compared to Indonesia.

The legal system in Indonesia is based on civil law, while Singapore’s legal system is based on English common law. Generally, common law courts abide by past judgments in examining an issue, meanwhile, in civil law systems, codes and statutes are designed to cover all cases.

The World Justice Project, which measures the effectiveness of rule of law in each country, has ranked Singapore #9 and Indonesia #61 for rule of law respectively.


Workforce

Indonesia’s population is over 250 million and becoming the world’s fourth most populous nation. Indonesia has a young workforce, with over 50% of its population under the age of 30. 97% of Indonesia’s citizens receive primary education, but only 23% of students make it to tertiary education.

On the other hand, Singapore has a 5.5 million population and its median age is 40 years. More than 70% of residents aged 25 to 34 are tertiary educated. Overall, the tertiary-educated accounted for 40% of Singapore’s population aged 25 and over.


Business Language 

Bahasa Indonesia is the official language in Indonesia, that is used both for business and education. Yet English is widely spoken, but it is less outside its major cities. As such, business owners and foreign workers may like to consider taking Bahasa Indonesia lessons. 

On the contrary, English is the medium of business and education in Singapore. Additionally, Singaporeans learn English, as well as their mother tongue, such as Mandarin, Malay or Tamil in schools. Therefore, most of them are effectively bilingual.


Business Incorporation and Set-Up

Starting a business in Indonesia can be complex and time-consuming for foreigners, as seeking approval from the Indonesia Investment Coordinating Board (BKPM) can be more complicated. Companies that are wholly-owned by foreigners are called Perseroan Terbatas Penanaman Modal Asing (PT PMA), which require 2 shareholders and a minimum paid-up capital of IDR 10 billion (approx. S$1 million).

The Indonesian LLC (Perseroan Terbatas) is the most popular type of business entity used by locals to do business there. There are other forms of business entities, such as civil partnership (Maatschap or Persekutuan Perdata), firma partnership, representative office, permanent establishment and limited partnership (Commanditaire Vennootschap). However, foreign parties are not allowed to establish partnerships in Indonesia.

Corporate entities in Singapore include Private Limited Company, Representative Office and Sole Proprietorship. In Singapore, it takes only 24 hours and 2 procedures to incorporate a company there. Though, it takes 3 until 6 months and 9 procedures to form a company in Indonesia.


Corporate Taxation

The marginal corporate tax rate in Indonesia is 25%, while it is capped at 17% in Singapore. According to the ‘Doing Business 2020’ report, Singapore was ranked 7th worldwide for its attractive tax rates and online tax filing procedure. Instead, Indonesia was ranked 81th for the same parameter.

The World Bank report also found that businesses in Indonesia make 52 tax payments a year and spend 259 hours a year filing, preparing and paying taxes. On the contrary, Singapore businesses make five tax payments a year and spend 82 hours a year filing, preparing and paying taxes.

Indonesia’s growing consumer sector and ongoing reforms became one of the reasons investors are interested to invest in, but the ease in doing business in Singapore is more attractive to investors. Thus, many foreign investors and traders still prefer Singapore to Indonesia. 

In conclusion, both countries have their own plus points in expanding the businesses there, and both have attractive markets for investors. Eventually, it depends on what your business needs in the future.

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