Comparing Doing Business Singapore vs Indonesia: A Comprehensive Guide
5 minute read
Southeast Asia offers a diverse and dynamic market for foreign investors, with two key players standing out: Singapore and Indonesia. These neighboring countries, though geographically close, present vastly different opportunities and challenges for businesses. In this comprehensive comparison, we will dive deep into the economic landscape, workforce composition, language, taxation policies, infrastructure, and more. By the end of this blog post, you will have a clear understanding of the benefits and drawbacks of doing business Singapore vs Indonesia, allowing you to make an informed decision on where to invest or expand your business.
Overview:
Economic Landscape
Understanding the fundamental differences in the economic landscapes of Singapore and Indonesia is vital when comparing the two. Singapore, ranked fourth in the world in terms of GDP per capita, is a highly-developed, trade-oriented economy focusing on innovation and human capital. On the other hand, Indonesia, an emerging market with a burgeoning economy, has a growing demand for infrastructure and is rich in natural resources. In this context, it’s important to consider the role of institutions like the World Bank in supporting the development of both countries.
Singapore has achieved great success in various industries such as:
Engineering
Manufacturing
Financial
Biotechnology
Its connectivity, business-friendly policies, and stable regulatory environment contribute to its attractiveness as the business gateway to Southeast Asia.
Indonesia has a progressive income tax rate of up to 30% for individuals living in the country or staying more than 183 days in a year. This rate applies to them regardless of their residency status. This highlights the need for foreign investors to carefully assess the implications of operating in Indonesia, especially in terms of taxation policies.
To sum up, businesses focusing on innovation and human capital may find Singapore’s highly-developed and trade-oriented economy appealing. In contrast, Indonesia is an emerging market with a growing economy and demand for infrastructure development, with abundant natural resources that may be more appealing to businesses dependent on them.
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Business Climate
The business climate in Singapore and Indonesia varies significantly. According to the World Bank’s Ease of Doing Business Index, Singapore ranks second globally, whereas Indonesia ranks 73rd. This disparity is primarily due to Singapore’s more favorable business environment, which attracts investors and traders.
One striking difference between the two countries is their legal systems. Indonesia follows one of the civil law systems as its basis for legal matters. In contrast, Singapore adopts the English Common Law system. This difference impacts various aspects of doing business, such as taxation policies. Businesses in Indonesia are required to make 52 tax payments annually, while businesses in Singapore only need to make five tax payments annually, making paying taxes in Singapore more convenient.
Summarizing, Singapore’s superior ranking in business climate over Indonesia is attributed to its business-friendly nature, favorable legal environment, and clear-cut taxation policies. While Indonesia has made significant improvements in recent years, it still lags behind Singapore in terms of business climate, which may impact foreign investors’ decisions on where to invest.
Workforce Composition
The workforce composition in Singapore and Indonesia also presents notable differences. Singapore, a leading global economy, has a smaller and older workforce with higher education levels and a higher percentage of tertiary-educated individuals. In contrast, Indonesia has a larger, younger workforce, but with lower education levels.
These workforce differences can impact businesses in various ways, depending on the nature of the industry and the skill sets required. For instance, businesses relying on a highly-educated workforce may find Singapore more attractive, while those requiring a larger labor force may find Indonesia more suitable. Foreign investors should evaluate the workforce composition in both countries before determining the ideal location for their business operations.
Language in the Business World
Language plays an essential role in the business world, and the primary languages used in Singapore and Indonesia differ significantly. English is the primary language used in business in Singapore, while business language Bahasa Indonesia is the official language in Indonesia, with English proficiency varying among the population.
Singapore’s strong English proficiency allows for smoother communication with foreign investors, making it an attractive destination for businesses that rely on international partnerships. In contrast, the varying levels of English proficiency in Indonesia might pose communication challenges for foreign investors, especially in regions outside major cities. Hence, businesses must take into account language barriers when weighing the potential of doing business in Singapore against Indonesia.
Setting Up a Company
Setting up a company in Singapore and Indonesia presents different challenges and requirements. Singapore has a simpler and quicker incorporation process with fewer restrictions. In contrast, starting a business in Indonesia is complex and time-consuming due to approval processes and foreign ownership restrictions.
In Singapore, the requirements for setting up a company include having at least one resident director and one shareholder. The most common type of corporate entity in Singapore is the Private Limited Company. On the other hand, in Indonesia, a foreign individual wishing to establish a business must obtain approval from the Indonesia Investment Coordinating Board (BKPM) and have a minimum paid-up capital of IDR 10 billion (approx. S$1 million). The foreign investment company (Penanaman Modal Asing) (PT PMA) is the most frequent vehicle for businesses in Indonesia. It provides a range of services and features to local investors.
To conclude, the simpler and less restrictive process of setting up a company in Singapore may be more attractive to foreign investors. Meanwhile, starting a business in Indonesia can be more complicated and time-consuming, making it essential for investors to carefully consider the potential challenges before making a decision.
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Taxation Policies
Singapore and Indonesia have different taxation policies that can significantly impact businesses operating in these countries. Singapore has a lower corporate tax rate of 17% compared to Indonesia’s 25%. Furthermore, Singapore offers more attractive tax exemptions and incentives for businesses, such as full tax exemption on the first S$100,000 of chargeable income for the first three years for newly incorporated companies.
In addition to the differences in corporate tax rates, the taxation policies in Singapore and Indonesia vary in terms of filing and compliance requirements, as discussed in the following subsection.
Filing and Compliance
Businesses in Singapore spend less time on tax-related tasks and have fewer filing requirements compared to businesses in Indonesia. Companies in Singapore are required to submit annual financial reports, including lodging an Annual Return (AR) with the Accounting and Corporate Regulatory Authority (ACRA) within one month of the Annual General Meeting (AGM).
Comparatively, businesses in Indonesia are required to make 52 tax payments annually, whereas businesses in Singapore are expected to make five tax payments annually. These differences in filing and compliance requirements can impact businesses’ operational efficiency and overall profitability in both countries.
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Immigration and Employment
Both Singapore and Indonesia have visa requirements for foreign workers, but the specific requirements and processes differ. In Singapore, foreign workers need an Employment Pass or EntrePass to work. The EntrePass is a visa for foreign entrepreneurs who wish to establish a business in Singapore. The minimum monthly salary for foreign professionals to apply for an Employment Pass in Singapore is S$3,600.
In Indonesia, foreign workers require a KITAS or KITAP for employment. A KITAS is a restricted stay permit for expatriates employed in Indonesia, while a KITAP is the permanent stay permit, which individuals become eligible for after holding a KITAS for three years.
In summary, both countries have business visa requirements for foreign workers, but the specific processes, requirements, and types of visas available vary between Singapore and Indonesia. This difference is important for foreign investors to consider when deciding on the best location for their business operations.
Infrastructure and Connectivity
Singapore has high-quality infrastructure and reliable internet connectivity, which can significantly impact businesses’ operational efficiency and profitability. The government of Singapore dedicates its resources to ensure a high caliber of workforce, extensive public transport for enhanced accessibility, and dependable internet connectivity.
On the other hand, Indonesia has abundant natural resources but faces challenges in infrastructure development and connectivity. The distribution of goods can be hampered by limited intercity roads, and access to certain areas can be limited due to a lack of dependable public transportation. Internet connectivity in Indonesia has seen a sharp increase, although it may be inconsistent based on one’s geographic location. Foreign investors should factor in these differences in infrastructure and connectivity when choosing the most suitable location for their business operations.
Transparency and Governance
Singapore is known for its transparency and low levels of corruption, which can positively impact businesses operating in the country. It is ranked fifth in Transparency International’s Corruption Perception Index, indicating a high level of transparency and low corruption. Additionally, Singapore is ranked ninth in the World Justice Project’s rule of law index.
When comparing Singapore vs Indonesia, it’s important to note that Indonesia is improving its transparency and governance but still lags behind Singapore in these areas. It scored 37 out of 100 on the Corruption Perceptions Index, and ranked sixty-first in the World Justice Project’s rule of law index. Foreign investors should consider these differences in transparency and governance as key factors when deciding between Singapore and Indonesia for their business operations.
Venture Capital and Government Support
Singapore has a strong venture capital scene and offers various government grants and schemes to support innovative companies. The government has implemented incentives to entice entrepreneurs and venture capitalists, including streamlining bureaucratic processes, safeguarding intellectual property, and allocating public funds for early investments. Moreover, Singapore provides financial assistance through co-funding initiatives for deep tech startups.
Conversely, Indonesia’s venture capital market is growing but still lags behind Singapore. The Indonesian government has provided incentives for venture capitalists investing in SMEs or startups related to tech. However, the overall venture capital environment and government support in Indonesia remain less developed compared to Singapore.
Cultural Considerations
Singapore has a diverse, bilingual population with strong English proficiency, making it easier for foreign investors to communicate and benefit from cultural and commercial ties. The country’s diverse culture, with Chinese, Malay, and Indian traditions coexisting, offers a rich environment for businesses to leverage cultural connections and opportunities.
In contrast, Indonesia has a more homogeneous population with varying levels of English proficiency. While the country’s cultural diversity and more than 300 ethnic groups present unique opportunities for businesses, the varying English proficiency levels may pose communication challenges for foreign investors, especially outside major cities. Grasping these cultural considerations is key for businesses to manage the complexities of conducting business in Singapore and Indonesia.
Conclusion
In this comprehensive comparison of doing business in Singapore vs Indonesia, we have explored the essential factors that foreign investors must consider, such as the economic landscape, workforce composition, language, taxation policies, infrastructure, transparency, and governance. Each country presents unique opportunities and challenges, but ultimately, the most suitable location for your business will depend on your industry, target market, and specific business needs. By considering these factors, you can make an informed decision that aligns with your business goals and paves the way for success in the dynamic and diverse Southeast Asian market.
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FAQs
Indonesia’s large economy and strong growth rate make it a promising location for businesses to invest in. With a large population and impressive GDP, it is a great place to do business.
Singapore is a highly developed and trade-oriented economy, while Indonesia has been classified as a newly industrialised one. Singapore’s development was achieved mainly through innovation and human capital, due to a lack of natural resources and small land area.
Overall, Singapore is undoubtedly richer than Indonesia due to its status as the 4th wealthiest country in the world by GDP per capita.
In Singapore, English is the main language of business, while in Indonesia Bahasa Indonesia is the official language, although English proficiency varies among citizens.
Singapore has a lower corporate tax rate of 17%, while Indonesia’s is 25%, making Singapore more attractive for businesses.
