Foreigners have found the thought of setting up a lifestyle business in Bali attractive for years.
However, the challenge is that by nature they are often not large-scale companies. This means that it’s difficult for a lifestyle business in Bali to follow the minimum capital requirements set up for foreign owned companies.
In this article we cover the main challenges of starting a lifestyle business in Bali and the solutions for the most common scenarios. We also show how you can live in Bali as a digital nomad and even hire local staff without having a company.
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Lifestyle business in Bali
Common activities of lifestyle businesses in Bali
Bali is a perfect to balance mindfulness with productive business and set life into perspective. Also, the living costs are relatively low. As per Nomadlist.com, about US$ 1,060 per month in Bali covers food, living, office, social and entertainment costs.
Here are some of the common business activities foreigners often conduct in Bali:
- Food and beverage related business (restaurants, workshops, cookbook launches etc.)
- Recreation and leisure activities (yoga, surfing, diving, golf)
- Clothing design and distribution
- Cosmetics import and sales
- Spiritual health, holistic and wellness services
See how others have made it in Bali – three entrepreneurs share their success stories:
Challenges of lifestyle businesses
Foreign owned limited liability companies (PT PMA) must follow the Indonesian Investment law which among other sets up the following minimum requirements:
- Investment plan of at least IDR 10 billion (~ $US 800,000)
- Minimum paid up capital IDR 2.5 billion
- Limitations to the maximum foreign ownership depending on the business classification (many limitations in hospitality)
Not enough revenue
Indonesian Investment Coordinating Board (BKPM) requires foreign owned companies to present an investment plan for at least IDR 10 billion (~ $US 800 000). Minimum 25% of the investment plan must be paid up as capital. For most lifestyle businesses in Bali it is not realistic to meet this criteria.
In addition, if setting up a foreign owned limited liability company (PT PMA) for several business classifications you must show how the company plans to earn the revenue equal to the amount of four times the investment, i.e IDR 40 billion within the first year of operation. Showing such realistic income plan is hard even for medium-sized companies and usually impossible for smaller lifestyle business.
One investment requirement per business classification
In Bali, there are several limitations on the business classifications that can be registered under one PT PMA.
For example, the manufacturing and distribution business cannot be registered under one PT PMA, and 2 separate entities must be registered. This is a serious challenge for lifestyle businesses where often many different small activities are run. Let´s say meanwhile you want to run a retail business, your wife would like to manage a yoga club.
In addition, even if some business classifications can be registered under one PT PMA, the minimum investment requirement IDR 10 billion is applicable per business classification. Hence, for registering 2 business classifications the total investment must be IDR 20 billion.
This affects companies in Bali regardless of whether their business activities are related to each other or not.
Alternative solutions to setting up a PT PMA
Unless your lifestyle business will require large scale investments there are better solutions for doing business on the island.
Nominee company is a company where the shares are pledged and you have the full control over the company through a set of agreements. The registered shareholders are Indonesian persons or entities.
The set of legal agreements makes nominee company a legal and safe way to have complete control over a company.
Since the nominee shareholders will be local entities your company does not have to follow the requirements set to large scale businesses.
Examples of industries where nominee companies are common:
- Restaurants and cafés
- Surf and diving centers
- Yoga studios
- Hospitality businesses
Using companies as nominee shareholders and proper set of agreements protecting your interests is a much safer way of collaboration rather than trusting local individuals to act as nominee shareholders having control over your company. That would be risky as they could walk away with your assets at any time, or difficulties arise if they die or divorce.
Read furthermore about the terms and setup of a nominee company in Indonesia.
Registering a PT PMA in one industry
PT PMA can conduct all business activities within the business field it got approval for. However from the perspective of a lifestyle business there are a few restrictions that shed a better light to a nominee company.
For example, the below business activities cannot be combined with others under one PT PMA. This means a separate PT PMA must be formed in following industries:
PT PMA suits well for foreign companies and investors looking for full or partial ownership in a company. Setting up this entity is most suitable for large scale companies where the field of industry is determined. Due to the high minimum capital requirement and the industry restriction as shown above, many foreign investors in Bali opt for a nominee company instead.
Common myths regarding doing business in Bali
Below is a collection of myths, some of what you may have heard as well. We have gathered this list based on the numerous discussions we had with our clients in Bali.
1# Foreigner cannot be a director of a local company
Indonesian laws do not prohibit foreigners to be directors of the local company. Local company must have a local director but in addition to local director, the local company may also have a foreign director if certain conditions have been fulfilled.
2# Local companies cannot issue work permits to foreigners
The ability to issue work permits depends on the size of capital of the company.
3# Local companies pay less taxes
The taxes are same for locally owned and foreign owned limited liability companies.
4# Having a local partner makes company registration process faster
Having a local partner does not have any effect on the duration of the company registration process. As long as there is at least one foreign shareholder the company is considered as a foreign owned company, and the requirements for foreign owned companies apply.
5# Local PT and PT PMA can only issue a limited number of work permits to foreigners
Foreign directors and commissioners will get 12 month work permits in Indonesia regardless of the ownership structure of the company. For other positions, the company needs to demonstrate that the position cannot be filled by a local person and the term of the working permit is discretion of the immigration, and the minimum validity of the work and stay permit is 6 months.
A digital nomad in Bali
Digital nomads or location independent expats are a common sight 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.
Staying in Bali
A list of countries are allowed to have their citizens travel to Bali with visa exemption for 30 days. If you plan to stay longer you have a choice between the following visas:
- Social Visa
- Business Visa
Visa-related paperwork may sometimes seem extensive for foreigners. Emerhub handles requests for visa and work permits daily and can assist with obtaining and extending the above visas in a timely manner.
Social visa is given for following purposes:
- The visit of a family member or relative in Indonesia
- The visit of a social organisation in the same field you are operating in
- Exchange visits for training and education purposes in Indonesia
- Lecturing, joining a non-commercial conference or seminar in a social or governmental field
Social visa is valid for 60 days upon entry. This visa can be extended: four 30-day extensions with the total maximum stay of six months.
To apply for a social visa, a sponsor letter is necessary from an Indonesian sponsor, such as Emerhub.
The key limitations of a social visa are that you need to extend it every month and it is cancelled once you leave the country.
The purposes of business visa are the following:
- Discussing matters of trade transactions
- On spot observation and discussions on trade terms (import-export business)
- A business activity where a person is not engaged as an employee
- Attending to international shows and exhibitions
- Attending meetings by a head office or representative in Indonesia
- Discussing with Indonesian enterprises over capital or commodity production by overseas enterprise
- Investigating commercial possibilities of capital investment with possible partners in Indonesia
- A journalistic visit
- To make a film for non-commercial purposes
A multiple entry business visa is issued for one year and allows to stay in the country for 60 days per visit. You can then re-enter Indonesia with the same visa unlimited times.
The key decision therefore is – do you plan to only stay in Indonesia or do you also plan to visit other countries during your stay? If the former then get the social visa, if the latter then go for the business visa.
Representative Office and KITAS
If you want to have legal presence in Indonesia but don’t need to earn revenue locally then one of the simplest ways is opening a representative office.
A representative office represents a foreign company in Indonesia but does not undertake commercial activities.
Similarly to a PT PMA, a representative office can apply for limited stay permits (KITAS) for its foreign executives. This means you will be able to legally stay and work in Indonesia and also hire local and foreign staff.
Hiring locals without company
Growing out from an independent digital nomad into a entrepreneur with a team, finding qualified laborers can be a challenge. However one of the simplest ways to hire a local team is using staff augmentation service.
No legal presence is required with staff augmentation and you don’t need to worry about employment law. All of it is taken care of by Emerhub.
This service is commonly used for:
- Conducting market research
- Selling products
- Finding and meeting suppliers or distributors
- Hiring local engineers and other experts
Read the full article on staff augmentation service model.
We look forward to hearing more about your plans in Bali. Reach out to our consultants by leaving your contacts and questions below or get a an answer to your request here.