How to set up as an independent contractor in Indonesia

If you’ve decided to start making a living on your own terms, then Indonesia is an ideal location to set up as an independent contractor.

Nestled between the Indian and Pacific oceans, this diverse, highly populated country is — by some distance — the most powerful economy in Southeast Asia.

It’s also a perfect spot to balance work and lifestyle; with over 17,000 islands to explore, you certainly won’t get bored.

Before you can start your self-employment journey, though, you’ll need to know how to:

• Register your business in Indonesia

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some other risks and liabilities you should be aware of.

First, it’s important to clarify how Indonesia defines independent contractors.

What is an independent contractor according to Indonesian law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently from employees and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

As in most countries, Indonesia does not define the difference between employees and independent contractors in law. Instead, the distinction is made based on the nature of the working relationship, and the degree of control exercised by the client/employer.

Based on these guidelines, and the definitions of employment in Indonesian law, you are generally considered to be an independent contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into one specific company and its operations (i.e. you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines and to ensure that you are paying the right taxes.

Business registration in Indonesia

Before you can begin working as an independent contractor in Indonesia, you’ll first need to choose a formal structure for your business.

The most popular model for sole owners is a sole proprietorship (usaha dagang, or UD). In this structure, you have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

If you want more legal protection, you’re working with other partners, or you anticipate generating a large amount of revenue, you can also incorporate a limited company or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.

When you opt for the sole proprietor model, the registration requirements are broad. You will need to acquire a business permit (Izin Domisili Usaha) from your local government (kelurahan) office, and then obtain:

• a trading license (known as a SIUP);

• a company registration certificate (known as a TDP); and

• a tax ID number (known as a NPWP), if you don’t already have one.

Note that your trading license is tied to your proposed business activities. If you plan to work in a regulated trade or profession, you will need to provide the relevant qualifications and authorization to practice.

How do I get paid as an independent contractor in Indonesia?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be quick, but often come with hefty service fees. And if you have clients in other countries besides Indonesia, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Indonesian rupiahs — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in Indonesia

As an independent contractor, you’re responsible for filing and paying your own taxes and social security contributions.

The good news is that, as a sole proprietor, you pay personal income tax on your business profits (using your personal tax number). This means that you do not have to fill out extra returns or pay additional corporate taxes.

Like most countries, Indonesia has a progressive income tax rate system. You can expect to pay anywhere between 5% and 35%, depending on your level of income.

Currently, self-employed people are not required to make health insurance and social security contributions. However, you can make voluntary contributions to both state agencies if you wish to be covered.

On the plus side, you can claim tax deductions on almost all your business expenses.

The tax administration process can be complex for sole proprietors. Your annual tax return must be filed by the end of March each year (this can be done online), and payments must be made through a designated bank to the State Treasury. However, depending on your business activity, you may need to follow a different process. As a result, it’s highly recommended to consult a qualified accountant or tax specialist when setting up your business.

VAT information for independent contractors in Indonesia

If your taxable income exceeds Rp 4.8 billion, you will need to register for — and charge your clients — VAT. 

The standard VAT rate in Indonesia is 11%, although some goods and services may be exempt. Note that the Indonesian government has the power to adjust this rate between 5% and 15%.

Liability considerations for independent contractors in Indonesia

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Indonesian and international clients.

Accounting requirements for independent contractors in Indonesia

As a sole proprietor, you should keep organized, accurate records of all your income and expenditure (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Indonesia

As we’ve mentioned, independent contractors are classified differently from employees in Indonesia. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time, and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Indonesia?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Indonesian law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Indonesian rupiahs (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Indonesian laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Indonesia

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Indonesian and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.