How to set up as an independent contractor in Indonesia

Nestled between the Indian and Pacific oceans, Indonesia is a diverse, highly populated country that holds — by some distance — the most powerful economy in Southeast Asia. If you’ve decided to start making a living on your own terms, then it’s an ideal location to set up as an independent contractor.

Not only that, but Indonesia’s also a perfect spot to balance your work and personal life; 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, create compliant contracts that protect you, and collect payments from around the world. In this article, we cover all these things and help you navigate your tax responsibilities as a self-employed worker.

What is an independent contractor according to Indonesian law?

Independent contractors are workers who provide paid services (or products) to another party. In Indonesia, they can also be called self-employed workers or consultants. However, they are classified differently from employees and are usually not entitled to the same employee 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.

As in most countries, Indonesia does not define the difference between permanent 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.

What type of employment contract do independent contractors in Indonesia use?

Independent contractors in Indonesia typically work under a Fixed-Term Employment Agreement, or Perjanjian Kerja Waktu Tertentu (PKWT). If you use this type of agreement, you typically can’t work more than 21 days per month; otherwise, you become a permanent employee.

PKWT contracts are valid for a maximum of five years or until the work is completed. If you and your client(s) agree to a time frame, you can extend these contracts for longer than the maximum but not beyond an additional five years. Either way, your client(s) must pay you by the time the deadline indicated in your contract is reached.

Although you can make English copies of your PKWT contract, the original must be written in Indonesian. If it’s only signed in English, then it’s counted as a different type of contract (a PKWTT, which is a contract for full-time employees).

Once it’s signed, you need to register your independent contractor agreement at the Indonesian Ministry of Manpower (also known as the Ministry of Labour or Kementerian Ketenagakerjaan locally) within three days. This is the division of the Indonesian government that regulates contracts and labor laws.

Here are a few items your PKWT contract should include:

• Independent contractor information

• Company information

• Details about the role

• Compensation expectations

• Workers’ rights and responsibilities

• Time frame

• Policies around termination

• Contract type specification (PKWT)

• Contractor and company signatures

According to Indonesian law, a PKWT can be terminated in the following scenarios:

• When the work is completed

• When the time frame stated in the contract is up

• If the worker dies

• If a ruling from the Indonesian Industrial Relations Court (PHI) terminates the contract

• If the company shuts down due to a force majeure (e.g., a natural disaster)

In general, employees cannot be terminated without cause in Indonesia. Typically, a court ruling is needed to end an employment contract before the terms are complete. Probationary periods are not allowed under a PKWT.

It’s also possible to make an oral agreement to work for an unspecified period of time. In this case, the company must issue a surat pengangkatan (letter of appointment) to the contractor under Indonesian law. This document should include the following:

• The name and address of the contractor

• The date the contractor begins work

• The contractor’s role

• Compensation details

When hammering out the details of any employment contract, it’s worth hiring a professional to make sure your document is complete and legal. Especially if you don’t speak Indonesian, you may want the assistance of someone who does. Remote can help. Our in-country experts can help you build compliant contract templates for quick, easy client onboarding.

Business registration in Indonesia

When figuring out how to become a freelancer 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. Sole proprietors typically don’t get health insurance like employees do.

There are two types of sole proprietorships in Indonesia. It’s important to pick the one that’s right for the type of work you do.

• Licensed: Choose this option if you have an operational permit from a technical department, such as a license that allows you to engage in trading.

• Unlicensed: This type is best for individual businesses like vendors and shops, where a license isn’t needed to run the operation.

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.

What do I need to work as an independent contractor in Indonesia?

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

• 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.

You also need to submit a Statement of Establishment to the Ministry of Law and Human Rights, which should include the following in Indonesian:

• Contractor name

• Location of residence

• How long your business will exist

• Your business objectives

• Capital information for your business

• The value of your business

• A trademarked name for your business

What do I need if I’m not an Indonesian citizen?

If you’re not an Indonesian citizen, you need a visa to work in the country. Before applying for one, you typically need a sponsor — so it’s a good idea to already have a job before setting up your business.

However, it can be difficult to find a sponsor as an independent contractor in Indonesia, and you may need to adjust your visa for each contract you receive. Instead, you can choose to work under an umbrella company. These businesses act as your employer, taking on many of the administrative responsibilities while allowing you to function as an independent contractor. If you use an umbrella company, you likely won’t need to adjust your visa for each client you work for.

If you go through the process of applying for a work visa yourself, however, you also need to secure a Kartu Izin Tinggal Terbatas (KITAS), which is a residence permit card that lets you stay in the country temporarily. You can apply for this at the same time as you apply for your work visa.

To get a KITAS, you need to gather the following:

• Passport

• Picture

• Complete application

• Limited Stay Visa Authorization Letter from the Indonesian Directorate General of Immigration (your sponsor must submit this request for you)

Different types of KITASs have varying limits on how long you can stay in Indonesia. Some allow five or 10 years, while others only last for two. Other documents needed to work in the country include the following:

• Expatriate Placement Plan, or Rencana Penempatan Tenaga Kerja Asing (RPTKA): This is needed for the Indonesian government to approve your hire. To get it, your sponsor must submit a letter explaining why they’re hiring you instead of an Indonesian citizen.

• Work permit, or Izin Mempekerjakan Tenaga Kerja Asing (IMTA): This is also granted by the Ministry of Manpower. To get it, you need a certificate showing that you have at least five years of work experience relevant to your role.

• Limited Stay Visa, or Visa Izin Tinggal Terbatas (VITAS): This is the work visa that your sponsor applies for. As is the case in many countries, you’re not allowed to work on a tourist visa in Indonesia.

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

As an independent contractor, it’s up 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 expenditures (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 employment 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, approval, and payment 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.

Set up as an independent contractor in Indonesia today

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 become an independent contractor in Indonesia. Speak to one of our in-house experts to start saving time and resources today.