Entrepreneurs can open a sole trader in Indonesia when they plan on operating a small business that will be run by a single individual. The sole trader, referred to as the UD in some cases (from its Indonesian name, Usaha Dagang), is the simplest business form that can be used for trading in this country. Our team that deals with company formation in Indonesia can also help you set up a sole trader here.
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Sole trader characteristics
The soler trader (Usaha Dagang, which can literally translate to commercial business or trading business) is an individual business structure, used by an entrepreneur who will be working in his or her own name.
Opening a sole trader can be an alternative to the decision to set up a company in Indonesia, which can involve different and often higher costs. As a simpler business structure, the sole trader offers some advantages. However, those who open a sole trader in Indonesia should be aware that:
- The sole trader is not a legal entity: it does not have legal capacity and does not enter into agreements in its own name, as a limited liability company would;
- The business and the individual are not separate: the assets of the business belong to the individual;
- Directly related to the point above, the owner of the Indonesian sole trader is personally liable for the debts and obligations of his/her business;
- There is no minimum capital requirement and the overall operational costs are lower than in the case of a limited liability company.
Understanding the characteristics of the UD is essential before starting the process required to open a sole trader in Indonesia. Upon request, our lawyers in Indonesia can give you more information about the laws that govern individual trading businesses, among which are the Indonesian Commercial Law and the Civil Code.
Key steps required to open a sole trader in Indonesia
Below, our team specializing in company incorporation in Indonesia presents the main steps required to set up an individual business:
- Check your eligibility: the owner of the sole trader must be an adult and, in the case of foreign entrepreneurs, must hold a valid residence permit in Indonesia;
- Prepare the documents: the setup phase is simpler compared to that of creating a corporation, however, the aspiring business owner must prepare his/her identity documents, proof of business address, and taxpayer number;
- Register: the sole trader is not registered in the sense that a company would be, however, it does receive a tax number for its commercial activities;
- License: depending on the activities that will be undertaken by the sole trader, additional operational licenses may be required. Our team can give you more details about the industries in which special permits and licenses are required.
Sole trader taxation
Once entrepreneurs open a sole trader in Indonesia, they will be required to meet the ongoing tax and compliance requirements. These are simpler than in the case of a corporation, however, tax payments and record-keeping are mandatory. Some of the taxes include:
- Personal income tax with rates varying from 5% to 35%, depending on the taxable income;
- Value-added tax with a standard rate of 12% (for taxable transactions and subject to a registration threshold).
The sole trader is not automatically registered for social security contribitions, however, voluntary payments for the healthcare and the manpower schemes are possible. Examples include a minimum 0.24% of the employee’s salary for work accident protection when the sole trader hires staff.
Contact our team, which can help you with company formation in Indonesia if you are interested in knowing more about the simplest business form under which you can engage in economic activities in the country.