Financial Crime World

Indonesia’s Compliance Regulations for Financial Institutions: A Guide for Foreign Investors

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Foreign investors in Indonesia need to be aware of the country’s complex regulatory landscape when it comes to auditing and compliance. Unlike many other countries, there is no single unifying regulation on auditing and compliance in Indonesia, instead, regulations are stipulated across several laws and bylaws.

Key Auditing and Compliance Requirements

Investment Law

  • Implement good corporate governance
  • Undertake corporate social responsibility activities
  • Comply with labor laws
  • Submit quarterly investment activities to the Investment Coordinating Board (BKPM)
  • Honor cultural traditions of communities

Company Law

  • Limited liability companies must have their financial statements audited by a public accountant registered in Indonesia if they meet certain criteria, including:
    • Having assets exceeding 50 billion rupiah (approximately US$3.36 million)
    • Being a public company
    • Issuing debt instruments
    • Collecting or managing public funds

Financial Institutions

  • Keep accounting records and books for at least 10 years from the end of their reporting period

Public Companies

Listing on Stock Exchange

  • Foreign companies are allowed to be listed on Indonesia’s stock exchange under the Capital Markets Law, but their prospectus must first be audited by an auditing firm recognized by the Financial Services Authority (OJK)
  • Annual financial statements must be submitted to the OJK and announced publicly within three months of the end of the reporting period

Internal Audit Requirements

  • Establish internal audit committees
  • Establish internal audit units
  • Appoint company secretaries
  • The audit committee supports the board of commissioners to ensure the effectiveness and integrity of a company’s financial statements and internal controls

Auditor Independence

  • Indonesian Auditing Standards require auditors to be registered and independent public accountants as stipulated by the Ministry of Finance (MOF)
  • Avoid conflicts of interest and adhere to MOF regulations
  • The Indonesia Financial Services Authority also mandates the rotation of public accountants every three years with a two-year cooling period

Fiscal Year

Annual Deadline for Reporting and Paying Corporate Income Tax

  • April 30, unless a company’s fiscal year differs from the calendar year, in which case the deadline is four months after the end of its fiscal year

Accounting Standards

  • Audits are conducted based on Indonesian Financial Accounting Standards (SAK), which have converged with International Financial Reporting Standards (IFRS) since 2015
  • The DSAK IAI has been harmonizing SAK with IFRS, focusing on closing the gap between Indonesia’s adoption status and the most up-to-date international standards

Annual Reports

Submission Requirements

  • All registered companies must submit their annual financial statements to a regional tax office once a year
  • Financial statements include:
    • Balance sheets
    • Cash flows
    • Profit and loss statements
    • Statements of changes in equity

Penalties for Non-Compliance

  • Companies that fail to comply with Indonesia’s audit and tax requirements can expect to receive monthly interest penalties starting from two percent up to 48 percent
  • Issuing false tax and accounting documents can also result in imprisonment

For foreign investors looking to establish a presence in Indonesia, understanding the country’s complex regulatory landscape is crucial for success. Dezan Shira & Associates is well-versed in assisting foreign investors navigate these regulations and can provide tailored guidance on auditing and compliance requirements. Contact us at [insert contact information].